August 2, 2017 / 11:55 PM / 2 years ago

Home Capital posts loss, says concerns about future resolved

TORONTO (Reuters) - Home Capital Group reported a bigger-than-expected second-quarter loss on Wednesday but said issues relating to its ability to continue as a going concern had been resolved.

The entry to the Home Capital Group's headquarters is seen at an office tower in the financial district of Toronto, Ontario, Canada May 1, 2017. Picture taken using a wide angle lens. REUTERS/Chris Helgren

Canada’s biggest non-bank lender reported a loss of C$1.73 per share for the second quarter. That compared with analysts’ expectations of C$1.14 a share, according to Thomson Reuters I/B/E/S data.

Home Capital secured an equity injection and a C$2 billion ($1.6 billion) line of credit from Warren Buffett’s Berkshire Hathaway in June. Berkshire Hathaway currently holds a 20 percent stake in the business and will increase that to 38 percent if Home Capital shareholders approve an agreement for it to do so next month.

In announcing its results for the latest quarter, the company said its business plan and cash flow forecasts suggested that current liquidity and credit facilities were sufficient to support its ongoing business for the foreseeable future.

“Management has concluded that there is no longer material uncertainty that casts significant doubt as to the ability of the company to continue as a going concern,” it said in a statement alongside the results.

Home Capital warned in June that it expected to record a loss in the second quarter due to costs related to its efforts to shore up liquidity after investors withdrew more than 90 percent of funds from its high interest savings accounts.

The withdrawals began when the company terminated the employment of former Chief Executive Martin Reid on March 27 and accelerated after April 19, when Canada’s biggest securities regulator, the Ontario Securities Commission (OSC), accused Home Capital of making misleading statements to investors about its mortgage underwriting business.

Home Capital reached a settlement with the OSC in June and accepted responsibility for misleading investors about mortgage underwriting problems.

It has also sold some assets, enabling it to pay off the C$900 million it had outstanding on the Berkshire Hathaway facility last month.

The company said it had C$3.94 billion in available liquidity and credit capacity as of Aug. 1 including the now undrawn C$2 billion from Berkshire Hathaway.

Its high interest savings account and Guaranteed Investment Certificate deposits, two key sources of funding, had both increased since it last reported on its funding and liquidity position on July 14.

The company appointed Yousry Bissada as its new chief executive in July, tasking the mortgage industry veteran with leading its recovery.

Reporting by Matt Scuffham; Editing by Tom Brown, Bernard Orr

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