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HomeTrust On Sale (Oaken Financial)
May 27, 2017
6:59 pm
Norman1
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Loonie said
I think the government has more tools than just simple bailouts anyway.

The problem with allowing companies to fail is the trail of wreckage they can leave behind, quite apart from shareholders' losses..…

Home Capital Group is far from failure. I'm sure they would welcome government help. But, it isn't needed yet.

The May 13, 2017 Globe & Mail article I mentioned has lots of details about the situation. It is worth the $4.99 trip through the Globe & Mail pay wall or a trip to the local public library to read.

One of the things the journalists found is that most of their mortgage book does not renew. The borrowers are so close to being prime borrowers that the year or two with Home Trust or Home Bank is enough to give them the credit history to qualify for a regular prime mortgage with a lower rate. At the end of the term, the mortgage is usually paid off with money from a regular lender.

According to their May 24 update, for the rest of 2017, about $6 billion of their mortgages will mature and likely be paid back to them. That is more than the $3.8 billion of maturing GIC's they need to pay out during that period. That will provide another $2.2 billion of liquidity if they decide not to take on any new mortgages.

May 27, 2017
9:09 pm
frank87
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Norman1 said

Loonie said
I think the government has more tools than just simple bailouts anyway.

The problem with allowing companies to fail is the trail of wreckage they can leave behind, quite apart from shareholders' losses..…

Home Capital Group is far from failure. I'm sure they would welcome government help. But, it isn't needed yet.

The May 13, 2017 Globe & Mail article I mentioned has lots of details about the situation. It is worth the $4.99 trip through the Globe & Mail pay wall or a trip to the local public library to read.

One of the things the journalists found is that most of their mortgage book does not renew. The borrowers are so close to being prime borrowers that the year or two with Home Trust or Home Bank is enough to give them the credit history to qualify for a regular prime mortgage with a lower rate. At the end of the term, the mortgage is usually paid off with money from a regular lender.

According to their May 24 update, for the rest of 2017, about $6 billion of their mortgages will mature and likely be paid back to them. That is more than the $3.8 billion of maturing GIC's they need to pay out during that period. That will provide another $2.2 billion of liquidity if they decide not to take on any new mortgages.  

Good point Norman.

May 29, 2017
10:03 am
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From the Globe & Mail

The case for not biting on Home Capital’s 3.1% GIC

https://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/the-case-for-not-biting-on-home-capitals-31-gic/article35114128/

The rationale for ignoring these deals is in no way a comment on Home Capital’s chances of survival and future success. Rather, it’s based on the idea that the kind of person who traditionally gravitates to a GIC does so for a zero-stress investing experience. You may not get that with a GIC from Home Capital, even if its Home Bank, Home Trust and Oaken brands are all covered by Canada Deposit Insurance Corp.

May 29, 2017
10:57 am
Typhoon
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I suppose if you're the kind of person who stresses about absolutely everything, then that is probably good advice. But if you're the kind of person who does their homework and makes sure you're within the insured limits, then you really don't have anything to stress over.

According to CDIC money in savings accounts will be refunded within 3 business days if the company goes under (as opposed to being sold to another lender). And although registered accounts will take a little longer than that (to ensure they retain their tax free status) you WILL get your money back, plus all interest due up to the date of failure.

So, considering how much higher than the Big Banks Oaken's current interest rates are, even if you lost a couple of months interest while waiting to get your money back, you'd still come out ahead.

So what's to stress about? sf-smile

May 29, 2017
2:54 pm
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Todays Liquidity and Deposits update from HCG

http://www.homecapital.com/pre.....202017.pdf

Cash declines across the board ... appears like the increased Oaken GIC rates haven't been enough of an enticement to the investment community ... perhaps that explains the jump in the Home Bank / Home Trust GIC rates today!

http://www.globeinvestor.com/s.....ndicator=N

May 29, 2017
5:01 pm
Typhoon
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3.10% for a 5 year term isn't a "new" rate today; I bought a GIC at that rate back on May 23rd (which is when they first introduced that rate).

As for the fluctuation in deposits - I don't think it's a big enough daily drop to be overly concerned. It's been doing a lot of "up and down" lately, but on average things seem to have stabilized a bit compared to what was happening when all this first started.

But frankly I don't care, and neither should anyone else provided they're within the insured limits. Because we'll get paid out no matter what happens.

In the meantime I'm taking advantage of the current great rates. Because everyone who makes sure they stay within the insured limits will be fine.

May 29, 2017
6:13 pm
Loonie
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Carrick, in the G&M article, seems to be reacting to the calls and emails he has had from panicky Oaken GIC holders. This in turn seems to be related to people who either held GICs above the CDIC limit or who have been spooked by the hype from professional short sellers out to make a big buck (or both).

Thus, the only people who need to worry are those who hold above CDIC limits, those who absolutely require monthly interest payouts from RIFs, and short sellers. Short sellers will find it in their interests to continue to promote the idea that HCG is bound to fail, that nobody would buy it, and will continue to bring us all possible negative interpretations on their future, whether valid or not.

There is perhaps a lesson here for those of us who have RIFs. Perhaps, contrary to the standard advice that one should, especially at this age, amalgamate one's investments and put RiFs under one umbrella, one would be better to intentionally spread them around - especially if they are GICs - and not keeping all your eggs in one basket.

I think Carrick may have been spooked by the number of calls he's received. The only conservative sensible investors who might need to be concerned are the ones who depend on monthly interest from RIFs at Oaken. I doubt there are very many of them. Most people should be able to reorganize their finances short term, using cash reserves that they maintain for such blips in income or expenses.

May 30, 2017
12:48 pm
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From today's National Post

How hysteria around Home Capital ginned up a fictional financial crisis

http://business.financialpost......ial-crisis

May 30, 2017
1:15 pm
AltaRed
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Loonie said
There is perhaps a lesson here for those of us who have RIFs. Perhaps, contrary to the standard advice that one should, especially at this age, amalgamate one's investments and put RiFs under one umbrella, one would be better to intentionally spread them around - especially if they are GICs - and not keeping all your eggs in one basket.
 

That is only if one deals directly with individual institutions. For those of us with brokerage accounts, we get all the diversification we want with one RSP/RIF. It makes it easy to manage annual withdrawals that way...and much easier for a POA/Executor as well.

May 30, 2017
2:50 pm
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Todays Liquidity and Deposits update from HCG

http://www.homecapital.com/pre.....202017.pdf

Management expects non-securitized single-family residential mortgage originations will be constrained until at least the end of the year, while renewal percentages are likely to fall within historic ranges.

Management will continue to work on developing longer term liquidity solutions. However, the Company projects that outstanding non-securitized single-family residential mortgage balances will decline over the course of the next few quarters to approximately $10 - $11 billion at year end 2017, compared with $12.6 billion as at March 31, 2017.

May 30, 2017
3:41 pm
Loonie
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AltaRed said

Loonie said
There is perhaps a lesson here for those of us who have RIFs. Perhaps, contrary to the standard advice that one should, especially at this age, amalgamate one's investments and put RiFs under one umbrella, one would be better to intentionally spread them around - especially if they are GICs - and not keeping all your eggs in one basket.
 

That is only if one deals directly with individual institutions. For those of us with brokerage accounts, we get all the diversification we want with one RSP/RIF. It makes it easy to manage annual withdrawals that way...and much easier for a POA/Executor as well.  

Yes, I realize that, but you don't usually get the best rates going for GICs. My comment was directed towards those who hold GICs outside of brokerages because they want the highest rates.

May 30, 2017
3:58 pm
AltaRed
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Loonie said
Yes, I realize that, but you don't usually get the best rates going for GICs. My comment was directed towards those who hold GICs outside of brokerages because they want the highest rates.  

Fair enough. Those of us with brokerage accounts tend to have a lot more than just GICs in our fixed income asset allocation, i.e. 'highest' GIC rates are not necessarily the driving factor.

May 31, 2017
9:12 am
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From BNN Canada, per Reuters

Canada's private lenders feast on Home Capital scraps

http://www.bnn.ca/canada-s-pri.....s-1.765911

May 31, 2017
9:49 am
Miron
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is there any difference between Home Bank and Home Trust Company from the risk point of view?

May 31, 2017
10:06 am
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Miron said
is there any difference between Home Bank and Home Trust Company from the risk point of view?  

NOPE. They're both part of the Home Capital Group BUT registered individually with their own separate CDIC insurance coverage. Oaken Financial is also part of HCG.

May 31, 2017
11:06 am
Bill
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There are 3 companies involved. Home Capital Group (HCG) is a publicly traded holding company. It has no operations of its own. Operations are conducted mainly through another company, a 100%-owned subsidiary, Home Trust. As well, Home Trust carries on some of its operations via another company, its 100%-owned subsidiary Home Bank. Thus Home Trust and Home Bank, being the two separate operating companies, each have separate CDIC membership. Oaken Financial is merely a name (there is no such company or entity as "Oaken Financial") used at the consumer level by Home Trust, and now also by Home Bank, to sell some of their products. (That's why it's a bit of a misnomer under the Oaken Profile on this site to say Home Trust is Oaken's parent company, Oaken is not a separate subsidiary entity, it's just a brand name - no biggie, pretty technical, and anyway who cares?!) So via the Oaken name consumers can purchase Home Trust and Home Bank products.

May 31, 2017
11:30 am
Miron
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Thank you, guys! That means somebody might deposit 100k under each of them and sleep quietly sf-wink

They are asking to use two applications to get accounts with both companies.

I don't care but I was wondering which one has fewer chances to get into trouble?sf-smile

May 31, 2017
12:32 pm
frank87
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Miron said
Thank you, guys! That means somebody might deposit 100k under each of them and sleep quietly sf-wink

They are asking to use two applications to get accounts with both companies.

I don't care but I was wondering which one has fewer chances to get into trouble?sf-smile  

No real difference in terms of risk in either entity. Like you said, if you're below 100k you have nothing to worry about.

May 31, 2017
4:30 pm
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Todays Liquidity and Deposits update from HCG

http://www.homecapital.com/pre.....202017.pdf

GICs in a cashable position ... continue to get cashed and don't appear to be renewed!

June 1, 2017
2:11 pm
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From today's Globe and Mail

Canadian Western Bank sees increased mortgage demand amid Home Capital woes

https://www.theglobeandmail.com/report-on-business/canadian-western-bank-sees-increased-mortgage-demand-amid-home-capital-woes/article35174203/

Canadian Western Bank said on Thursday it was experiencing higher-than normal demand for mortgages as a result of challenges faced by its largest competitor, Home Capital Group.

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