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HomeTrust On Sale (Oaken Financial)
May 12, 2017
10:23 am
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Then there are those who think it's sufficient enough to change the colour of lipstick on the pig, thinking it'll be more attractive.

There's the old story told in the first day of finance class in almost all MBA programs and it has to to with drinking the case of beer so you have the empties to help pay for your next case of beer ... and so on, and so on, and so on ...

May 12, 2017
10:38 am
AltaRed
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I wish to thank Northern Raven for his? thoughtful and measured replies, perceptions and opinions on this file. It is clear to me NR knows of what he? speaks on this matter, given his contributions in this area of finance in multiple forums.

Thank you with being patient with less thoughtful participants.

May 12, 2017
10:52 am
Loonie
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agree with AltaRed.

May 12, 2017
10:57 am
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WOW ... look at this headline from the G&M - now taxpayer's are being considered as a white knight for this failing enterprises , great!

"Morneau won’t rule out Home Capital bailout but expects private solution"

Now that's something to cheer about, ain't it?

May 12, 2017
11:14 am
frank87
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AltaRed said
I wish to thank Northern Raven for his? thoughtful and measured replies, perceptions and opinions on this file. It is clear to me NR knows of what he? speaks on this matter, given his contributions in this area of finance in multiple forums.

Thank you with being patient with less thoughtful participants.  

Agreed with this. Thanks Northern Raven.

It's a shame that during times like these the more measured intelligent voices get drowned out by the asinine. Especially when it is during these very times that we particularly need the more measured intelligent voices to rise above the rest.

May 12, 2017
11:19 am
Saver-Mom
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Agreed

May 12, 2017
11:25 am
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frank87 said

"... the more measured intelligent voices get drowned out ..."  

Yeah, like those "measured intelligent voices" that told the readers the MCAP deal "... is a brilliant decision to (likely) get out from under the shark loan too" while HCG themselves say "it was less than ideal." WOW ... another "less than ideal" deal to help payoff a previous "less than ideal" deal.

Just more chirping from the pom pom wavers on this thread purporting to be experts ... sheesh!

May 12, 2017
12:15 pm
AltaRed
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Lots of info to digest from today's financial results and reporting...and reporting by the media. Clearly HCG needed liquidity quickly and at any cost to offset demand deposit withdrawals.

It would have been known at the time HCG would seek better financing after-the-fact...given the $100 million fee and usury rates being charged. Anything at any cost was better than not being able to return deposit withdrawals within hours of such a request. And they are on their way to finding better solutions, including selling part of their book.

Ultimately whether HCG re-builds its business over time or sells out is a matter for the Board to determine what is in the best interest of their shareholders. Time will tell. I suspect the stock is now stuck in a trading range pending those decisions. It no longer matters what happens to the rest of their HISA/ISA deposits. What is remaining is not material at all to their business.

May 12, 2017
1:43 pm
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Is this HCG attempting to "scare" the Trudeau government into providing them with a taxpayer-funded bailout package? - from Bloomberg -

"If Home Capital collapses it would “have significant knock-on effects, particularly to new Canadians and others who this company services,” Hibben said, referring to the “alternative” market of borrowers, such as immigrants or small-business owners, who have trouble getting loans from big banks due to lack of credit or income history. Hibben estimates Home Capital has about 5 percent of this market."

https://www.bloomberg.com/news/articles/2017-05-12/home-capital-says-uncertain-of-future-as-it-reports-earnings

May 15, 2017
5:28 am
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This mornings update from HCG

http://www.homecapital.com/pre.....0Final.pdf

Interesting table, on the 2nd page of the news release, showing the "GIC’S in a cashable position"

May 15, 2017
6:46 am
AltaRed
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Good to know remaining vulnerability numbers are so small and not changing much. The run appears essentially over.

May 15, 2017
6:50 am
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AltaRed said
Good to know remaining vulnerability numbers are so small and not changing much. The run appears essentially over.  

Well, not necessarily. We don't know how their retention rate on GICs is matching historical experience. It could be that a large chunk of GICs "want" to flee, but are just not able yet. It looks like half or more of the cashable funds have left, and if they can't do better than that as the fixed-terms come due on whatever rolling schedule, they'll have to shrink the balance sheet relatively quickly (i.e. next 6-12 months).

May 15, 2017
8:16 am
Bill
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GICs are purchased by the extremely risk-averse or for the "safe" fixed income portion of a diversified portfolio, so in essence the reason for holding Home's GICs is gone. Going forward I can't see many folks renewing or buying Home's GICs, why would you? Despite CDIC I believe most folks will stay clear of any situation involving possible bankruptcy, being bought out, reorganization, general uncertainty.

May 15, 2017
8:32 am
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Bill said
GICs are purchased by the extremely risk-averse or for the "safe" fixed income portion of a diversified portfolio, so in essence the reason for holding Home's GICs is gone. Going forward I can't see many folks renewing or buying Home's GICs, why would you? Despite CDIC I believe most folks will stay clear of any situation involving possible bankruptcy, being bought out, reorganization, general uncertainty.  

Totally Agree.

Oaken is @2.60% for 5 years this morning, while brokers are offering Home Bank/Home Trust 5-year GICs @ 2.25 - 2.30%.

Hardly anywhere near what would be needed to keep investors in the fold, and deal with all that shemozzle..

May 15, 2017
8:40 am
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NorthernRaven said

Well, not necessarily. We don't know how their retention rate on GICs is matching historical experience. It could be that a large chunk of GICs "want" to flee, but are just not able yet. It looks like half or more of the cashable funds have left, and if they can't do better than that as the fixed-terms come due on whatever rolling schedule, they'll have to shrink the balance sheet relatively quickly (i.e. next 6-12 months).  

The GICs are auto-renewed unless specified otherwise. As for depositor behavior, the panic has gradually settled down and my guess is that it will continue to do so over time.

May 15, 2017
9:00 am
NorthernRaven
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For the cashable GICs, the analyst call suggested there had been around $800 million of this product, and very roughly $400 million had gone. Their table today only shows the "cashable position" totals, which wouldn't include the portion in the 30 and 90 day non-cashable windows. But assuming an even spread throughout the 1-year period, and a neutral balance of new and maturing money, there's been a steady drain of cashable money in the last couple of weeks (~ 40%, $121 million), auto-renewal or not. There could be lumpiness that's distorting that, but it would probably have to include a hefty year-over-year drop in cashable GIC sales 30 or 90 days ago, and the timing doesn't seem to make sense.

If they can't do better than a 40% shrinkage on the fixed GICs as they come due over the next few months, they'll have to do serious shrinking or re-funding on the balance sheet during that time.

May 15, 2017
9:01 am
AltaRed
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NorthernRaven said

Well, not necessarily. We don't know how their retention rate on GICs is matching historical experience. It could be that a large chunk of GICs "want" to flee, but are just not able yet. It looks like half or more of the cashable funds have left, and if they can't do better than that as the fixed-terms come due on whatever rolling schedule, they'll have to shrink the balance sheet relatively quickly (i.e. next 6-12 months).  

Understood, but that is manageable from a 'run on the bank' scenario. At the very least, if HCG has matched GIC terms with mortgage terms relatively well, they should be able to weather it, i.e. through additional selling of mortgages if they have too. It gives them time to 'right the ship' and dress it up if necessary for sale, but I no longer see a solvency issue.

May 15, 2017
9:11 am
frank87
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AltaRed said

Understood, but that is manageable from a 'run on the bank' scenario. At the very least, if HCG has matched GIC terms with mortgage terms relatively well, they should be able to weather it, i.e. through additional selling of mortgages if they have too. It gives them time to 'right the ship' and dress it up if necessary for sale, but I no longer see a solvency issue.  

Agreed, except that I don't think this was ever a solvency issue. This was a liquidity issue.

If the bank gets a new CEO soon and replaces the ridiculous 10% LOC, I can see GIC brokers recommending their deposit products again.

An aside: it was made known in the weekend Globe article on the Home crisis that the Big Banks in fact did have a LOC option available for Home similar to that of Equitable's, but it just couldn't be done fast enough given how fast the HISAs were running down. I still feel like it was a major mistake for the company to take on the HOOPP-led LOC as it dramatically accelerated withdrawals.

May 15, 2017
9:24 am
NorthernRaven
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AltaRed said

Understood, but that is manageable from a 'run on the bank' scenario. At the very least, if HCG has matched GIC terms with mortgage terms relatively well, they should be able to weather it, i.e. through additional selling of mortgages if they have too. It gives them time to 'right the ship' and dress it up if necessary for sale, but I no longer see a solvency issue.  

The point would be that they can't "sell additional mortgages", because they don't have the free cash to fund them. The principal from expiring mortgages has to flow out to GIC redemptions, and their balance sheet shrinks as both an asset and a liability are removed. They can avoid this to the extent they hold onto GIC deposits, but they also have to find new funding to replace the horrible HOOPP loan.

frank87 said
An aside: it was made known in the weekend Globe article on the Home crisis that the Big Banks in fact did have a LOC option available for Home similar to that of Equitable's, but it just couldn't be done fast enough given how fast the HISAs were running down. I still feel like it was a major mistake for the company to take on the HOOPP-led LOC as it dramatically accelerated withdrawals.  

It's hard to know how to take that report. If they just needed a little time to negotiate with that other (better) LOC option, should they not have been able to continue doing so and have replaced the HOOPP facility by now (at the cost of that $100 million non-refundable HOOPP fee)?

May 15, 2017
9:37 am
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NorthernRaven said

If they just needed a little time to negotiate with that other (better) LOC option, should they not have been able to continue doing so and have replaced the HOOPP facility by now (at the cost of that $100 million non-refundable HOOPP fee)?  

It may be too late now, Andrew Moor is pretty wily, and he may have cut his Equitable deal with the chartereds in a way that excludes a similar deal with HCG.

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