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EQ Bank now 2.3% (up from 2%)
May 4, 2017
5:09 am
Norman1
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Saver-Mom said

Looks like EQ rate has risen to 2.3%

Wonder if this is to attract HCG funds or an attempt to stem outflow from nervous depositors...

Thanks, Saver-Mom. That development deserves its own new thread!sf-laugh

The Home Trust HISA that money has been leaving is currently paying only 1% or 1¼%.

There may be some competitive pressure from PC Financial that recently started sending out targeted 2% and 2½% offers.

May 4, 2017
7:57 am
ertyu
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They've lost some deposits too, not nearly as much as Home Capital though. Much cheaper to acquire new deposits than buy back stopping from other banks.

May 4, 2017
1:19 pm
pickles
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ertyu said
They've lost some deposits too, not nearly as much as Home Capital though. Much cheaper to acquire new deposits than buy back stopping from other banks.  

Oaken is owned by Home Trust and is offering 1.75% on its HISA.

May 4, 2017
1:28 pm
damianrex
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How comfortable is everybody with the situation at EQ? The $2 billion credit line, hiking of deposit rates, etc? Do you feel safe about their situation in relation to what is happening at Home Capital?

May 4, 2017
5:18 pm
Norman1
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I'm comfortable. Even more comfortable after they got the committed $2 billion credit line for the next two years.

May 4, 2017
6:02 pm
Norman1
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pickles said
Oaken is owned by Home Trust and is offering 1.75% on its HISA.

That correct. The direct-to-depositor Oaken Financial branded savings account is 1¾%.

The Home Trust branded HISA, through brokers and advisors only, is 1% or 1¼%.

May 5, 2017
6:26 am
AndreasChen
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damianrex said
How comfortable is everybody with the situation at EQ? The $2 billion credit line, hiking of deposit rates, etc? Do you feel safe about their situation in relation to what is happening at Home Capital?  

According to highinterestsavings.ca experts, EQ is just as solid as the Federal Reserve of U.S.A.

May 5, 2017
11:16 am
Top It Up
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ertyu said

They've lost some deposits too, not nearly as much as Home Capital though. Much cheaper to acquire new deposits than buy back stopping from other banks.  

It is rather curious why HCG haven't raised their HISA interest rates or their GIC rates to stem the tide (RBCDS still offering Home Trust 5-year GICs @ a paltry 2.05%) . it looks to me like there is ZIP investor confidence in HCG, going forward, even at higher rates.

May 5, 2017
12:05 pm
damianrex
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I guess my question is ...isn't the rise in rates a direct reaction to the roughly $250 million in deposits EQ lost over 3 days last week? Does that give you any confidence in the stability of the rate (if it is mainly to stem the tide of money leaving)?

May 5, 2017
12:52 pm
2of3aintbad
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not sure w

damianrex said
I guess my question is ...isn't the rise in rates a direct reaction to the roughly $250 million in deposits EQ lost over 3 days last week? Does that give you any confidence in the stability of the rate (if it is mainly to stem the tide of money leaving)?  

not sure why you are concerned about the stability of the rate. For a long time, EQ paid 2% and now it is 2.3%. It is a savings account and you can withdraw anytime. For sure, it might go down from 2.3% but how does that affect your decisions?

May 5, 2017
1:06 pm
JustMe2016
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damianrex said
I guess my question is ...isn't the rise in rates a direct reaction to the roughly $250 million in deposits EQ lost over 3 days last week? Does that give you any confidence in the stability of the rate (if it is mainly to stem the tide of money leaving)?  

Stability of rates is, in the end, of little importance. What's important is stability of the FI. After all, who's gonna pay you that rate if the FI isn't there anymore???

My 2 cents.

May 5, 2017
3:35 pm
Doug
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Norman1 said

Saver-Mom said

Looks like EQ rate has risen to 2.3%

Wonder if this is to attract HCG funds or an attempt to stem outflow from nervous depositors...

Thanks, Saver-Mom. That development deserves its own new thread!sf-laugh

The Home Trust HISA that money has been leaving is currently paying only 1% or 1¼%.

There may be some competitive pressure from PC Financial that recently started sending out targeted 2% and 2½% offers.  

They're probably leaving the Home Trust HISA through deposit brokers/financial advisors at 1-1.25% intentionally, to either get people to move those onto the Oaken direct-to-consumer platform or into GICs. It's a good strategy but I think the GIC rates have got to go up to 3% for a 5-year GIC and the Oaken HISA to 2-2.25% and I think, combined with a rebranding exercise and/or possibly new, non-Big Bank ownership, they stand a good chance at continuing. 🙂

Cheers,
Doug

May 5, 2017
3:37 pm
Doug
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JustMe2016 said

Stability of rates is, in the end, of little importance. What's important is stability of the FI. After all, who's gonna pay you that rate if the FI isn't there anymore???

My 2 cents.  

Disagree - even if they're taken over or amalgamated within an existing FI, the FI has to honour the existing GIC rates to maturity, though the HISA rate can change. 🙂

I'd value regular high rates any day over the "teaser" targeting games Tangerine and its horrible, in my opinion, new CEO, Brenda Rideout, and PC Financial/a.k.a. CIBC play. 🙁

Cheers,
Doug

May 5, 2017
4:27 pm
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Sounds to me like EQ is trying to bury Oaken. They didn't need to go to 2.3 in order to shore up any withdrawals. 2.2 would have done the job.
Given EQ's history, you can be sure it won't last!

I have never watched anything like this unfold before, but I am both fascinated and appalled at how the various forces seem to be converging to destroy HCG if they can. It's fascinating to see how they work, but appalling to see how a sound business could be destroyed, and stock investors suffer significant losses, in 2017, because of actions taken a few years back by people who have now left or are leaving.

At this point, it seems to me it will be difficult for HCG to recover, but not impossible. Takeover seems increasingly likely - and the vultures are lined up. The question in my mind is whether they can weather the period from now until the end of the OSC hearing.

My theory is that Oaken is not presently raising its rates because they don't think it would make much difference at this point, and it would cost them a lot. They've already lost most of their HISA money. The rest is probably all CDIC covered, perhaps in joint accounts which the competition (EQ) doesn't offer. Perhaps they are trying to shore up their mortgage business first as there are reports of mortgage brokers looking elsewhere. It may be a question of which area needs the most sandbags.

May 5, 2017
6:41 pm
Twotons
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A FIs reputation takes years to build and even longer to rebuild once it's been damaged. Rebranding and an extra interest point or so will not instill the market confidence required to raise the capital needed to offset the billions in GIC outflows that are coming in the months ahead for HCG. I don't believe there is anything that can at this point. This is a dead horse but I will enjoy watching peeps trying to flog it back into action.

May 6, 2017
9:41 am
Norman1
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Loonie said
Sounds to me like EQ is trying to bury Oaken. They didn't need to go to 2.3 in order to shore up any withdrawals. 2.2 would have done the job.
Given EQ's history, you can be sure it won't last!

I have never watched anything like this unfold before, but I am both fascinated and appalled at how the various forces seem to be converging to destroy HCG if they can. …

EQ Bank may just be paying us depositors closer to what they will be paying the six-bank syndicate for the $2 billion line of credit and the recent $150 million deposit noteholders. This is from Equitable Group's May 1 press release:

• [Equitable Bank has] Obtained a letter of commitment for a two-year, $2.0 billion secured backstop funding facility from a syndicate of Canadian banks, [initially] including The Toronto-Dominion Bank, CIBC, and National Bank ("the Banks"). The terms of the facility include a 0.75% commitment fee, a 0.50% standby charge on any unused portion of the facility, and an interest rate on the drawn portion of the facility equal to the Banks' cost of funds plus 1.25%. This interest rate is approximately 60 basis points over our GIC costs and competitive with the spreads on our most recent [$150 million, 2-year floating-rate] deposit note issuance [in April, priced at 130 basis points over 3-month CDOR], and as such will allow us to continue growing profitably.

May 6, 2017
11:34 am
Loonie
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Ah... good point; and good research!
Paying us something closer to what we're worth competitively. I like that.sf-smile
Onn the other hand, parsing this a bit... they're stuck with 1.25% whether they use it or not, as I read it, so no advantage there in borrowing from us. The actual interest rate they will have to pay is not known. Do you think it would be relatively high - enough to justify our rate? I don't know how much they would charge each other. I suppose that if EQ really had to use it, the rate could be correspondingly high, in the range of the 20%ish that HCG is having to pay?

May 6, 2017
12:30 pm
implode
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Let's see how long this holds. Currently, not moving my money out of Tangering with their spring promo still higher than EQ's bumped rate. Come July, I'll reevaluate.

May 6, 2017
10:20 pm
Norman1
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Loonie said
On the other hand, parsing this a bit... they're stuck with 1.25% whether they use it or not, as I read it, so no advantage there in borrowing from us. The actual interest rate they will have to pay is not known. Do you think it would be relatively high - enough to justify our rate? I don't know how much they would charge each other. I suppose that if EQ really had to use it, the rate could be correspondingly high, in the range of the 20%ish that HCG is having to pay?

Equitable Bank's backstop is less expensive than Home Capital Group's.

Unused part is charged ½%. I parsed it as follows:

  1. ¾% commitment fee
  2. ½% per annum standby on any unused portion of the facility
  3. Banks' cost of funds plus 1¼% on drawn portion of the facility, which is supposedly about 60 basis points over Equitable Bank's GIC costs.

Equitable Bank's GIC's are currently paying 1.55% to 2%. Adding 60 bps, one gets 2.15% to 2.6%. Add another 25 bps for customary deposit brokerage commission, one gets 2.40% to 2.85%.

That's in the area of the 2.3% now being offered on their EQ Bank savings account.

May 6, 2017
11:20 pm
Loonie
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OK. I couldn't understand the part about the interest rate to be charged as I didn't know what as meant by "the Bank's cost of funds". - which bank?, what cost?
So, I'll take your word for the interpretation.
For argument's sake, let's take their two-year rate of 1.65, since the LOC is for 2 years max at this point.

But, wouldn't that be on top of your numbers (1) and (2), i.e. 1.25%, making it more like 2.5 + 1.25 = 3.75%? Or are (1) and (2) one-time costs? If the latter, how would you account for them in the total rate, to be realistic about what it would be costing Equitable? Or are you just not including them because they're stuck with these costs regardless of wherever they get their money from?
Whatever the answer to that is, it looks like paying us 2.3 is a bargain of about 20 bps for them - and a relatively good deal for us - and it creates goodwill among their customer base, which is crucial to their future.

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