After two years of recurring warnings (both on this website and elsewhere) that Canada's largest alternative (i.e., non-bank) mortgage lender is fundamentally insolvent, kept alive only courtesy of the Canadian housing bubble which until last week had managed to lift all boats, Home Capital Group suffered a spectacular spectacular implosion last week when its stock price crashed by the most on record after HCG revealed that it had taken out an emergency $2 billion line of credit from an unnamed counterparty with an effective rate as high as 22.5%, indicative of a business model on the verge of collapse . Or, as we put it, Canada just experienced its very own "New Century" moment. One day later, it emerged that the lender behind HCG's (pre-petition) rescue loan was none other than the Healthcare of Ontario Pension Plan (HOOPP). As Bloomberg reported, the Toronto-based pension plan - which represented more than 321,000 healthcare workers in Ontario - gave the struggling Canadian mortgage lender the loan to shore up liquidity as it faces a run on deposits amid a probe by the provincial securities regulator. Home Capital had also retained RBC Capital Markets and BMO Capital Markets to advise on “strategic options” after it secured the loan. Why did HOOPP put itself, or rather its constituents in the precarious position of funding what is a very rapidly melting ice cube? The answer to that emerged when we learned that HOOPP President and CEO Jim Keohane also sits on Home Capital’s board and is also a shareholder. But how did regulators allow such a glaring conflict of interest? According to the Canadian press, Keohane had been a director of Home Capital until Thursday, but said he stepped away from the boardroom on Tuesday to remove the conflict of interest when it became clear HOOPP might step in as a lender. Keohane further clarified on Friday that he doesn’t view the Home Capital investment as risky because the pension plan will be provided with $2 worth of mortgages as collateral for every $1 it lends to Home Capital. “We take comfort from the underlying asset portfolio, so we are not looking at Home Capital as a credit,” said Mr. Keohane in an interview with Business News Network television. He added that a correction in the housing market is not of great concern, since the values of homes would need to plummet by more than 65 per cent for the fund to make no return beyond the value of its principal commitment. Furthermore, it appears that Canada's pensioners are priming all other company lenders: Keohane also said that the funding syndicate would rank above Home Capital’s other lenders. “We have security interest in the collateral we’ve received, so we have the right to sell that collateral if we don’t get paid. And then the balance that’s left over would go to recovery for other creditors.” The implication is that as long as HCG's mortgages dont suffer greater than 50% losses, HOOPP's pensioners should be money good. Of course, if this is indeed Canada's "subprime moment", any outcome is possible. As for other lenders, or the prepetition (because there will be a petition here, the only question is when and in what form) equity, that's some $4 billion in assets that was just stripped from existing collateral. "The Best Price May Come From Breaking Up The Company" In any case, the company's frenzied, emergency measures to stabilize the near-insolvent mortgage lender were not nearly enough, and despite HCG stock posting a modest rebound on Friday between hopes of a rumored sale and a short squeeze, those hopes may be dashed soon because as the Globe and Mail reports, the depositor bank run that gripped Home Capital Group in the past week, only got worse after the company revealed just how precarious its funding situation had become. First, any hope the company, or rather its investors may have held of a sale, appear dashed. Investment banking sources cited by the G&M said "the best possible price may come from breaking up the company and selling portions of its mortgage portfolio to regional financial institutions." Which also implies that aside from a few select assets, there is no equity value left, or in other words, any potential buyer is now motivated to wait until HCG liquidates, and then picks off the various assets in bankruptcy court. There are structural limitations as well: Home Capital currently holds $18-billion in home loans outstanding, "a portfolio that would be difficult to swallow for rivals in the alternative mortgage sector, such as credit unions, small mortgage lenders, Montreal-based Laurentian Bank and Edmonton-based Canadian Western Bank." These institutions, along with private equity firms, could still bid for pieces of Home Capital, the G&M admits. The only question is why they would do so before a bankruptcy filing. While one prominent name features on the list of potential buyers, that of PE giant J.C. Flowers whose CEO J. Christopher Flowers earlier this year said he expected to expand the company’s Canadian real estate lending business, Canada’s six big banks are notable for their absence on a list of bidders. The reason is that Home Capital lends money to home buyers who have been turned down by the major banks and none of these institutions is expected to enter the alternative mortgage sector by acquiring the company. National Bank of Canada proactively called the equity analysts who follow the company this week to say it would not bid on Home Capital after being asked if it was a potential buyer. Needless to say, the big banks would be quite delighted if one of their "bottom picking" competitors would suddenly go bankrupt. "When you have a bank run people get spooked" Which brings us to the most imminent risk facing Home Capital Group, and its subsidiary, Home Trust. Recall, that on Thursday we observed that as concerns about HCG's viability mounted, depositors were quietly pulling their funding from from savings accounts at subsidiary Home Trust. By Wednesday, when Home Capital revealed it was seeking a $2-billion loan to backstop its sinking savings deposits, shareholders ran for the exits, driving down the company’s share price by 65 per cent on Wednesday alone, and heightening the sense of panic. On Friday, the company revealed that high-interest savings account balances fell another 36% to $521-million by Friday morning, down by a whopping $293 million from $814-million Thursday and more than $2-billion a month ago. In other words, had it not been for the emergency HOOPP loan, the company would likely be insolvent as of this moment following what may be the biggest bank run in recent Canadian history; which also explains why the interest rate on the loan is above 20%. “When you have a run on the bank, people get spooked and they sell and ask questions later,” said a Bay Street investment banker. “It’s investor psychology that takes over.” As is usually the case, regulator appeared on the scene.... just one day too late. Canada’s banking industry regulator, the Office of the Superintendent of Financial Institutions (OSFI), has gathered data from other financial institutions this week, both to monitor for signs of a broader depositor panic and to track where funds are moving as they leave Home Trust. OSFI sent an urgent request Wednesday to several smaller and mid-sized financial institutions and credit unions to provide the regulator with up-to-date information about their savings accounts, according to a source. Specifically, OSFI wanted to know the institutions’ most recent account totals for high-interest savings accounts, as well as data on recent redemptions and current levels of high-quality liquid assets. The request, which the OFSI said had to be fulfilled "as soon as institutions are able", is seen as an attempt to take the pulse of the market by tracking where deposits flowing out of Home Capital may be going, and to gauge whether there is any contagion among other institutions. In recent days, some smaller and mid-sized institutions have also struck up early-stage discussions about whether multiple institutions could join together to explore a deal to buy some of Home Capital’s assets. As for Canada's big banks, they have already decided that HCG won't survive. Several months ago, Canaccord Genuity Group Inc. told its financial advisers they could no longer steer investors to high-interest savings accounts at Home Capital or rival alternative mortgage lender Equitable Bank. Client money already placed with either bank had to be moved within 60 days. Then, after Home Capital revealed in March it was under investigation by the Ontario Securities Commission over its disclosure practices, Canadian Imperial Bank of Commerce introduced a cap of $100,000 per client for purchases of Home Capital guaranteed investment certificates (GICs), which is the maximum level covered by Canada’s deposit insurer. A spokesperson from Royal Bank of Canada said that, “several weeks ago” the bank introduced a $100,000 cap on Home Capital GICs bought through a full-service broker, although there were no limits for purchases through the firm’s discount brokerage. On Thursday, RBC also released the following entertaining price target scenario: it still has a price target of $8 but fear not, even if RBC is wrong, it promises at least $4/share in residual value. We are not quite as optimistic. Additionally, late last week, Bank of Nova Scotia said it would stop selling all GICs sold by Home Trust, but said Monday that policy was amended to a limit of $100,000. Bank of Montreal’s brokerage unit also confirmed it has a $100,000 limit on Home Trust GICs but would not say when it went into force. As G&M adds, the OSC news shook investors, but the panic was heightened as news of the banks' moves to cap investor deposits slowly seeped through Bay Street in subsequent days, raising concerns that major financial institutions were pulling away from Home Capital. "We Are Out Of The Position" When asked if Home Capital could survive this run on its deposits, Keohane - formerly at HOOPP, and the company's last remaining source of funding - said it was possible. “I think it’s a viable business,” he said. “Their cost of funding is going to go up, which may impact earnings… it’s always a possibility that some other institution may have an interest in taking the entity over. If you can have access to a lower funding cost, I mean, it’s quite an attractive purchase.” Most disagree, and it is safe to assume that the depositor run won't stop until every last dollar held at HCG has been withdrawn. Meanwhile, late on Friday, Home Capital’s second biggest shareholder, Calgary-based QV Investors disclosed that it liquidated its position, selling 8.4 million shares. QV Investors previously held a 12.8% stake in Home Capital. Toronto-based Turtle Creek Asset Management is Home Capital’s biggest shareholder with 13.6% stake. On Saturday another prominent investor bailed, when Calgary-based Mawer Investment Management sold 2.75 million shares of the alternative lender, CIO Jim Hall said told Bloomberg in a phone interview. “We are out of the position,” Hall said. Mawer also has reduced holdings in Canadian alternative- lender Equitable Group. All these investors will now be forced to explain to their LPs how they missed a ticking timebomb which so many, this website included, had warned about for year. Home Without The Capital Group As for Home Capital Group, or more aptly Home Without The Capital Group, the future is bleak, and a bankruptcy liquidation appears the most likely outcome. What impact such an event will have on the broader Canadian housing market remains to be seen. Last week, shortly after HCG's rescue loan announcement stunned the otherwise sleep Toronto tape, the Canadian housing regulator warned of "strong evidence of housing-market problems." Looking back in a few months, that may prove to be a vast understatement.
Call it Canada's "New Century" moment. We first introduced readers to the company we said was the "tip of the iceberg in Canada's magnificent housing bubble" nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada's largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices - most prominently noted short-seller Marc Cohodes - would constantly remind traders and investors about the threat posed by HCG. Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice. As part of this inevitable outcome, one which presages the company's eventual disintegration and likely liquidation, Bloomberg reports that the non-binding rescue loan with an unnamed counterparty will be secured by a portfolio of mortgage loans originated by Home Trust, the Toronto-based firm said in a statement Wednesday. Home Capital shares dropped by 61% in Toronto to the lowest since 2003, dragging down other home lenders. Equitable Group Inc. fell 17 percent, Street Capital Group Inc. fell 13 percent, while First National Financial Corp. declined 7.6 percent. In short, the Canadian mortgage bubble has finally burst. Some more details on HCG's emergency source of funding: Home Capital will pay 10% interest on outstanding balances and a non-refundable commitment fee of C$100 million, while standby fee on undrawn funds is 2.5%. The initial draw must be C$1 billion. The loan has an effective - and very much distressed - interest rate of 22.5% on the first C$1 billion, declining to 15% if fully utilized, according to a note from Jaeme Gloyn, an analyst at National Bank of Canada. Home Capital said the credit line is intended to “mitigate” a sharp drop in Home Trust’s high-interest savings account balances, which sank by $591 million from March 28 to April 24, at which point the total balance was $1.4 billion. Home Capital warned on Wednesday that further outflows are anticipated. Translated: what until last night was a depositor bank jog just became a sprint. The loan will provide Home Capital with more than C$3.5 billion in total funding, more than twice the C$1.5 billion in liquid assets it held as at April 24. It also has C$200 million in securities available for sale, and high interest savings account balances fell about 25% to C$1.4 billion over the past month. Home Capital relies on deposits to fund their mortgage loans; following today's announcement the company's liquidity is certain to get even worse as all non-distressed sources of cash are pulled. Cited by Bloomberg, Andrew Torres, founding partner and chief investment officer at Toronto-based Lawrence Park Asset Management said that "The company is facing a bit of a liquidity crunch and they felt they needed to resolve it quickly." He said the "steep" commitment fee and the interest rate on the loan "are surprising numbers for a company that was ostensibly investment-grade." Well, it was only investment grade because as usual the rating agencies never did their homework. For a real hint into the company's rating, look at the 22.5% interest rate, suggesting the company's days outside of bankruptcy are numbered. Home Capital Group's sudden collapse was actually visible from a distance. While in the summer of 2015, the termination of HCG was still debate, in recent months the company’s woes stemmed from allegations by the Ontario Securities Commission that Home Capital misled investors and broke securities laws. In other words engaged in those "liar loans" which we first warned about back in the summer of 2015. Meanwhile, founder Gerald Soloway will step down from the board when a replacement is named and Robert Blowes will assume the role of interim chief financial officer, the company said Monday. "The company anticipates that further declines will occur, and that the credit line would also mitigate the impact of those," Home Capital said. Amusingly, it was just two months ago when the company set new performance goals after reporting quarterly results, targeting revenue growth of 5% or greater, diluted earnings-per-share of 7% or greater and a return on equity of 15 percent or more over the long term, according to Bloomberg. It should add one more "performance goal" - stay out of bankruptcy for at least 3 months. "They did what appears to be to us a very expensive deal," said David Baskin, president and founder of Baskin Wealth Management in Toronto, a former investor in Home Capital stock. "Basically they blew up the income statement in order to save the balance sheet, which I guess if you’re facing an existential crisis is what you have to do." The Office of the Superintendent of Financial Institutions (OSFI) told Canada's BNN it does not comment on specific institutions it supervises, but that it maintains ongoing relationships with those institutions and is monitoring the Home Capital situation "closely." Canada's entire mortgage lending market is tumbling.
Курс доллара к основным мировым валютам в пятницу растет, находясь вблизи своего максимума с апреля 2003 года, достигнутого ранее в ходе торгов на фоне заявлений главы ФРС США Джаннет Йеллен о дальнейшем курсе развития монетарной политики страны.
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Last week, following the recent dramatic decline to slam the Vancouver housing market after a 15% luxury real estate sales tax aimed at foreign purchasers, ground the local market to a halt, we reported that China's angry consul general to Vancouver lashed out at the local government for finally bursting a housing bubble which doubled Vancouver real estate prices in the past decade. "Why a 15 percent tax? Why now? Why this rate? What’s the purpose? Will it work?" Liu Fei, China’s infuriated consul general in Vancouver, said in an interview with Bloomberg. "The issue is how to help young people afford housing," she added. "I’m not sure even a 50 percent tax would solve the problem." Arguing that the tax would halt the influx of hot Chinese money into Vancouver - which many have claimed is the reason for Vancouver's stratospheric housing prices - Liu said that "this is a big country with a small population. It needs immigration to grow the economy." The implication was that absent a hospitable housing market where Chinese hot money launderers can park their cash, it is Canada that would suffer. Whether or not the conflicted Chinese consul is correct, remains to be seen, but for now one thing is undisputed: the Vancouver market is being roiled as the latest numbers from the Real Estate Board of Greater Vancouver confirmed. In August, the board reported that Vancouver home sales fell 26% from a year earlier, while prices slid as the 15% tax crimped demand. Compared to July, sales tumbled by 23% to 2,489 transactions. Detached properties were hit hardest as sales dropped 45% from a year earlier. Transactions of attached homes such as town-houses dipped 25% and apartment sales were down 10 percent. Meanwhile, the average price of detached Vancouver properties crashed, dropping 17% on the month, and 0.6% on the year, to C$1.47 million ($1.13 million) in August, the lowest price since September 2015. Dan Morrison, president of the real estate board, said in the press release that Friday’s data show the tax “appears to have added” to a slowing trend that started several months ago by “reducing foreign buyer activity and causing some uncertainty amongst local home buyers and sellers." “It’ll take some months before we can really understand the impact of the new tax. We'll be interested to see the government's next round of foreign buyer data", Morrison said adding that there’s an “imbalance between supply and demand in most communities", with the supply clearly overwhelming demand. Needless to say, the realtor's group opposed the tax after it was announced as it also applied to pending transactions, leaving many buyers shouldering an unexpected tax and sellers with scuttled deals. He said in the statement the board is seeing fewer detached home sales, particularly in the highest price points. As sales slow and prices cool, new listings of properties increased only slightly from last year, rising 0.3 percent. “What we’ve seen in August is mostly buyers going on the sidelines, either being forced onto the sidelines because they were cut by the sales tax and decided not to proceed with sales, or folks out there saying ‘let’s see how the dust settles,’” Robert Hogue, senior economist at Royal Bank of Canada, told Bloomberg. “So far we haven’t seen necessarily a flood of properties being listed on the market." One look at the chart above, however, and what is so far only a trickle will become a flood shortly as local sellers "on the sidelines" realize just how big the drop now is. Meanwhile, the bursting of the housing bubble is bad news for the local government: as the city cools, governments of all levels are deriving the biggest share of their revenue from housing and related activities, about 17%, in about two decades, according to a National Bank of Canada report this month. Worse, the August swoon is just the beginning: the city is still the least affordable in the country. As reported previously, roughly 90% of a typical family’s income goes to service a mortgage and pay property taxes and utility bills in Vancouver, double the national average, according to a Royal Bank of Canada second-quarter report. The benchmark price of all housing types, a custom measure used by the real estate board which excludes some properties, showed the price of a home on that measure increased 31 percent from a year earlier in August to C$933,100. If the Vancouver bubble has indeed burst, keep an eye on the blue line in the chart above whose rate of fall is only set to accelerate.
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Представляем вашему вниманию обновленную таблицу валютных прогнозов от National Bank of Canada. Все прогнозные значения в таблице ниже подразумеваются на конец обозначенного периода. Источник: Forexpf.Ru - Новости рынка Forex читать далее…
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