TORONTO — Home Capital Group, the lender that appeared at risk of collapse earlier this year, looks to have put some of its troubles behind it, easing fears it could trigger a real estate slump and broader problems for the country’s financial system.
The company’s stock regained some lost ground Thursday after it announced a day earlier it reached settlements in two separate cases that could have complicated its recovery efforts.
The agreements, which would cost Home Capital $30.5 million if approved, provide hope that it will be able to restore market confidence, ratings agency DBRS said in a note Thursday.
“The settlements would remove market uncertainty surrounding improper disclosures,” DBRS said.
Shares in Home Capital soared Thursday by 12.7 per cent, or $1.54, to $13.67. The rebound in the stock follows an announcement late Wednesday that Home Capital has agreed to settle a class-action lawsuit and a matter before the Ontario Securities Commission concerning allegations of misleading disclosure.
Home Capital’s shares (TSX:HCG) took a thrashing in late April, after Ontario’s securities regulator announced it was pursuing allegations that the company and executives misled investors by not immediately disclosing information it uncovered about falsified loan applications.
The agreements are subject to OSC and court approval and conditional upon the approval of the other.
“The settlements could allow the group to attract new funding at more reasonable costs, especially since overall available liquidity has stabilized of late, albeit at significantly lower levels,” DBRS said.
“Lastly, the group would be better positioned to focus on restoring market confidence by strengthening corporate governance, improving operating efficiency and rebuilding its relationships with mortgage brokers.”
Home Capital announced back in July of 2015 that it had severed ties with 45 brokers over accusations that they had been making up income information on loans. Two of those brokers have faced sanctions from the Financial Consumer Agency of Canada.
Customers of Home Capital started pulling their deposits in April of this year, creating a liquidity crisis at the company, which uses those deposits to fund its mortgage lending. That left some industry observers worrying about contagion to the wider mortgage market.
The CEOs of Canada’s biggest banks were left fielding questions about Home Capital — and whether its problems were indicative of a roach motel hiding in Canada’s lending industry — during their most recent round of earnings conference calls.
With its capital levels dwindling, Home Capital was forced to take out a $2 billion line of credit with onerous terms from the Healthcare of Ontario Pension Plan two months ago.
In a separate statement Thursday, Home Capital said it is aware of recent media reports about a potential refinancing transaction, and while it has indicated it is pursuing additional financing and other strategic options, it does not comment on speculation.
There have been reports suggesting Home Capital is negotiating with some of Canada’s big banks to get a loan of up to $2 billion that would provide a less costly alternative to the financing from HOOP.
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Alexandra Posadzki, The Canadian Press