There’s going to be a lot of Home Capital Group (HCG) announcements as this story unfolds in coming days. We’ll track them here…

Update #7: April 28, 3:35 P.M.

  • Equitable Group shares are down 16% following a 50 bps hike in its deposit rates.
  • Former Home Capital director Jim Keohane was on BNN today. Good on him for having the guts to speak publicly. His comments did much to assuage fears about an imminent demise of the company. Here’s some of what he said:
    • His fund’s investment was not a “high-risk” investment because it was overcollateralized by high-quality mortgages (effectively 2.8 times coverage for each dollar HOOPP lent, which makes fear mongering like that from ZeroHedge seem absurd)
    • The loan was intended to “keep the doors open” at Home and “prevent a liquidation of the company.”
    • “There’s a possibility it could continue as a going concern” and not be sold off, he said
    • Keohane was asked if Home would have folded in a few days had HOOPP not made that loan. His response was, “probably not” but it was a “cushion to protect that from happening.”
    • Keohane was not in a conflict of interest, he says, because he recused himself from all decision-making with respect to the deal.
    • Most of the fraud-related mortgages have already “rolled off the books” at Home and no longer present a default risk to the company.

Update #6: April 28, 10:55 A.M.

  • $291 million worth of depositors fled yesterday
    • Here’s Home’s release about it. If management is smart, it’ll keep making frequent disclosures of its status (like this) to win back some degree of investor confidence.
  • The stock is down 2% to $7.86 as of this writing
  • “We’re getting close to seeing action by the regulator.”—Veritas Investment Research analyst Mike Rizvanovic  (via Globe and Mail)
  • Former Home Capital director Jim Keohane will be on BNN at 2 p.m. ET. Investors will be watching his every word for clues about Home’s fate. It’s possible we won’t hear from Home’s CEO or Chair unless they’ve got a solid plan to stabilize the company.
  • On an editorial note, we will not keep chronicling Home’s deposit situation or stock performance going forward unless it changes materially. Suffice it to say, no one’s going to be surprised if the company sheds more high-interest deposits near-term, but the pace is slowing. Its all-important GICs have been much stickier, however, remaining near $13 billion.

Update #5: April 27, 10:35 P.M.

  • Due to media speculation, HOOPP has issued a press release on its loan to Home.
  • Director Jim Keohane has resigned from Home’s board after the fund he manages provided a $2-billion loan to the embattled company. (More from the Financial Post)
  • S&P downgraded Home Capital’s credit rating to junk status (B+).
  • Veritas Investment Research analyst Mike Rizvanovic estimates that its emergency credit facility “at best gives Home Capital a one- to two-month stopgap.” (src: Globe and Mail) You can bet Home’s fate will be clear well before 60 days. 

Update #4: April 27, 4:55 P.M.

  • The company’s shares rallied hard in the last hour, closing up 34% on the day. There was a constant bid with no material pullbacks, which doesn’t happen by accident (a lot of short covering, a lot of speculative buys and perhaps some strategic buys from well-informed parties).
  • “Over the past week..short bets turned out to be very profitable, but ironically for different reasons than most short-sellers anticipated. And their actions likely contributed to the current bank run.”—Michael McCloskey, founder GreensKeeper Asset Management (via Globe and Mail [sub.])
  • “As rough as the past few days have been, we are very focused on getting this company back on track and doing everything we can to make that happen.”—Chairman, Kevin Smith (via Reuters).
  • Bad loans account for just 0.24% of Home’s loan book, reports Reuters, down from 0.34% a year earlier.

Update #3: April 27, 3:40 P.M.

  • In an email today to brokers, Home Trust EVP, Pino Decina stated: “Home Trust has weathered difficult times during its 30-year history, and has always risen above…We are taking the necessary steps to deal with this situation…If your client has a mortgage with us, rest assured nothing has changed.”
  • Home’s apparent funder has a conflict, says law professor: “HOOPP President and Chief Executive Officer Jim Keohane sits on Home Capital’s board and is a shareholder of the mortgage lender.” (More from Bloomberg)
  • Home Capital’s stock has made a new high on the day (an important short-term positive that suggests the balance of investors aren’t giving up on the company and/or think it will be successfully sold).

Update #2: April 27, 1:05 P.M.

  • Bank analyst: “We now assume that Home Capital will not be able to access sufficient deposit funding going forward, and the company will likely move into liquidation mode.” (This same analyst simultaneously raised his rating of HCG from hold to speculative buy.)
  • “We think [a sale] is at a substantial premium to current levels. We believe HCG’s book may be attractive to several banks that could run the business with materially lower funding costs, particularly if they have regulatory support for the deal.”—GMP Securities analyst Stephen Boland (via Bloomberg)
  • HCG is expected to axe its dividend to preserve cash flow.

Update #1: April 27, 11:00 A.M.

  • A sale seems increasingly likely. HCG has retained RBC Capital Markets and BMO Capital Markets “to advise on further financing and strategic options.”
  • Its high interest savings deposits are reportedly down to roughly $814 million versus ~$2 billion last month, a roughly $600-million outflow of depositors in the last few days
  • The company now says it has a firm $3.5-billion in current liquidity and $12.98-billion in outstanding GICs.
  • Healthcare of Ontario Pension Plan is reportedly the emergency lender that gave Home a liquidity lifeline yesterday.
  • The stock (symbol: HCG-TSX) has rebounded 13% to $6.99 (too early to call it a dead cat bounce).
  • Amid all the downgrades, a few analysts have raised their ratings of Home’s stock to “buy” and “outperform.”
  • Big banks are reportedly limiting client investments in Home GIC’s to $100,000, CDIC’s insurance limit.

Quotes:

  • “We have a hard time viewing the challenges (Home Capital) is facing as a systemic event, particularly since there is no indication of credit deterioration in the mortgage portfolio of (the company)…With the market cap of HCG having dropped to ~$400m we are skeptical that any of the banks will step up as a buyer of the company. At this stage of the HCG fallout a purchase of the underlying loan book would be a more straight-forward process than an acquisition of the common equity.”—Scotiabank (via BNN)