Home Capital hires bankers as deposits slump

[TORONTO] Canadian alternative lender Home Capital Group Inc said on Thursday that it has hired bankers to help it secure additional funding and size up its strategic options, as it reported a further sharp decline in its assets.

The company said that it had liquid assets of C$1.3 billion (S$1.33 billion) as of April 25, compared with C$1.5 billion the day before, as investors pulled out of both high-interest savings accounts and the less-liquid guaranteed investment certificates.

It said it had secured a high-interest C$2 billion credit line from "a major Canadian institutional investor" and had hired RBC Capital Markets and BMO Capital Markets "to advise on further financing and strategic options." Several of the lender's current and former executives are the focus of Ontario Securities Commission allegations they misled investors by failing to meet disclosure obligations relating to the termination of broker partners found engaging in fraud.

The company's shares had plunged more than 60 per cent on Wednesday, when the company first said it was close to a deal for the cash lifeline. They recovered some of those losses in early trade on Thursday, up 16.9 per cent at C$7. "I would say the hiring of the investment banks to look at 'strategic options' probably means that a sale is very much in play," said Dylan Steuart, a financial services analyst at Industrial Alliance Securities.

He said its shares could be worth C$13.50 if the company is able to hire an experienced management team to replace those tarred by the OSC's allegations and stem the outflow of deposits.

In Thursday's update, Home Capital said the total balance of its GICs, or guaranteed investment certificates, stood at C$12.98 billion as at April 25, compared with C$13.01 billion on April 24 and C$13.06 billion on March 28.

It expects to have a balance of C$814 million in its high-saving interest accounts once Wednesday's transactions are settled, compared with C$1.4 billion as of April 24.

The company relies on these deposits to offer mortgages to applicants who have been unable to get loans from the country's big banks.

REUTERS