Home Capital withdrawals continue but at slower rate

Wed May 10, 2017 4:31pm EDT
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By Matt Scuffham

(Reuters) - Canada's biggest non-bank lender Home Capital Group Inc (HCG.TO: Quote) on Wednesday published data showing depositors were continuing to withdraw funds, albeit at a slower rate than before.

Home Capital said its high-interest savings deposits were expected to have fallen to about C$134 million ($98 million)following the completion of Tuesday's settlements, compared with a balance of C$146 million the day before and C$192 million after the settlement of Friday's transactions.

The withdrawals accelerated after April 19, when Canada's biggest securities regulator, the Ontario Securities Commission, accused Home Capital of making misleading statements to investors about its mortgage underwriting business. The company has said the accusations are without merit.

Home Capital relies on deposits from savers to fund its lending to borrowers, such as self-employed workers or newcomers to Canada, who may not meet the strict criteria of the country's biggest banks. Its problems have coincided with the introduction of measures to cool Toronto's red-hot housing market, including a tax on speculative buyers, and sparked worries it could trigger a broader housing market collapse.

Depositors have withdrawn more than 90 percent of funds from Home Capital's high-interest savings accounts since March 27, when the company terminated the employment of former Chief Executive Martin Reid.

The lender said on Tuesday that an unnamed buyer intends to purchase up to C$1.5 billion ($1.1 billion) worth of its mortgages. It also said it will in future focus on originating mortgages to sell, rather than holding them on its balance sheet and funding them through deposits. The changes will result in lower mortgage balances, increased costs and reduced profitability, it warned.

On Wednesday, the Globe and Mail newspaper said unlisted Canadian mortgage lender MCAP Corp was the buyer of the C$1.5 billion home loan portfolio, citing unnamed sources. It also said that CIBC Asset Management bought a 15.1-percent stake in Home Capital, making it the single largest shareholder of the company.

Home Capital declined to comment on the report, while CIBC Asset Management did not offer an immediate comment. MCAP could not be reached for comment.   Continued...

FILE PHOTO: The entry to the Home Capital Group's headquarters are seen in an office tower in the financial district of Toronto, Ontario, Canada, April 26, 2017.  REUTERS/Chris Helgren