Is Oaken Vulnerable: Home Capital Group | Page 6 | Oaken Financial | Discussion forum

It's hard to imagine that .25% will stop the bleed on HISAs. It's hard to imagine that any amount would if people are panicking.
I wonder how much of this can be attributed to Dr_Hubert and such like.

I have sometimes wondered what would happen if you had a GIC with a CDIC-insured FI, and then, during your term, the FI lost its insurability. Would you still be covered? I have never inquired but the question has popped up again in my mind.

I expect Oaken to survive, one way or another, as the fundamental issue is still relatively small, in the scheme of financial misdeeds. The only money that has actually been lost is from panic selling and withdrawals. It's not in the public interest to have an institution fail for such reasons, so I don't think the powers that be would let it happen.

Loonie said
It's hard to imagine that .25% will stop the bleed on HISAs. It's hard to imagine that any amount would if people are panicking.
I wonder how much of this can be attributed to Dr_Hubert and such like.

I have sometimes wondered what would happen if you had a GIC with a CDIC-insured FI, and then, during your term, the FI lost its insurability. Would you still be covered? I have never inquired but the question has popped up again in my mind.

I expect Oaken to survive, one way or another, as the fundamental issue is still relatively small, in the scheme of financial misdeeds. The only money that has actually been lost is from panic selling and withdrawals. It's not in the public interest to have an institution fail for such reasons, so I don't think the powers that be would let it happen.  

Well said, Loonie. You and I only agree sometimes but in the above post I agree with you wholeheartedly. 🙂

I hadn't realized that Home Trust, the larger & original of the Home Trust and Home Bank subsidiaries of Home Capital Group, had seen ~$591 million in (net) outflows from its roughly $1.9 billion in High Interest Savings Account balances to roughly $1.4 billion. This puts Home Trust at, or slightly larger than, Ally Canada (legally known then as ResMor Trust Company). Actually, it's quite a bit larger as that's what Ally Canada had in terms of GICs/term deposits, I believe.

You've raised a larger issue that I believe is, fundamentally, far more important, in my view, than disclosing whether one happens to work for a Canadian chartered bank or credit union in recommending a particular CDIC-insured or provincial credit union deposit insurance-insured product: people using this forum, potentially, as a "platform" while holding net "short" positions in a particular financial institution or its publicly-traded parent company. They may even have speculative derivative (i.e., options) positions in said companies, too.

While I haven't read "Dr_Hubert"'s post, I have read similar ones by the original poster, "Nehpets," or something like that, and even the subject line is highly questionable. It's clear from the wording of the OP that the OP has fairly decent knowledge of Oaken and its parent company, Home Capital Group, and is trying to provoke a highly inflamed, provocative discussion - motives of which are unclear. 🙁

It is, therefore, my recommendation that the so-called "guidelines" of this forum be modified, Peter, to instead make it "highly recommended" (but not necessarily required) of an employment relationship to be disclosed when recommending a CDIC-insured deposit product (which has absolute safety, within CDIC deposit limits) and instead to require that an employment relationship with a regulated investment dealer/portfolio management firm (which can recommend/trade in higher risk investment products) or an investment position (i.e., long, short or derivative position) in a particular regulated financial institution or its publicly-traded parent company. Also, these sort of speculative posts titled, "is [xyz company] vulnerable?", should be more swiftly deleted, especially when this forum's members believe the OP has more knowledge than they're letting on (this is loosely defined). 🙂

One final point: I think I bring a lot of value to this forum but, having worked for HSBC Bank Canada at the time, had I been required to disclose my employment relationship, I wouldn't have joined this forum or contributed hundreds of posts and answered, literally, hundreds of questions on principle. Ultimately, I voluntarily disclosed my employment relationship on principle, too, but I think it should be required where most appropriate (i.e., in giving investment advice or recommending an investment product), not simply making people aware of a CDIC-insured deposit product or credit union savings account. 😉

To Loonie's point, Oaken is a solid company and is being unfairly tarnished by these sort of posts by users with questionable motives. The mortgage broker-sourced mortgages that had qualification issues have been dealt with and are being managed prudently and are a small part of the portfolio. These serve to sort of "stir the pot" the create "mass hysteria" that feeds on itself. 🙁

Cheers,
Doug

Okay, I read "Dr_Hubert"'s post, I didn't realize I had previously read it and I feel somewhat duped in having even replied to his/her post. earlier. 🙁

Like I said above, this is a far more problem of lack of disclosure in these sort of threads being created to create "mass hysteria". 🙁

It would be a terrible shame if Oaken Financial/Home Trust/Home Bank were ultimately assumed by another CDIC member (the deposits will be safe) as they have solid direct-to-consumer and mortgage broker/deposit broker-sourced mortgages and deposits. I agree with what's been said in they're a critical component of the space for us "savers" (or "borrowers," even), if they were to be assumed by a "Big 5" bank and phased out like Ally by being integrated into the "Big 5" bank's banner, it would be a second major hit to this industry by the Liberal government (the first being last fall when they tightened access to the mortgage securitization market and made funding costs much higher).

I also take issue with RateHub removing Oaken Financial unilaterally from their website. For this reason, I want it to remain on the "comparison chart" as a "show of confidence" by Peter and the forum's members so long as it either: (a) maintains a 'competitive' interest rate as defined in the chart's definitions or (b) remains as a standalone entity.

Cheers,
Doug

JenE said
Doug, RateHub.ca does have Oaken listed on their website - at least they did a couple of minutes ago. Otherwise I agree with your posts on this topic.   

Oh, I thought someone posted something showing something they were removed? Were they removed and re-added? At any rate, glad to see they're there - if they were removed, though, I do disagree with that decision but glad they're back in there. 🙂

Cheers,
Doug

NorthernRaven said

It was annoying dr_hubert who said they were gone (with a screenshot) - I suspect Ratehub had them pulled temporarily or there was a technical glitch while they update rates, or something.  

Great. That's what I figured. Thanks for clarifying, though! I suspect you're right - RateHub may have temporarily pulled it. Glad they've put it back! 🙂

I think all of these deposit brokers are exacerbating the problem - there's no real underlying problem in HCG's business. The line of credit they've secured "from a major institutional investor," whom they don't name, and which could be a major Canadian FI, is a temporary measure to shore up their capital requirements following the outflows of the HISAs. That will likely only have an effect on its profitability, potentially its ability to pay its current dividend rate, so long as the outflows eventually slow to stem.

If I were HCG management, I'd keep the HISA rate at 1.75%, maybe go as high as 2% to match the "top tier" rate of EQ Bank, but what I'd really do to either retain existing depositors or attract new depositors is offer dramatically higher 2-, 3-, 4- and 5-year non-redeemable GIC rates (i.e., say 4% for a 5 year, 3.50% for a 4-year and 3% for a 3-year). That would at least, hopefully, allow them to "shore up" their capital into intruments that can't be redeemed in less than a year, to restore depositor and investor confidence even if it means dramatically reduced profitability in the near-term. 🙂

I suspect you'll see weekly, or even daily, rate changes for Oaken Financial until they start to see net inflows or at least a neutral deposit base. That'd be the smart move, in my view, as I don't want to see them disappear - they've been a great player in the direct-to-consumer space and to us depositors/"savers". 🙂

Cheers,
Doug

Full Disclosure: In line with my above commitment above for a suggested forum "guideline" change on disclosure "best practices," I've initiated a small long position in Street Capital Group, Inc. ("SCG") given what I view as its relative value seen today in the financial services sector sell-off we've seen that I view as overdone especially in the case of SCG, which also has a direct-to-consumer business model besides the traditional mortgage broker channel, is largely in the CMHC-insured mortgage space, has a higher than normal average credit/"beacon" score in the mid-700s, is planning a credit card launch next year to bring in an attractive clientele and sources deposits through primarily non-redeemable GICs (rather than HISAs). 🙂

frank87 said
This might be one of the most amazing things I've seen in the business world. Home has a mortgage book with excellent credit quality, backed with very low LTVs. Their arrears rates are 0.24%. And yet, it seems like there's a degree of panic settling in with depositors who are INSURED on their money by CDIC, nevermind the fact that the company is well capitalized with a strong performing book.

Just shows the kind of mania that the human mind can conjure up.  

Frank87, I agreed with your assessment.

But the problem is that our banking system is fractional-reserve banking, the practice whereby a bank accepts deposits, makes loans or investments, and holds reserves (tier 1 capital) equal to a fraction of its deposit liabilities. You know the weakness of this system at a glance.

All the accounting is good at the normal time. Once the trust is tossed, no bank can withstand the rush run.

For Home Trust case, nothing is wrong with their business, their reserve, and their mortgages. But the shorters have been co-ordinated with very big backing from big boys, media, and even some form of others (??).

In fact, if you are looking at what there are shorting now:-
Canada's Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History, http://www.zerohedge.com/news/.....st-history

It's a big shark for the little company like HCG, EQB.

As savers, we have been seeking shelters (trying to get higher interests) on these little companies with CDIC protection, and hopefully, our deposits are fine.

The financial market is brutal, and there are no right or wrong, and only the big guys set the rules!

The minute HCG seeked help from Big Instituition, the day is numbered. Big money won.

At the end, DR_Hubert wins! Big banks & big money rules. Sad for Home Trust, Equitable Bank etc.

frank87 said

Do you have any evidence of this coordination?  

From the link above, you can get to the shorter twitter pages. ...from so-called whistle blower and all the ways to send information to various media....

Loonie said
…

I have sometimes wondered what would happen if you had a GIC with a CDIC-insured FI, and then, during your term, the FI lost its insurability. Would you still be covered? I have never inquired but the question has popped up again in my mind.
…  

I think subsection 34(1) of the Canada Deposit Insurance Corporation Act addresses that possibility:

Effect of termination or cancellation

34 (1) If the policy of deposit insurance of a member institution is terminated or cancelled by the [Canada Deposit Insurance] Corporation, the deposits with the institution on the day the termination or cancellation takes effect, less any withdrawals from those deposits, continue to be insured under the terminated or cancelled policy of deposit insurance for a period of two years or, in the case of a term deposit with a remaining term exceeding two years, to the maturity of the term deposit.

Norman1 said

frank87 said
This might be one of the most amazing things I've seen in the business world. Home has a mortgage book with excellent credit quality, backed with very low LTVs. Their arrears rates are 0.24%. And yet, it seems like there's a degree of panic settling in with depositors who are INSURED on their money by CDIC, nevermind the fact that the company is well capitalized with a strong performing book.

Just shows the kind of mania that the human mind can conjure up.

I think the panic may have been from depositors not fully CDIC-insured because their financial advisor placed more of their money into Home Trust's High Interest Savings Account than was covered by CDIC.

I had a look into the Home Trust HISA. Pays just 1.00% per annum, with ¼% trailer to the advisor. Minimum $1,000 per account. Maximum $10 million per account!

May not have been massive withdrawals. Just massive trimming down to $100,000.  

Thanks a lot Norm. I'm really surprised that that's the case. And it may be the reason why the HISAs fell so much.

I looked at EQ Bank's HISAs and they have a maximum of $5 million.

Norman1 said

I think subsection 34(1) of the Canada Deposit Insurance Corporation Act addresses that possibility:

Effect of termination or cancellation
34 (1) If the policy of deposit insurance of a member institution is terminated or cancelled by the [Canada Deposit Insurance] Corporation, the deposits with the institution on the day the termination or cancellation takes effect, less any withdrawals from those deposits, continue to be insured under the terminated or cancelled policy of deposit insurance for a period of two years or, in the case of a term deposit with a remaining term exceeding two years, to the maturity of the term deposit.

Great find, Norman! I figured that was the case - it sounds like if CDIC were to terminate a CDIC member's membership and thereby its deposit insurance, the deposits of that member would be insured for 2 years or the remaining maturity date of the GIC. 🙂

Of course, this would be the unlikeliest of events. It's important to point out, as of today, Home Capital Group reported Home Trust's HISA balances (both direct-to-consumer, a.k.a. Oaken Financial, and deposit broker-source deposits) stood at $881 million so a further $600 million has fled. As I and others have already shared, the "short sellers," some potentially masquerading on these and other message boards, the media and various investment dealing firms are "feeding this story" with things like suspending sales of Home Trust's HISAs or GICs through their deposit broker relationship. Most, if not all, have reinstated such sales but I have to wonder if stories like Scotia iTRADE and Canaccord Genuity Wealth Management suspending sales of Home Trust's deposits were a subverted attempt to attract new deposits to their parent company (The Bank of Nova Scotia), at least in the former's case? Lots of blame to be shared here.

Yes, Home Capital Group had problem mortgage originations from bad mortgage brokers but, as I understand it, by now they've long since gone through their whole mortgage book, flagged those mortgages they believe were suspect and are monitoring them even more closely. In the grand scheme of things, they are a small portion of their overall mortgage portfolio. Their overall business is sound - even more so having secured a line of credit (at a high cost) to provide emergency liquidity to "shore up" its capital structure following the rapid decline in Oaken HISA account balances. This will likely have a significant effect on profitability and may limit their ability to continue to pay the quarterly dividend to shareholders. I want HCG to continue in an independent form because of the great service and product offerings they provide - they have many happy customers, many on these forums - and for the shareholders who believed in the company and are now likely significantly "underwater" on their investments. Whether that will continue is a different story. What I am certain of, however, Home Trust and Home Bank will continue - whether as part of HCG (hopefully!), as two subsidiaries of an existing Canadian FI that buys them up on the cheap, as a merged subsidiary of an existing Canadian FI that buys them up on the cheap or ultimately amalgamated/merged into an existing Canadian FI (like RBC did with Ally Canada's deposit operations). While it's good to have discussion about CDIC and the role it plays, in this case, it most likely will not have to be tapped in any way - a suitor will be found, if needed. As a "saver," I'll be watching Oaken's GIC rates daily and they're continually moved upward to attract new depositors (their GIC balances still stand at nearly $13 billion, larger than I'd thought as that's slightly less than half that of Tangerine Bank's total deposits) and might finally open my first Oaken GIC. 🙂

Cheers,
Doug