The Ontario Securities Commission has dropped the hammer on it.

Depositors are running for the exits ($591 million worth of its savings accounts were cashed in between March 28 to April 24, with more to come).

The company has been downgraded by DBRS to non-investment grade.

And most of its former top leadership have been shown the door.

Here’s a summary of the gory details from Bloomberg.

Home Capital stock closed today at $5.99, down 65% on the day and 84% from last May.

There’s now speculation in the media that OSFI, the banking regulator, will wind the company down or force a sale. It’s important to note that’s pure speculation until proven otherwise. No one can count it out just yet.

Apart from its banking licence, the company does have things going for it that could attract potential partners, namely:

  • It originates highly profitable non-prime mortgages as well as anyone in this country
  • It’s had a record spring (so we hear) with respect to non-prime volumes
  • The default metrics of its mortgages, even those in the fraud pile, outperform industry averages
  • Home Capital’s remaining staff, at least the ones we know, are good honest people
  • Personnel who were connected to the reported fraud will be long gone 
  • It has long-standing institutional ties (e.g., RBC and other reputable names have referred a significant amount of non-prime business to Home. Institutions have continued funding its loans, even after the fraud was uncovered).
  • Non-prime is its core business and non-prime borrowers are often just happy to get a mortgage at all, regardless of who it’s from (albeit depositors don’t have the same degree of understanding).

Here’s what’s not going for it:

  • A reputation-crushing OSC investigation (the company maintains its innocence; the first hearing is May 4)
  • A run on deposits
  • A cost of funds that just hit double-digits (at least for the short-term)
  • Unquantifiable litigation
  • Broker perception (a material percentage of brokers may no longer refer it business)

Turning this company around will require:

  • Immediate action (hours count at this point)
  • Regulators’ cooperation (recall that OSFI gave Home a bank licence just 19 months ago, so unless they feel the situation is hopeless they’ll probably do what they can to help keep it a going concern)
  • A new brand name, most likely
  • More top executive and board departures
  • New and highly-regarded leadership
  • Committed incentived funding partners with deeeeeep pockets (did I say deep?).

It won’t take long to get more clarity on Home’s viability. Expect a series of major announcements from the company, and perhaps regulators, in the next few days and weeks.