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Is Oaken Vulnerable: Home Capital Group
April 21, 2017
5:50 pm
NorthernRaven
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CDIC hasn't had payout-causing failure in 20 years, so no-one knows exactly how it might go in the modern era. I think if you look through some of their recent annual reports they are devoting some resources to evaluating their procedures for this in regards to electronic payments and so on.

In any case, Home has big piles of capital, OSFI regulatory oversight and so on. Worst-case scenario would probably be some sort of takeover or asset selloff, and I doubt there's enough problematic mortgages to get anywhere near that unless a medium-large housing correction makes their sector sickly.

April 21, 2017
6:16 pm
Norman1
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dentgal said
Although you guys seem calm, i'm a bit nervous:
here's the latest email received from Oaken: …

I don't think Oaken depositors have much to worry about.

The OSC's allegations against Home Capital Group, its former CEO Soloway, its former CFO Morton, and president Reid are at

http://www.osc.gov.on.ca/en/Pr.....apital.htm

They are not accused of having a problem with fraudulent mortgage applications. Instead, they are accused of not disclosing the problem publicly early enough.

The OSC alleges that Home Capital Group became aware of problems in its underwriting practices as early as June 2014. They had discovered that some of their underwriting staff were "phantom ticking" applications. Applications were marked as employment and income verified when they were in fact not. sf-surprised

Some of those phantom-ticked applications turned out to have falsified employment and income documentation.

The OSC alleges Home Capital Group and the three didn't disclose what they knew until July 2015, when they should have disclosed earlier.

April 22, 2017
2:15 am
Loonie
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My father had to rely on CDIC once some years back. It took quite a few months to get his money, but he was satisfied that he got it. I expect things have speeded up since then due to technology, and, since none of them have gone belly up in the interim, nobody has any way of knowing how long it would take in practice. Just look at how long it is taking for federal government employees to get their paycheques. It must be about a year or so by now.

April 22, 2017
7:55 am
AltaRed
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I have gone through the process when Principal Trust went insolvent in the 1980s. It really is quite seamless. It was "a matter of days" of having the deposit base sold to another institution. I received a letter in the mail from the new FI followed by an account statement of my account on a new FI institution letterhead.

Generally speaking, the deposit base is a worthwhile asset and thus there is typically someone out there that just buys it from CDIC in a seamless quick way.

There were many other examples in that time period as well. No one was left high and dry and

April 22, 2017
8:53 am
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Loonie said

Just look at how long it is taking for federal government employees to get their paycheques. It must be about a year or so by now.  

Are CDIC insurance payouts tied to the Phoenix public servant's payroll system ... or is that just adding more FUD to the pile?

April 22, 2017
9:22 am
Norman1
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AltaRed said

I have gone through the process when Principal Trust went insolvent in the 1980s. It really is quite seamless. It was "a matter of days" of having the deposit base sold to another institution. I received a letter in the mail from the new FI followed by an account statement of my account on a new FI institution letterhead.

Generally speaking, the deposit base is a worthwhile asset and thus there is typically someone out there that just buys it from CDIC in a seamless quick way.
… 

The deposits are assets only to the depositors themselves. To the financial institution, deposits are liabilities that it eventually has to pay out. It is the loans that are the assets.

It would be those loans that CDIC shops around. Part of the purchase price of the loans is assuming the deposits. When Royal Trust was floundering, CDIC intervened and Royal Bank eventually came to the rescue. The rescue was not a charitable act.

Royal Bank agreed to assume all the Royal Trust deposits. In return, they were allowed to pick out the assets they wanted (loans, leases, mortgages, and branches) and left behind the undesirable defaulting mortgages.

If there's no desirable loans, then there won't be any takers for the deposits.

It is dangerous to assume that CDIC will always be able to find another financial institution who will fully assume all the deposits, regardless of CDIC deposit insurance limits.

April 22, 2017
9:44 am
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Norman1 said

It is dangerous to assume that CDIC will always be able to find another financial institution who will fully assume all the deposits, regardless of CDIC deposit insurance limits.  

For clarity ... that's neither here nor there to depositors within the CDIC limits ... their insurance payout isn't contingent on CDIC finding a "buyer."

April 22, 2017
10:22 am
Bill
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I know a few federal civil servants and none of them has had to wait any extra time, never mind a year, for their paycheques.

April 22, 2017
11:07 am
Norman1
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Bill said
I know a few federal civil servants and none of them has had to wait any extra time, never mind a year, for their paycheques.  

The Phoenix pay system issues only affected some public servants. Not all of them.

It is supposedly a very trying time for some of those who were affected. Some were overpaid and are wondering about the income tax consequences when the money is taken back. Probably not urgent for those people.

Situation is more seriously for those who were underpaid or not paid at all for months! See examples in CBC: Phoenix pay problems force dozens of Canadian students to seek tuition help.

April 22, 2017
11:17 am
Norman1
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Top It Up said

For clarity ... that's neither here nor there to depositors within the CDIC limits ... their insurance payout isn't contingent on CDIC finding a "buyer."  

GIC depositors will care.

CDIC will not honour the remaining term of a GIC. GIC is terminated early and the payout will only include interest up to the date of the payout.

April 22, 2017
11:22 am
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GIC depositers won't give a damn about loss of term ... as long as the principal and earned interest are intact ... don't try to make more out of it than it actually is - sheesh.

I'm in the 4th year of a 5-year 2.6% Home Trust GIC . they go down . I get my money and go online and purchase a 5-year 2.5% Canadian Tire Bank GIC . what am I really out - 50 bucks?

zip, zero, zilch.

April 22, 2017
4:07 pm
AltaRed
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Norman1 said

The deposits are assets only to the depositors themselves. To the financial institution, deposits are liabilities that it eventually has to pay out. It is the loans that are the assets.

It would be those loans that CDIC shops around. Part of the purchase price of the loans is assuming the deposits. When Royal Trust was floundering, CDIC intervened and Royal Bank eventually came to the rescue. The rescue was not a charitable act.

Royal Bank agreed to assume all the Royal Trust deposits. In return, they were allowed to pick out the assets they wanted (loans, leases, mortgages, and branches) and left behind the undesirable defaulting mortgages.

If there's no desirable loans, then there won't be any takers for the deposits.

It is dangerous to assume that CDIC will always be able to find another financial institution who will fully assume all the deposits, regardless of CDIC deposit insurance limits.  

Indeed, I knew better (that deposits are liabilities).

Twitterland is abuzz today with an RBC Research report (noted on StockChase someone says) that says HCG has a need for $325 million (of something) over the next month. Scotiabank (meaning their brokerages like Scotia iTrade) have announced they no longer sell Home Trust GICs (I have confirmed that latter point). That could create a run on deposits (HISA funds) I suppose if the poo really hits the fan this coming week. And yet, HCG just issued yesterday.. increased 1Q EPS based on preliminary unadited results. Lots of noise suddenly.

April 22, 2017
5:22 pm
Norman1
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AltaRed said

Indeed, I knew better (that deposits are liabilities).

Twitterland is abuzz today with an RBC Research report (noted on StockChase someone says) that says HCG has a need for $325 million (of something) over the next month. Scotiabank (meaning their brokerages like Scotia iTrade) have announced they no longer sell Home Trust GICs (I have confirmed that latter point). … 

Any details on what Home Capital Group will need the $325 million for?

Is $325 million what the OSC is asking for as the fine? sf-surprised

April 22, 2017
5:36 pm
Cranston
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Just checked iTrade for GICs. They are not there any more.

April 22, 2017
6:05 pm
Saver-Mom
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Norman, I think it is the amount their stock declined, not an amount they need to raise nor actually lost

https://beta.theglobeandmail.com/report-on-business/home-capital-shares-plunge-after-osc-allegations/article34768077/?ref=http://www.theglobeandmail.com&

April 22, 2017
6:25 pm
AltaRed
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Norman1 said

Any details on what Home Capital Group will need the $325 million for?

Is $325 million what the OSC is asking for as the fine? sf-surprised  

No idea. Just what apparently RBC Research was quoted as saying. Could be as Saver-Mom said but that may be just coincidence.

I suspect there is a lot of misinformation going on and it will be a volatile week coming up while facts are sorted from fiction. It will be too bad if depositors make a mad rush to withdraw HISA funds because that just causes a self-fulfilling short term liquidity issue. HCG shares will likely trade down sharply for a few days.

April 22, 2017
6:44 pm
Saver-Mom
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RBC research? Royal Bank? Is that not a competitor of HCG? Is it not in the interest of the competition to cast aspersions on HCG? Should we not question the validity of that source?

April 22, 2017
6:45 pm
Brimleychen
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I think your guy read too much fake news from shorters. Home Trust has been much solid.

Please go to TSX or home trust web site to read the official financial informatio. Here is the latest Info:

http://www.homecapital.com/Sup.....Master.pdf

The tier 1 capital ratio is 16.54%, much better than all 5 big banks, because of low leverage. It has abou 1.56 billion in cash holding as of Dec 31, 2016.

Although there is some allegation about discosure of shareholder information in 2015, the business is very profitable. They are still making $4 per share a year, and share price pushed down nakedly shorters. A lof shorters are hiring reporters / news agency to trash Home Trust.

As a depositor, I would not concern about the safety of our GIC.

Of course, like I said early, i will expect them to further increase the rate.

As for Scotia, they may be part of the institution to facilitate the shorters, I guess.

April 22, 2017
9:59 pm
Loonie
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For those who may not be aware and are interested, the problem of federal employees not being paid or being overpaid has been going on since last summer. They are still working at fixing it. Any number of articles online will provide further information. Nobody has ever said the problem affected every solitary employee but it caused havoc for many.

I trust that for the vast majority of readers, I do not have to explain what an analogy is.

I would also have thought that it was obvious that if your FI is bankrupt and CDIC has to come to the rescue, and it takes them months to pay you, then you will receive zero interest during that waiting time, however long it takes. To some people, that matters; to others, perhaps not.

Norman's question about what the money is for is important. The OSC has not even heard the case yet. The case will be heard May 4. Here are the allegations by OSC staff if anyone wants to read them: http://www.osc.gov.on.ca/docum.....apital.pdf

I too do not think there is a problem (so far) for depositors, and I hope they don't all flee. It could be a good time to buy stock, for those who are into it. As others have pointed out, this is not a liquidity problem. It's a knuckle-rapping over previous behaviours of people who are now mostly gone from the organization. It was about disclosure, which is an offense against stockholders more than depositors. As a business, it seems to be doing well. They're not the first to run afoul of the OSC. As an example, in 2009, HSBC was fined almost $6million for what sounds to me like a more serious offence. http://www.osc.gov.on.ca/docum.....1_hsbc.pdf . No doubt there are other cases, but I found this one.

It's good that the OSC is doing their job, and I'm sure HCG has learned a costly lesson (it is already costing them, in lawyers , falling stocks, bad PR), but is not likely to have a major impact on the bottom line after the dust settles. That wouldn't really help anyone. In the above ruling re: HSBC, the OSC was careful to couch its ruling in the context of what was "in the public interest". I don't think it would be in the public interest to bring down a bank over a matter of this type and magnitude, and doubt anyone else would either.

If it comes to any more than this in the end, I will be really surprised.

April 23, 2017
4:50 am
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Loonie said

I would also have thought that it was obvious that if your FI is bankrupt and CDIC has to come to the rescue, and it takes them months to pay you, then you will receive zero interest during that waiting time, however long it takes. To some people, that matters; to others, perhaps not.
  

Perhaps you can provide the link that shows "and it takes them months to pay you". No need for another windy answer, just the direct CDIC link showing the anticipated insurance payout period will suffice.

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