Home Capital says account balance halves, bolsters board

Mon May 8, 2017 12:11pm EDT
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By John Benny and John Tilak

(Reuters) - Canada's Home Capital Group Inc (HCG.TO: Quote) estimated on Monday that the balance in its high-interest savings accounts (HISA) halved in the past week and said it had suspended its dividend and tapped its C$2 billion ($1.5 billion) credit line for the second time.

Canada's biggest non-bank lender also said it hired three well-regarded Bay Street professionals as new directors to its board and named a new chairwoman as it continues its management overhaul in an effort to win back investor confidence.

Home Capital has become a rare Canadian financial institution to face a run on its deposits and its troubles come at a time when the Canada's biggest province Ontario has taken a series of measures to cool its red-hot housing market. Canadian banks have enjoyed stellar reputation and they dodged the global financial crisis by avoiding risky mortgages that sparked the collapse of many U.S. financial institutions.

After falling as much as 13.5 percent in early trade, Home Capital shares turned positive to trade up 2.9 percent at C$6.02. The stock is still down more than 80 percent since the end of March when CEO Martin Reid stepped down.

Home Capital said it hired Claude Lamoureux, Paul Haggis and Sharon Sallows as directors to its board, effective immediately. Brenda Eprile, who joined the board as an independent director in 2016, will replace Kevin Smith as chair.

Lamoureux and Haggis are former chief executives of Ontario Teachers' Pension Plan and Ontario Municipal Employees Retirement System, respectively, two of the country's biggest pension funds.

"They're obviously putting some pretty high-profile, highly respected people on the board," said David Anderson, CEO of advisory firm Anderson Governance Group. "For those people to agree, they must believe that the underlying business and the business model are sound and that they can see a way through this turmoil," he added, acknowledging this was still "a very high-risk situation".

The fear of contagion hit Canadian bank stocks in the past two weeks and forced rival subprime lender Equitable Group (EQB.TO: Quote) to line up a C$2 billion credit facility. The banking sub-index .SPTTFS has dropped about 3 percent in the past two weeks.   Continued...

FILE PHOTO: The entry to the Home Capital Group's headquarters is seen at an office tower in the financial district of Toronto, Ontario, Canada on May 1, 2017.  REUTERS/Chris Helgren/File Photo