Weeks after near-collapse, Home Capital plants seeds of recovery

Thu Jun 15, 2017 5:20pm EDT
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By Matt Scuffham and John Tilak

TORONTO (Reuters) - After its near-collapse seven weeks ago, Canadian lender Home Capital Group Inc (HCG.TO: Quote) is taking steps toward recovery by agreeing to settle a regulatory investigation and lining up new funding.

The company plays an important role in Canada's mortgage market, lending to borrowers who cannot get loans from the country's biggest banks, such as self-employed workers and new immigrants.

Canada's biggest non-bank lender must still overcome hurdles, though, including finding a permanent chief executive, rebuilding relationships with brokers, and winning back the support of depositors and borrowers.

On Wednesday the company reached a C$30.5 million ($22.3 million) settlement with the Ontario Securities Commission (OSC), settled a class action lawsuit, and accepted responsibility for misleading investors about problems with its mortgage underwriting procedures.

The settlement is expected to help secure long-term financing at sustainable interest rates, investors and analysts said, after Home Capital's board was bolstered by former Ontario Teachers Pension Plan head Claude Lamoureux and Alan Hibben, a former head of strategy at Royal Bank of Canada (RY.TO: Quote).

"This is a signal that the new board has taken control," said Hari Panday, chief executive of investment banking firm PanVest Capital Corp. "They've decided they want the focus to be running the business and not fighting the regulators. The OSC (probe) was a huge hangover."

Depositors have withdrawn 95 percent of funds from Home Capital's high interest savings accounts since March 27, when the company terminated the employment of former Chief Executive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 company is still searching for Reid's successor as well as a permanent chief financial officer.

The withdrawals accelerated after April 19, when the OSC, Canada's biggest securities regulator, accused Home Capital of making misleading statements to investors about its mortgage underwriting business.   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