Berkshire Hathaway to invest $400 million in Home Capital Group and provide $2 billion loan facility | Oaken Financial | Discussion forum

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Berkshire Hathaway to invest $400 million in Home Capital Group and provide $2 billion loan facility
June 21, 2017
10:48 pm
frank87
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Warren certainly has his tentacles everywhere. Utterly shocked that he (or his two other investment lieutenants) even knows about Home.

Equity investment will come with large dilution, but in return, Home gets a much needed dose of confidence. Also, given that the second tranche of equity investment needs to be voted on and will be on a later date, I expect that many shareholders will likely vote against it.

June 22, 2017
3:44 am
Loonie
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Not so surprising perhaps that BH has been watching this. The guy who started the short selling fiasco was American too, and taking up a lot of (hot) air space. I'm guessing he and his followers are rather unhappy now.sf-smile

Sounds like Buffett may actually understand that Canada is not the US. How refreshing!

June 22, 2017
4:21 am
Top It Up
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Loonie said

Sounds like Buffett may actually understand that Canada is not the US. How refreshing!  

Well, the people of Leamington ON certainly don't share your view nor his understanding of Canada

http://www.cbc.ca/news/canada/.....-1.2426608

June 22, 2017
9:09 am
christinad
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I'm a bit confused as I thought american companies couldn't invest in canadian banks. Maybe they only can't own them? Or is it because they are a mortgage company that they can buy shares?

June 22, 2017
9:56 am
NorthernRaven
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christinad said
I'm a bit confused as I thought american companies couldn't invest in canadian banks. Maybe they only can't own them? Or is it because they are a mortgage company that they can buy shares?  

There's some ownership provisions for Sched 1 banks, and trusts, I think. Berkshire is going to limit itself to voting only a 25% interest even after the second round would push up to 40% of the shares, "unless and until it obtains the required regulatory approvals to enable it to vote greater than a 25% interest", so there's probably a 25% limit there somewhere.

Home Capital Group (the traded holding company) is probably a little weird in this regard, since they own both their main operating subsidiary Home Trust (under the Trust and Loan Companies Act) and the recently acquired and renamed Home Bank (a Schedule 1 bank under the Bank Act). It is quite possible that each Act has differing restrictions, and if so Berkshire is probably constrained to the more restrictive of the two.

June 22, 2017
12:13 pm
Nehpets
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This email of reassurance received from Oaken today:

Thursday, June 22, 2017

You’ve likely already heard this morning’s announcement that Berkshire Hathaway Inc. has agreed to acquire C$400 million of Home Capital’s common shares as part of a private placement arrangement. In addition, Berkshire will also provide an additional C$2 billion line of credit facility to Home Trust.

“Home Capital’s strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment,” explained Warren E. Buffett, Berkshire Chairman and Chief Executive Officer.

This is a resounding endorsement of Home Capital by one of the industry’s most legendary and revered investors. You can read more about this important arrangement in the official press release.

So what does this mean for Home Capital?

Certainly, this agreement provides for the company’s near-term liquidity needs, but it also affords more breathing room as we continue to concentrate our efforts on restoring confidence and returning to positive growth. Together with last week’s announcement of a settlement agreement with the Ontario Securities Commission, it is clear that we are making excellent progress on these objectives.

On a personal note, I can tell you that everyone at Oaken Financial is excited by these new developments and remains committed to helping you achieve your investing goals. I also encourage you to take a look at our updated GIC rates as Oaken offers some of the highest GIC returns available.

While the past two months have been difficult, I appreciate the support we have received from so many during this time. For that, you have my thanks and we look forward to being of service to you for many years to come.

Best regards,
Benjy Katchen
Executive Vice President,
Deposits and Consumer Lending

June 29, 2017
4:55 pm
Jon
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Buffett can use this to bypass Canadian regulation.

He can do so by asking a Canadian entity to hold HCG common stock and sign an agreement that transfer all interest and possibly voting right to BH that is in Omaha.

June 30, 2017
7:32 pm
Norman1
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Not sure there's still any Canadian regulations for Berkshire Hathaway to bypass since 2001.

This is from an old Transport Canada publication Restrictions on Foreign Ownership in Canada - TP 14500E:

Finally, in October 2001, the Financial Consumer Agency of Canada Act (also known as the “Financial Institution (FI) Statutes”) was proclaimed making substantial changes to the ownership, business powers and corporate governance provisions of all federal financial institutions’ legislation.15 The FI Statutes established a new ownership regime16 for banks based on shareholder equity.17

As a result of these amendments, banks in Canada are grouped according to size: large, medium and small. Large banks are those that have equity in excess of $5 billion. Their shares are still required to be widely held, but now a Canadian or foreign investor may hold up to 20 percent of any class of voting shares19 and up to 30 percent of any class of non-voting shares, subject to a “fit and proper” test.20 Anytime a single shareholder purchases more than 10% of any class of issued shares, regardless of the size of the bank, the purchase is subject to Ministerial approval. Under this new ownership regime, the Bank Act continues to prohibit control of a large bank by a single shareholder or group of shareholders. The Minister has guidelines that describe the policy objectives to be achieved and the factors to be taken into account in determining whether “control in fact” would exist in particular circumstances.21

Medium banks have equity between $1 and $5 billion, and allow an individual to own up to 65 percent of the voting shares (closely held shares) but the remaining 35 percent of the shares must be publicly listed on a stock exchange in Canada, held by persons that are not major shareholders in the bank.22

Small banks have equity of less than $1 billion and are not subject to any ownership restrictions (narrowly held shares), except for Ministerial approval.23 Small banks are intended to promote greater competition in the financial sector. They offer services to suit customer needs while competing with large banks in local and regional markets.

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