An Update on Home Capital Group’s Situation

Craig Sebastiano
by Craig Sebastiano June 13, 2017 / No Comments

Home Capital continues to be in the news, but it’s no longer about trouble with regulators and a run on deposits.

According to The Globe and Mail, the mortgage lender is “fielding preliminary takeover offers and is in negotiations to settle regulatory allegations.” In April, the Ontario Securities Commission (OSC) alleged that the company three of its current and former executives breached provincial securities laws.

The news about a possible acquisition pushed Home Capital shares up about 28% last week. However, the stock is still down more than 60% on a year-to-date basis.

The company’s seen its high-interest savings account and GIC deposit balances shrink over the past couple of months as a result of the OSC allegations. To attract deposits, Home Capital has significantly increased its rates for non-registered GICs significantly:

GIC term April June
One year 1.75% 2.75%
Two years 2% 2.95%
Three years 2.3% 3.05%
Four years 2.4% 3.15%
Five years 2.5% 3.25%

Home Bank—a subsidiary of Home Capital—offers GICs through its consumer brand, Oaken Financial. Home Bank is a member of the Canada Deposit and Insurance Company (CDIC), which means eligible deposits (such as a five-year Canadian-dollar GIC) have CDIC insurance and are insured up to a limit of $100,000 (principal and interest combined). If a GIC provider is a CDIC member and it becomes insolvent, the recovery of an investor’s insured funds should take no more than a couple of days.

Equitable Group, the parent company of Equitable Bank and EQ Bank, saw its stock price drop as a result of the Home Capital situation. The shares have since recovered somewhat. The company even secured a $2-billion credit facility from Canada’s six biggest banks as a precaution even though it said it had “proven, traditional sources of liquidity and funding.”

Like Oaken Financial, Equitable also increased its rates on GICs:

GIC term Early May June
One year 1.32% 1.81%
Two years 1.65% 2.03%
Three years 1.75% 2.07%
Four years 1.85% 2.11%
Five years 2% 2.3%

The company also increased the interest rate on its high-interest savings account, the EQ Bank Savings Plus Account, to 2.3% from 2%.

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