Home Capital warns of ‘knock-on effects’ if it fails

Bloomberg

Home Capital Group Inc. said it’s seeking new sources of funding to counter a run on deposits and warned a failure of the Canadian lender would have “significant knock-on effects” in the mortgage market.
The struggling lender has “breathing room” to stabilize finances and pursue options following an C$1.8 billion ($1.3 billion) plunge in deposits and a 60 percent stock decline, director Alan Hibben, a former RBC Capital Markets managing director, said on a conference call. Selling off assets “is not our first priority,” said Hibben, who joined the company last week and is taking an active role at the company. “You don’t shrink your way to greatness.”
Home Capital’s troubles are being closely watched by investors concerned about possible contagion to other lenders and to the red-hot housing markets in Toronto and Vancouver. The Canadian dollar has slumped, and is the worst performing currency among Group of 10 nations this year. Moody’s Investors Service late Wednesday cut the credit ratings on six Canadian banks, citing rising household debt and soaring real estate prices that make the banks more vulnerable to losses.
If Home Capital collapses it would “have significant knock-on effects, particularly to new Canadians and others who this company services,” Hibben said, referring to the “alternative” market of borrowers, such as immigrants or small-business owners, who have trouble getting loans from big banks due to lack of credit or income history. Hibben estimates Home Capital has about 5 percent of this market.
The former investment banker said he doesn’t expect any “new significant transactions within the next days and weeks,” though stressed the company will aggressively seek a “range of
options.”
Home Capital executives on the call said there are potential investors “in the data room.” They also emphasized their focus on finding new funding sources to stem deposit outflows and replace a costly C$2 billion credit line arranged last month by the Healthcare of Ontario Pension Fund.
“There is much at stake,” Chair Brenda Eprile said on the call, in her first public comments since taking the position this month. “We are working diligently” to rebuild strength of
the company.