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HomeTrust On Sale (Oaken Financial)
June 18, 2017
6:12 am
frank87
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NorthernRaven said

This is nonsense. There is nothing unclear about what the OSC was saying. They very plainly lay out what Home knew and when, from Home's own records of its internal investigations, and what Home did and didn't do. There is no question of "veracity" or "doubt" in what they lay out. The only "allegation" is that these actions and non-actions violated the disclosure regulations. That would have been a question for the OSC commissioners at the end of the proceedings, and has now been made moot by the settlement.

The question is not whether their July 2015 disclosure (where their hand was forced) was "timely" or not. If Home's knowledge of the problems in originations and verification, and the consequences it would have on their future financials, were actually "material" as defined by the regulations, then they were obliged to disclose it during their reports in February and May 2015. In this view, their actual responses about "the weather" and such to direct public questions about their originations results are quite reasonably seen as misleading.

Setting aside the likely difficulty in nailing somewhat sleazy mortgage brokers, Home found significant problems with their own underwriting employees in the matter of income verification.

If OSC should have somehow believed and acted on the assumption that going forward with their enforcement actions would cause a deposit run, then Home's management would have even more reason to. It was not a "few days", but at least a couple months, from the time the OSC delivered enforcement notices in February 2017, that Home would have realized that formal allegation proceedings were a real possibility. Probably they, no more than the OSC, thought that an actual massive deposit run was a serious possibility.

It is certainly possible to argue (certainly with hindsight) that all parties might have acted differently in various ways, but not by sweeping the actual situation under the carpet.  

Northern, you are relying on the OSC's statements as facts when they plainly are not. Could their conclusions have been misconstrued? Could there have been misinterpretation? We don't know because the company could not respond until the hearings started.

What we do know is that Home boasted a former OSC Chair on its board who actually led the investigations into the broker suspensions and who ultimately signed off on all the company's disclosures. They also have a former OSC Chair who's leading their defense. They clearly feel very strongly about their defense.

There's another story to this that we haven't heard about yet but the very actions of the OSC to broadcast these allegations damn near destroyed this company before they were even given an opportunity to respond.

June 18, 2017
7:24 am
NorthernRaven
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frank87 said

Northern, you are relying on the OSC's statements as facts when they plainly are not. Could their conclusions have been misconstrued? Could there have been misinterpretation?

Please cite something from the OSC allegations that they represent as fact, that isn't. The OSC wasn't saying "you did X,Y and Z" and Home replying "no we didn't". The OSC was saying "under the circumstances, securities regulations required you to publicly disclose X, Y Z", and Home was saying "no they didn't". That's ultimately a question of interpretation which would have been resolved by the OSC commissioners.

Setting aside whether they could have argued themselves out this in a legal sense, look at it from the spirit, not the letter, of public disclosure principles, as a potential member of the market for shares in Home. You have a company whose results (and thus stock price) are significantly the result of health and growth in originations of mortgages. Something approaching fraud, and certainly unacceptable oversight, has been discovered not only in your external suppliers but with your own underwriting employees. You have stopped doing business with the sources of 10% of your previous year's originations, your business in this particular ("Accelerator, prime) segment, which you have identified as "one of our key offerings", is down over 30%, and you have reduced your business targets for it by 50%. You are by no means certain that similar problems don't exist in your other mortgage products. When asked publicly about the observed reduction in originations, your response is to site factors like the weather and general macroeconomic conditions, even though internally you have acknowledged these factors do not fully explain things, and that the problems may affect future results as well.

Setting aside the actual regs and how successful Home or the OSC might have been in pleading the case, please try and argue with a straight face that Home's actions are consistent with any reasonable definition of "material disclosure" for someone considering purchase of Home's stock, or that that person does not have a legitimate and compelling interest in knowing much more than Home made public. Note in passing the 20% drop in price immediately after it was disclosed on July 29/2015, at the OSC's insistence.

Ironically, if Home had been more transparent, there likely would have been no serious long-term consequences. They took a hit in short term originations, had to clean house, and had to determine the extent of any problems. But there's been nothing to suggest that their actual mortgage base is really rotten, or that the mortgages acquired without proper validation had excessive loss rates or anything like that. If they had been forthcoming, the stock price would have taken a short-term hit, but would likely have recovered. Trying to hide things has been much more damaging.

frank87 said We don't know because the company could not respond until the hearings started.

There's another story to this that we haven't heard about yet but the very actions of the OSC to broadcast these allegations damn near destroyed this company before they were even given an opportunity to respond.  

Again, nonsense. The OSC didn't investigate in a vacuum - Home would have been discussing this with them throughout. The enforcement notices served in February would again have been a both an indication and opportunity to present any information they wished to the investigators. There were apparently settlement discussions during that time. If you mean "respond" publicly, there was no gag to them saying whatever they wanted.
Assuming, as the OSC has, that there is a case to answer, I'd be interested in how they should have handled it, short of tacitly declaring that deposit-taking companies are too delicate to be held to the same rules as any other public company?

June 18, 2017
12:35 pm
Typhoon
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There is no doubt that Home Capital (even if they weren't technically in violation of the rules) could have handled things differently . But then again, so could the OSC.

When a process that is supposed to protect investors, winds up hurting investors, something needs to be reconsidered to avoid a similar type of situation happening again at some future date.

The fact that the OSC felt the need to get Home Capital to publicly absolve them of all blame suggests to me that OSC did indeed have a negative role to play in what transpired. They just don't want to be held to account for it.

I still think an independent body needs to take a good look at what happened here, and make recommendations as to how the situation could have been better handled.

June 18, 2017
3:34 pm
User230
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http://www.iol.co.za/business-.....es-9806406

Here's a quote:

Allegations from the regulator in April included that Home Capital and its executives had failed to satisfy disclosure requirements, made “materially misleading statements” and failed to comply with other securities rules.

I think the OSC did their jobs in the face of a company that was not complying with rules. At some point. The OSC had to take action.

June 18, 2017
5:16 pm
AltaRed
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User230 said
http://www.iol.co.za/business-.....es-9806406

Here's a quote:

Allegations from the regulator in April included that Home Capital and its executives had failed to satisfy disclosure requirements, made “materially misleading statements” and failed to comply with other securities rules.

I think the OSC did their jobs in the face of a company that was not complying with rules. At some point. The OSC had to take action.  

I am pretty much on the side of OSC here too. From everything I've read, HCG played footloose and fancy free on dislosure requirements. Many of our better corporations disclose more than less to: 1) remain onside with regulators, and 2) be 'trusted' by its shareholders and clients. Transparency is key to being a good corporate citizen. When you have a CFO brag about burying the notes, the culture is wrong.

HCG had too many 'cowboys' in its executive offices (and Board too I imagine) and paid the price. Ironically, as suggested, had they come clean in 2015 and done a vigorous cleanup of their processes and quality assurrance, they would have rebounded in relatively short order.

I think they will survive this debacle OR get bought out perhaps in the $20/share range. Either way, they won't be as big a player in the future.

June 19, 2017
3:08 pm
Top It Up
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Todays Liquidity and Deposits update from HCG

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

Total Guaranteed Investment Certificate (GIC) deposits, including Oaken and broker GICS, stood at approximately $12.032 billion, down from the previous day's $12.046 billion.

June 20, 2017
5:33 am
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From Reuters

Home Capital to sell C$1.2 billion commercial mortgage portfolio

http://ca.reuters.com/article/.....B1O4-OCABS

"Proceeds from the transaction are expected to have an immediate impact by enabling us to enhance our liquidity and reduce the outstanding debt under the Company's $2 billion credit facility," interim Chief Executive Bonita Then said.

June 20, 2017
6:48 am
frank87
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Top It Up said
From Reuters

Home Capital to sell C$1.2 billion commercial mortgage portfolio

http://ca.reuters.com/article/.....B1O4-OCABS

"Proceeds from the transaction are expected to have an immediate impact by enabling us to enhance our liquidity and reduce the outstanding debt under the Company's $2 billion credit facility," interim Chief Executive Bonita Then said.  

Though his views may have differed from mine and others in this thread, we should appreciate Top It Up for the timely updates.

June 20, 2017
7:02 am
Top It Up
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HCG providing full details of the sale of assets in this press release

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

Under the terms of the Agreement, KingSett will purchase the Portfolio for 99.61% of outstanding principal value, less a share of future credit losses.

The initial gross proceeds to the Company will be 97% of the outstanding principal value of the mortgages. The balance of the purchase price will be subject to credit losses in the Portfolio.

Based on the Company’s expectations with respect to credit performance and after allowing for transaction costs and the write-off of deferred origination costs related to the Portfolio, the Company expects to record a loss on the transaction of approximately $15 million, before income taxes.

-----------------------------------------

“This transaction will help the Company further stabilize its liquidity position and highlights the flexibility and options created by the quality of our assets”, said Bonita Then, Interim President and CEO.

I don't know ... selling off "quality assets" at a discount isn't that positive of news and, tells me negotiations with the big banks for a funding package aren't going that well.

June 20, 2017
9:02 am
NorthernRaven
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Top It Up said

I don't know ... selling off "quality assets" at a discount isn't that positive of news and, tells me negotiations with the big banks for a funding package aren't going that well.  

I don't think it is much different than the price of a T-bill going down a bit when interest rates rise - your bond sells at a discount against similar bonds with the higher rate. If alt/subprime rates have spiked somewhat recently, then Home's existing mortgages won't return as much as new originations, and the discount may partly reflect that.

Also, the nominal discount to par is only 0.39%, so Home is getting almost all their principal, subject to the credit loss provisions. That's not much of a discount, especially under the circumstance. The $15 million loss expectation figure would seem to work out to an actual discount of 1.25%.

Even if they stabilize the GICs at some lower level, they are going to need the bank financing and asset sales for the smaller balance sheet they'd wind up with.

June 20, 2017
2:03 pm
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Todays Liquidity and Deposits update from HCG

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

So, while there was a continuing decline in the Total Guaranteed Investment Certificate (GIC) deposits, including Oaken and broker GICS, the Home Trust High Interest Savings Account (HISA) deposit balances increased to $112 million, from the June 16 close of $98.5 million..

June 21, 2017
2:06 pm
Top It Up
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Todays Liquidity and Deposits update from HCG

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

June 22, 2017
3:50 am
Top It Up
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As I said right off the top, there are NO white knights when it comes to companies in distress - Berkshire are nothing more than vultures on the carcass BUT that Warren Buffett does have sex-appeal, don't he ... from Home Capital -

HOME CAPITAL REACHES AGREEMENT WITH BERKSHIRE HATHAWAY FOR INVESTMENT OF UP TO C$400 MILLION IN COMMON EQUITY AND PROVISION OF NEW C$2 BILLION CREDIT FACILITY

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

The New Credit Agreement is on substantially the same terms as the Existing Credit Agreement, except as follows:

the interest rate on outstanding balances will be decreased to 9.5% (from the current 10%) until completion of the Initial Investment, at which time it will be further decreased to 9%

the standby fee on undrawn funds will be decreased to 1.75% (from the current 2.5%) until completion of the Initial Investment, at which time it will be further decreased to 1%

there will be no upfront commitment fee

NOTHING more than shuffling deck chairs on the Titanic - let's be honest here, a financing deal with the BIG banks was never in the cards OR if it was it was with terms and conditions MORE onerous than HOOPP and the same deal from Berkshire - in fact since HCG had already paid out the $100 million commitment fee to HOOPP, one might ask what's really the point.

--------------------------

Berkshire, through its wholly-owned subsidiary Columbia Insurance Company, has agreed to make an additional investment (the “Additional Investment”) of C$246,774,261 to acquire 23,955,420 common shares on a private placement basis, which, together with its Initial Investment, would represent an approximate 38.39% equity stake in the Company. Each common share in the Additional Investment will be issued at a price of approximately C$10.30 per common share ...

Those shares are at a 31% discount to the $14.94 closing price on June 21st.

--------------------------

Much has been made over the past several months of the American shorters of HCG stock ... what's NOW apparent is that the true shorters of HCG stakeholders is NONE other than HCG themselves.

With this obnoxious deal (is this truly the best that Alan Hibben could deliver?), I suggest that HCG was and is in a whole lot more trouble financially than the public actually knows.

June 22, 2017
4:10 am
frank87
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Top It Up said
As I said right off the top, there are NO white knights when it comes to companies in distress - Berkshire are nothing more than vultures on the carcass BUT that Warren Buffett does have sex-appeal, don't he ... from Home Capital -

HOME CAPITAL REACHES AGREEMENT WITH BERKSHIRE HATHAWAY FOR INVESTMENT OF UP TO C$400 MILLION IN COMMON EQUITY AND PROVISION OF NEW C$2 BILLION CREDIT FACILITY

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

The New Credit Agreement is on substantially the same terms as the Existing Credit Agreement, except as follows:

the interest rate on outstanding balances will be decreased to 9.5% (from the current 10%) until completion of the Initial Investment, at which time it will be further decreased to 9%

the standby fee on undrawn funds will be decreased to 1.75% (from the current 2.5%) until completion of the Initial Investment, at which time it will be further decreased to 1%

there will be no upfront commitment fee

NOTHING more than shuffling deck chairs on the Titanic - let's be honest here, a financing deal with the BIG banks was never in the cards OR if it was it was with terms and conditions MORE onerous that HOOPP and the same deal from Berkshire.

--------------------------

Berkshire, through its wholly-owned subsidiary Columbia Insurance Company, has agreed to make an additional investment (the “Additional Investment”) of C$246,774,261 to acquire 23,955,420 common shares on a private placement basis, which, together with its Initial Investment, would represent an approximate 38.39% equity stake in the Company. Each common share in the Additional Investment will be issued at a price of approximately C$10.30 per common share ...

Those shares are at a 31% discount to the $14.94 closing price on June 21st.

--------------------------

Much has been made over the past several months of the American shorters of HCG stock ... what's NOW apparent is that the true shorters of HCG stakeholders is NONE other than HCG themselves.  

HCG won't even need to tap Berkshire's line as their recent sale of commercial mortgages + Berkshire's initial equity investment will cover the remaining balance on their line. The commitment here from Berkshire is clearly equity ownership and not the loan that they're offering.

But yes, the Board has made the calculation that dilution is worth gaining the reputation that Berkshire has. FYI, that second equity investment still needs to be voted on in September.

June 22, 2017
2:54 pm
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Todays Liquidity and Deposits update from HCG

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

With the new sexy partner, who got his way in at a tremendous discount to market, it should be nothing but clear sailing with to-the-moon daily reporting.

As a bonus, I'm sure all the HCG stakeholders will be looking in their mailbox for their invitations to the May 2018 Berkshire picnic, in Omaha ... no!

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