# Home Capital Group (HCG)



## dogpower

Hi guys

Is anyone else following HCG? HCG is a mortgage lending business in Canada. I became interested in the stock after it was recommended on BNN. I'm still fairly new to investing and the majority of my money is in indexes, however I want to branch out into stocks that are fundamentally sound with dividends that I can hold for a long time.

So I did some research on HCG dating back from 2009. 

It has increasing revenues and EPS each year.
Rates as a buy or strong buy by all analysts.
PEG is 0.89.
ROE consistently over 20%. Not increasing but decreasing over the past two years however.
Earning surprises have been positive or neutral over the years. 
Earnings also better than the average industrial earnings.
Earning forecast also positive. 
Consistent dividend increases
PE is 11.3 and the TSX is like 13-14?

Cons:
Insider buying is negative.
Some economists are expecting an eventual pull back on the Canadian housing market.
Increase interest rates resulting in decrease housing demand
Its currently at market highs and I don't expect the big jump in stock price like we've seen in the past year.


I'm also interested in Canadian banks but they all seem expensive at the moment too


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## doctrine

I own 250 shares that I bought at $52.33 back in May after Steve Eisman, a US hedge fund manager, recommended to a large group of hedge fund managers to short it specifically to take advantage of a Canadian housing crash. I thought his analysis was wrong and took a contrary position.


http://www.cnbc.com/id/100726168

I still own the shares, which are now at $77 and up 47%. I can't say I'm thrilled about the 1.45% yield, but I'm not selling anyway; the company continues to do well and is still at a P/E of 11. I know there's people on here that have owned HCG for much longer and have much larger gains. Good company. It is essentially at an all time high right now which is always a downside if you are a value investor. 

National Bank has a lower P/E than Home Capital Group. I also own shares in it.


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## dogpower

Lol I know. I googled HCG blogs and read your website and then while reading your post I got a sense of deja vu. 

Is Scotia Bank (BNS) a better buy because its more diversified? I am more comfortable holding that stock for a long time because I feel like the major Canadian banks are too big to fail. 

At the same time, I feel like since I don't know much about investing, I should just put cash in my indexes and wait for a pull back. Is there a point in buying a major bank stock if I'm already putting money into an index? It seems like since I started in May, I keep buying market highs here and I'm comfortable buying market highs with indexes, but I'm not that happy when it comes with stocks and I want investing to be an enjoyable learning experience.


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## scomac

I have owned shares in HCG for five years, purchasing them initially during the 2008 credit crisis. I have trimmed my position a couple of time along the way, but will continue to hold the balance. There are very few legitimate growth companies in Canada; this is one.


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## doctrine

BNS is also a good buy, a good P/E of 12 and a 4% yield with lots of recent increases. While it is at an all time high, these and other metrics on the company are about as good as they get from a historical basis. If you own a Cdn index fund then there is a lot of overlap. Just BNS itself is 6.1% of XIU and 4.6% of XIC. I don't personally see anything wrong with holding a subset of the index, especially if you're buying a lower P/E subset, and the banks all fall in that category. But if you have both then you're probably overweighting Canadian banks in general.


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## MrMatt

I was looking at this years ago and didn't bite.
Seems to have been a big miss on my side.

Haven't looked too much now, my financials allocation is a bit high, but HCG is still looking pretty good.


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## dogpower

I decided to put $1000 in BNS. My reasoning is that HCG I don't expect much growth, and there is too much uncertainty regarding the Canadian housing market and rising interest rates. HCG may be a good stock to hold for 1-2 years, but afterwards I'm uncertain about it.

With BNS, its a stock I'm comfortable holding for a long time and collecting dividends.


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## doctrine

Home Capital Group reported 4th quarter and year end results including

- EPS up 15%
- $7.32 in earnings in 2013, giving them a trailing P/E of 10.5 and a total dividend payout ratio of 14.7%
- Second dividend increase of the fiscal year, now $0.32 or up 14% - dividends up 23% over a year ago
- 2 for 1 stock split

Not sure what the stock will do tomorrow, but it's 11% below the 52 week high and in my opinion a definite buy at current levels. Steady 15% EPS growth on a stock with a P/E of 10 is outstanding value. Also, this marks it their 11th consecutive calender year with a dividend increase.

http://www.newswire.ca/en/story/130...-stock-dividend-effecting-a-two-for-one-split


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## leeder

Own this stock at about the same time as you did, doctrine. I think my cost base is about $52 per share. Absolutely love this company and the performance. The management is top notch and definitely proving the shorters wrong. Because of the shorts, this company does tend to dip every year before bouncing back. I intend to buy more when the dip comes.


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## GoldStone

Are you not concerned about real estate market, and potential impact on HCG?


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## leeder

Yes, there are risks with any investments. However, I'm not overly concerned with regards to the real estate market and HCG because I don't think we will experience a real estate meltdown like the US did. I do believe our real estate market is slowing but steady. With regards to the company, it's trading at very reasonable valuations, has an excellent ROE of 20%+ even through the 08-09 recession, and has low payout ratio. I think this company will do really well and deserves consideration for those who are looking for growth & yield companies.


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## doctrine

The risk-reward is quite good. It would take a real major correction for HCG to suffer, and that kind of correction would just be a great buying opportunity for all kinds of real estate assets, not just HCG who are arguably as good or better positioned due to outstanding capitalization and loan risk profile. If that doesn't occur, you have 15-20% annual gains possible with HCG. If it does crash, well, you can always buy more. I wouldn't mind if HCG dropped like it did in '08-09. Looking back, they also had four dividend increases in those two years - and overall the dividend has nearly tripled since mid-08.


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## CPA Candidate

HCG is my largest position, with an average cost in the low 50s. I initially bought shares in March 2013 at $58 and then tripled down in May while in the low 50s. 

Watching the shorts get squeezed on this one has been very satisifying. The "common knowledge" (see Argumentum ad populum) about Canada's housing market and HCG has been consistently wrong and the contrarians have won big. Distressed loans make up 0.35% of the entire book and this has been very consistent over the past few years. HCG is a well run financial institution that doesn't make stupid loans, contrary to the belief that they are a major sub-prime lender.


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## scomac

Are you not concerned about the amount of debt that HCG has on the balance sheet at the moment? There's a reason that a consistent 15% earnings grower is selling at such a modest P/E and the debt is more of an impact to my way of thinking than the quality of their loan book.


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## leeder

I think it's pretty typical of financial stocks, especially mortgage lenders.


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## CPA Candidate

scomac said:


> Are you not concerned about the amount of debt that HCG has on the balance sheet at the moment? There's a reason that a consistent 15% earnings grower is selling at such a modest P/E and the debt is more of an impact to my way of thinking than the quality of their loan book.


Their total liability to equity ratio is in line with the majors, check page 93 of the annual report for more info. 

I think perhaps you aren't used to looking at the balance sheet of a bank.


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## Dom

I remember reading your blog post on HCG during the pullback Doctrine
A lot of times the "experts" arent "experts" at all *cough cough Steve*

Here I am kicking myself in the butt for not acting on the pullback though


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## james4beach

My greatest concern HCG is that they have concentrated exposure to one sector, one province (Ontario).


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## Jaberwock

It was one of the first stocks I bought when I started investing, and it has been one of the best. I think I paid less than $3 for it about 15 years ago.


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## james4beach

Have you read their financial statements, ever? Just curious.


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## gibor365

doctrine said:


> The risk-reward is quite good. It would take a real major correction for HCG to suffer, and that kind of correction would just be a great buying opportunity for all kinds of real estate assets, not just HCG who are arguably as good or better positioned due to outstanding capitalization and loan risk profile. If that doesn't occur, you have 15-20% annual gains possible with HCG. If it does crash, well, you can always buy more. I wouldn't mind if HCG dropped like it did in '08-09. Looking back, they also had four dividend increases in those two years - and overall the dividend has nearly tripled since mid-08.


James Hodgins shorting HCG.... what do you think?
_Can’t recommend any of these subprime mortgage providers. Canada is between 70 and 80 % overvalued compared to rest of G7. If housing market pulled back HCG would be worth zero as they have 8 times leverage. He is short a small amount on this._


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## Synergy

^ I heard that on BNN last night as well. If interest rates spike upwards too quickly then the housing market could be in a little bit trouble. I don't see that happening, but who knows...


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## CPA Candidate

Hodgins started shorting HCG in Dec 2011. By Dec 2012 his short was down 22%, at which time he recommended the short again.

When they did an Top pick update on that move at the end of 2013, it was obviously a disaster (down 38%). But he covered his bad call with "well I closed my short in May, when it was down".

He is also now short CSU, which was a top pick of his in Dec 2012.


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## leeder

Talking heads... take them with a grain of salt. Like CPA Candidate said, his top picks have performed poorly, even while the market has performed well.


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## doctrine

Maybe Hodgins is recommending a short because he wants the stock to go lower, so that he can cover his shorts and reduce his losses. His past record speaks for itself. I am not a fan of shorting at all since your potential losses are unlimited. Don't buy if you don't like it, is my opinion.

I don't know where he gets 70-80% overvalued compared to G7 - houses are expensive elsewhere, especially in Europe. As for the US, well, I think its far more likely the US is in for years of 10%/year real estate growth, which will just be a start in bringing them back to where they were 10 years ago. i.e. it is far more likely the US will catch up to Canada through gains, than Canada will fall to the US through a crash. Of course, I have bet on this by investing in companies like Norbord as I expect new house construction will double there in the next few years, which again is only back to pre-recession levels.


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## Lena100

What do you guys think of this stock as a long term hold? I got in at $47.60. Originally, I got for a long term hold and now I am second guessing and thinking of holding for short-term. Thanks


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## martinv

I bought HCG in 2001 at $8.10. In 2004, I let someone convince me that a huge correction/crash/recession/end of the world etc was imminent. So I sold.
Big, big mistake. If I hadn't sold, then today, my cost would be about $2.00 per share plus a terrific dividend yield.
I should have bought it again in 2008/2009 but didn't have the funds at the time.


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## leeder

Excellent company. Has and will likely maintain a ROE greater than 20%. It doesn't have a high dividend yield, but has grown its dividend payout every year. Trading at reasonable valuations, and is probably cheaper than some of the banks. IF the housing market does crash, there may be a correction. However, a housing market crash would likely negatively impact all banks. I think this company is worth the long-term hold.


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## doctrine

HCG continues to roll. How good? HCG hit an all time high both yesterday and today despite the wider selling. Another dividend increase. And most amazingly, still cheap. P/E of 12.5 and a 17% dividend payout ratio after the increase, their 17th dividend increase in the last 10 years. 

http://www.homecapital.com/press_releases/2014/HCG 2014 Press Release Final.pdf

Still not good enough? Well, they're going to be increasing their target dividend payout ratio from 13-17.5% to 14-21%. 

http://www.homecapital.com/press_releases/2014/Dividend Payout.pdf

Just to get to 21%, it means they need to boost the dividend again by another 22.5% in addition to the 12.5% increase they just announced.

Holding my 500 shares. Just hit a 100% return on my shares, excluding dividends (since May 2013).


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## CPA Candidate

doctrine said:


> HCG continues to roll. How good? HCG hit an all time high both yesterday and today despite the wider selling. Another dividend increase. And most amazingly, still cheap. P/E of 12.5 and a 17% dividend payout ratio after the increase, their 17th dividend increase in the last 10 years.
> 
> http://www.homecapital.com/press_releases/2014/HCG 2014 Press Release Final.pdf
> 
> Still not good enough? Well, they're going to be increasing their target dividend payout ratio from 13-17.5% to 14-21%.
> 
> http://www.homecapital.com/press_releases/2014/Dividend Payout.pdf
> 
> Just to get to 21%, it means they need to boost the dividend again by another 22.5% in addition to the 12.5% increase they just announced.
> 
> Holding my 500 shares. Just hit a 100% return on my shares, excluding dividends (since May 2013).


Indeed, HCG is a two bagger for me as well. Superior growth in earnings and dividends compared to the big banks with a better Tier 1 ratio. Watching the "short Canada" and other sadly misinformed bears get burned has been most pleasing.


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## doctrine

With all of the negative energy news, I thought I'd spice it up with HCG's quarterly results.

http://www.homecapital.com/press_releases/2014/Q3 2014 Press Release.pdf

Summary: Earnings up 10% again (15% when comparing YTD over a year ago), and the 3rd dividend increase in the last 4 quarters. Dividends are up 43% over a year ago. Trading just below it's all time high, although definitely at a premium to its historical valuation. Still only paying out 19% of net profits in the last quarter. And originations seem to be up quite sharply (28%!), that will be very positive for future growth, especially with net interest margin ticking upwards.


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## My Own Advisor

Nice call doctrine. I'm too late to the party me thinks....at 52-week high.


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## leeder

Looks like the market wasn't thrilled with the sold HCG results. Down about 5%.TD downgraded 

http://business.financialpost.com/2014/11/06/home-capital-group-downgraded-at-td/?__lsa=b163-e169

The big banks and lifecos are probably cheaper right now, but I'm glad I own this stock.


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## CPA Candidate

It got a little expensive at $55, not surprising it's coming back down to a more reasonable valuation. As a shareholder that got in at $26 (split adjusted), I'm still very, very happy with the performance of this company.

Dividend growth rate crushes the banks.


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## lh0628

With the pullback, foward P/E is at 10.7. Good time to start a position?


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## My Own Advisor

Would like to see under $45 myself.


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## doctrine

I would say that under $45 would be a buying opportunity for sure, especially if it ever approaches a trailing P/E of 10 (closer to $42, which is a 2% yield as well). I'm happy to be holding at a cost basis of $26 - 3.1% yield on my original shares now to the huge dividend growth. Not really surprised by the pullback, but I was very impressed by the very strong growth in their report - 29% growth of originations is just huge, and 2-3 times faster than other banks. Oaken Financial will also be a huge source of cheap capital for them as well - $2B in deposits already.


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## leeder

Kind of funny that you guys (doctrine and CPA) have a cost base of $26. That's what mine is as well. Unless the housing market crashes and people pile out of this company as a result, I'd be surprised if we see more than a 20% decline in this name from the current closing price of $51.60. $47 would be a decent buy if it drops that far. That would put it at a slight discount to the big 5 banks.


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## leeder

Not quite 20% decline yet, but 15%+ decline right now since I last posted. To those who were saying it's a buy if it goes below $45, are you guys looking at this name? My take is that some of the big banks (i.e., BNS and TD) are trading at lower valuations on a P/B basis, so HCG is still trading at middle valuations relative to the big banks. However, you can't argue HCG's ROE track record. Perhaps this pullback is due to concerns of sluggish consumer borrowing? Thoughts?


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## CPA Candidate

I've been watching, took a big loss (-6%) today. It looks as though "short Canada" is having a revival with the decline of oil and a recent news tidbits about Canadian debt levels and the housing market. An article I read in the G&M just today mentioned that Bank of America listed "short Canadian banks" as a top trade in 2015. HCG's mortgage exposure is heaviest in Ontario, which is looking like a province set to benefit from the oil crash. Misplaced negative sentiment is hardly new, though.

Under $40 is where I would add to my position. I'm not eager to average up unless it really pulls back.


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## GOB

Sold a $40 Feb put on this for $125 credit. Happy to own it at $38.75 - if not I'll take the 3.1% gain in a month.


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## CPA Candidate

22% earnings growth and another 10% dividend increase and the stock remains well below its 52 week high. Capital ratios are really strong and provisions for loan losses are tiny.

Since 2010 this company has doubled earnings and dividends.

The dividend in August of 2004 was 0.015 per quarter and now it is 0.22 per quarter.

If you had bought it back then and ignored all the gibberish and talking heads spreading fear you'd be quite rich right now.


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## GOB

Ugh. Would rather have owned this at $40 in hindsight. Oh well, I'll take my credit and sell another put.


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## el oro

Don't let options get in the way of owning great companies at good prices. How low would it have to go before you bought the stock vs sold puts?


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## CPA Candidate

Great buying opportunity today. Globe and Mail is splattered with bad news stories.

If you believe in forward P/E ratios, what I find is 8.0 with a TTM P/E of 9.3 and lots of room to growth the dividend aggressively.


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## besmartrich

I agree with you CPA Candidate. This is an excellent buy as long as investors are ready to stomach short term fluctuation with latest bad news. I recently purchased for a long term hold and hopefully the growth of the company continues. 

BSR


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## GoldStone

Home Capital dumped some bad news yesterday after the market close. Friday afternoon in July... gotta love the timing.

The company terminated relationships with a few mortgage brokers. This led to an immediate drop in mortgage originations. The year over year decline is fairly significant.

The PR doesn't say why they ditched the brokers. I assume they did an audit and found some shady business dealings.

It will be interesting to see where the stock opens on Monday.

No position.

http://www.homecapital.com/press_releases/2015/press release Q2 disclosure final.pdf


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## doctrine

They did state that originations were improving towards the end of the quarter. The stock is certainly cheap at 10 times earnings and sitting 25% below the 52 week high, but it could be on sale on Monday. Estimated earnings of $1.03/share despite the drop isn't bad, so really it could be a buying opportunity whenever the bottom is found. If it holds $40 again that would be a good point, if not then who knows where the bottom is. I'm not planning on selling but probably better off not looking on Monday.

Something like this did happen to First National (FN) a few years ago, when they got into it with a few brokers who cut them off and originations dramatically shrunk. The stock didn't get hit too bad, and neither did earnings, and after a few months they mended relationships and business bounced back. For them, 2014 was another record year of originations.


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## Killer Z

GoldStone said:


> Home Capital dumped some bad news yesterday after the market close. Friday afternoon in July... gotta love the timing.
> 
> The company terminated relationships with a few mortgage brokers. This led to an immediate drop in mortgage originations. The year over year decline is fairly significant.
> 
> The PR doesn't say why they ditched the brokers. I assume they did an audit and found some shady business dealings.
> 
> It will be interesting to see where the stock opens on Monday.
> 
> No position.
> 
> http://www.homecapital.com/press_releases/2015/press release Q2 disclosure final.pdf


Interesting indeed ......down almost 14% this morning.


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## Homerhomer

Just bought few shares.


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## CPA Candidate

Added to position this morning. The market looks forward maybe one quarter, I look forward 10 years. Look at where this company has come from and where it is now. If the originations were really good, everyone would be fretting about a market collapse. When the originations are poor, everyone worries why they aren't loaning more money in an overheated market.


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## besmartrich

I love Home Capital Group based on how it has been doing in the past 10 years. Such a strong fundamental combined with competent management. I hope this price continues until I buy some more


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## Homerhomer

after initiating position yesterday I have added more today, the stock is on sale and I am happy to accumulate at these levels. Apparently there are large short positions, at some point they will cover.


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## leeder

I haven't added to this yet. I want to see what effect there may be after BoC's rate announcement tomorrow. That said, it's trading at less than 8x forward earnings, so it's definitely on sale right now.


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## CPA Candidate

At one point this morning the stock was down 8% on top on the previous day, wiping out two years worth of gains. It is ironic that short sellers did well not because the company was being too liberal and taking on excessive risk, but the opposite, ensuring that the risk profile is controlled for long term success by dropping brokers that did not comply. I think that no matter what path the company goes down, the market will find a problem with it and discount it or attack it. The price action this morning was kind of like a ritualistic beating of a long dead horse.


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## besmartrich

CPA Candidate said:


> At one point this morning the stock was down 8% on top on the previous day, wiping out two years worth of gains. It is ironic that short sellers did well not because the company was being too liberal and taking on excessive risk, but the opposite, ensuring that the risk profile is controlled for long term success by dropping brokers that did not comply. I think that no matter what path the company goes down, the market will find a problem with it and discount it or attack it. The price action this morning was kind of like a ritualistic beating of a long dead horse.


Yup. I gotta pick up more for sure. Just need more capital... Well since interest rate just got another cut, I will give some more thoughts on getting my first loan. Margin maybe or even long term investment loan.


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## Potato

[No position on HCG, but lean towards the short thesis.]

_Going forward_, they're tightening up. But those brokers that they dropped weren't added a few weeks ago, they've been feeding HCG mortgages (possibly bad mortgages) for years, and we saw a rather large drop in originations -- that to me suggests that a big part of the existing book is questionable. I wouldn't be so quick to think of this move as a mis-pricing.


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## GoldStone

Potato said:


> _Going forward_, they're tightening up. But those brokers that they dropped weren't added a few weeks ago, they've been feeding HCG mortgages (possibly bad mortgages) for years, and we saw a rather large drop in originations -- that to me suggests that a big part of the existing book is questionable. I wouldn't be so quick to think of this move as a mis-pricing.


This is spot on. 

HCG story has always been... yes, we are a sub-prime lender, but fear not, we are very conservative. Termination of brokers and the corresponding drop in originations puts a gaping hole in their story.

[No position]


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## GoldStone

FYI to longs:

https://twitter.com/BenRabidoux/status/621510356087603200

Ben Rabidoux is a must follow if you invest in anything to do with Canadian housing.


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## doctrine

I read it, and it doesn't move me, there's no new information. 

If you think real estate will crash by 50% in the next year, then yes HCG is a great short. Short away. But if it doesn't substantially materialize in the short term, you are going to be disappointed. I think the easy money has been made on the short side, and HCG's position is very solid and actually far superior to other financial companies on practically every measure.


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## GoldStone

https://twitter.com/BenRabidoux/status/621764208624037888

https://twitter.com/BenRabidoux/status/621765847573483524


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## Synergy

GoldStone said:


> FYI to longs:
> 
> https://twitter.com/BenRabidoux/status/621510356087603200
> 
> Ben Rabidoux is a must follow if you invest in anything to do with Canadian housing.


Thanks for sharing. Interesting read.


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## GoldStone

https://twitter.com/howarthchuck/status/621887789513093120


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## GoldStone

http://business.financialpost.com/i...itics-who-say-its-vulnerable-to-a-housing-pop


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## zylon

> *Californian short seller targets Home Capital Group, Canadian real estate*
> 
> Instead he is aiming his efforts at one company: Home Capital Group. The company, through its subsidiary Home Trust, has emerged as one of Canada’s largest alternative lenders, offering mortgages to borrowers who may have been turned down by major banks.
> 
> It is not the first time that Mr. Cohodes has targeted a Canadian firm. In the 1990s his hedge fund bet against Canadian beverage-makers Cott and Clearly Canadian, and had more than one run-in with Kevin O’Leary over the former Dragons Den star’s software firm, The Learning Company. “We made an awful lot of money being short Kevin O’Leary,” he says.” More recently, he has bet against Waterloo, Ont., software company Open Text.
> 
> Canadian companies tend to take short selling more personally than Americans, he says. “For some reason they think it’s like me calling their wife ugly or fat. It has nothing to do with it.”


Globe and Mail:
http://www.theglobeandmail.com//rep...tate/article25715455/?cmpid=rss1&click=sf_rob


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## james4beach

HCG may be the canary in the coal mine that all is not well in Canadian real state, or that it has peaked.

Their recent guidance that loan origination is much poorer than expected shouldn't be brushed off. One interpretation is that it was just a bad quarter. The other interpretation is that Canadian housing has peaked, and we're seeing the start of the decline. When those things happens, it's businesses at the margins... HCG-like subprime lenders... that first feel the pain.

Don't blame the short sellers. I was short Countrywide Financial as well as other US lenders back in the 2007/2008 crisis. Countrywide didn't collapse because I or others shorted them; they collapsed because they were a crappy business that engaged in reckless lending and a lil bit of fraud. As was common in the subprime lending business.

As for HCG shares... I have no position. I would never short a stock like this at this juncture. Instead, I'd wait to see a rally back to near its 200 day moving average. If it then continues to show weakness, that's when I'd short it.

The behaviour of HCG is also very much going to depend on the broad Canadian market. Right now there's negative sentiment on the TSX. Canada's economy is seen as slowing or already in recession. If things turn around for the broad TSX, you could easily see HCG rally on the optimism.


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## CPA Candidate

We know exactly why the originations are down, they ceased business with brokers that did not pass an audit of their internal control systems. This means they are being prudent and conservative, sacrificing the short term for a healthy long term. People have taken this and run with it as a indicator of the exact opposite because they are trying to make fit into their thesis of the entire Canadian market. They have all come out the woodwork to fan the flames of fear for their personal profit. Unfortunately the media, always wanting a good headline, gives a soapbox to a failed hedge fund manager than now farms eggs.

As far as a recession in Canada, it's an entirely regional phenomenon. Ontario, making up 83% of the business, is not in a recession and should come to benefit from the decline of the dollar eventually.


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## andrewf

What does that mean about the billions of dollars of mortgages originated by those brokers over the past few years?

Agreed that Ontario will be cushioned by the fall of oil prices and the dollar. However, residential real estate 'investment' represents an all-time high percentage of GDP. When the housing construction slows, Ontario is likely to experience recession merely due to job losses in that industry. And completions have been outpacing demographic growth in Ontario for years.


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## CPA Candidate

andrewf said:


> What does that mean about the billions of dollars of mortgages originated by those brokers over the past few years?


This has been thrown out before but at this point it is pure speculation. Up to now there is no indication that any of the mortgages are non-performing (I actually read the financials closely). We'll see if loan losses or provisions rise in Q2 in a concerning way. I expect that if this were the case they would have already announced it similar to the originations head's up.


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## besmartrich

CPA Candidate said:


> This has been thrown out before but at this point it is pure speculation. Up to now there is no indication that any of the mortgages are non-performing (I actually read the financials closely). We'll see if loan losses or provisions rise in Q2 in a concerning way. I expect that if this were the case they would have already announced it similar to the originations head's up.


Their Q2 will be released on this Thursday July 30 2015 and I am considering to double up the investment to average down before the release. I know it is a bit of speculation play but I think HCG has solid fundamentals with competent and honest management.


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## supperfly17

besmartrich said:


> competent and honest management.


Famous last words


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## doctrine

I added 100 shares at $28.15 yesterday. Results look fine to me. Apparently shorts hit as much as 38% of the stock at one point. If they keep churning out $1.00-1.10 a share per quarter in earnings with their incredibly low loan losses and solid net interest margin and return to $2M/quarter in originations, those shorts won't be around for long.


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## CPA Candidate

doctrine said:


> I added 100 shares at $28.15 yesterday. Results look fine to me. Apparently shorts hit as much as 38% of the stock at one point. If they keep churning out $1.00-1.10 a share per quarter in earnings with their incredibly low loan losses and solid net interest margin and return to $2M/quarter in originations, those shorts won't be around for long.


I agree. If people were expected something juicy out of this report they were quite disappointed. The write offs, provisions, non-performing loans are not in the least bit concerning. The company's disclosure on the broker issue was very appreciated. The only issue is the lack of growth but the stock is really cheap with a decent yield and I believe they will get back to growth. Ten percent a year is fine with me.


----------



## Homerhomer

Anyone know what is the recent percentage of shares shorted on hcg?


----------



## godblsmnymkr

2nd hit after googling "hcg short interest"


----------



## Homerhomer

I am looking for something more accurate, current share price of 37 and short interest of 21800 as per your Google instructions doesn't give me much confidence


----------



## GoldStone

Use TMX screener. You can customize it to show the short interest.


----------



## doctrine

I've heard TMX apparently won't show all of the short interest, as a lot of US funds will short it through derivatives or other non-TSX means. Short interest was above 30% in July though. You have to wonder if it's found a bottom. It's above the 10 and 20 day moving average.


----------



## jamesko

*step back*

IMO best to buy a bank stock vs hcg


----------



## CPA Candidate

HCG initiated a NCIB yesterday and the stock is up 6% today.

http://www.newswire.ca/news-release...unces-normal-course-issuer-bid-527459781.html

Strong rally today could be the start of short covering.


----------



## james4beach

I don't care too much about the stock price (I'm neither long nor short), but I think the nearly $1 billion of mortgage origination fraud they encountered is a really big deal.

I agree with some market observers that this is a canary in the coal mine. It seems that the private mortgage market in Canada is riddled with fraud and liar loans, just like the US subprimes were.

Ignore at your own risk. We have a highly leveraged, low interest rate fueled housing market with rampant speculation. And our market is full of fraudulent mortgages.


----------



## Killer Z

james4beach said:


> I don't care too much about the stock price (I'm neither long nor short), but I think the nearly $1 billion of mortgage origination fraud they encountered is a really big deal.
> 
> I agree with some market observers that this is a canary in the coal mine. It seems that the private mortgage market in Canada is riddled with fraud and liar loans, just like the US subprimes were.
> 
> Ignore at your own risk. We have a highly leveraged, low interest rate fueled housing market with rampant speculation. *And our market is full of fraudulent mortgages*.


Please elaborate here ......is this your opinion, or are you attempting to state a fact? What data have you received that indicates our market is "full" of fraudulent mortgages? I respect your opinion on this board J4B, however I find it difficult when people make these types of expressions with no empirical data to support the same.

For the record, I do not own HCG.


----------



## andrewf

If you are skeptical about the amount of document fraud in mortgage underwriting in Canada, just google 'soft fraud Canada mortgage'.


----------



## besmartrich

james4beach said:


> I don't care too much about the stock price (I'm neither long nor short), but I think the nearly $1 billion of mortgage origination fraud they encountered is a really big deal.
> 
> I agree with some market observers that this is a canary in the coal mine. It seems that the private mortgage market in Canada is riddled with fraud and liar loans, just like the US subprimes were.
> 
> Ignore at your own risk. We have a highly leveraged, low interest rate fueled housing market with rampant speculation. And our market is full of fraudulent mortgages.


It is good that HCG is acting prudent through tightening its controls over mortgage fraud. Only stronger players will survive and HCG will be one of them.


----------



## james4beach

Killer Z said:


> Please elaborate here ......is this your opinion, or are you attempting to state a fact? What data have you received that indicates our market is "full" of fraudulent mortgages?


Home Capital Group announced they discovered close to $1 billion of mortgage underwriting fraud among their portfolio of approx $18 billion of mortgages.

You can also listen to this interview on the CBC program, Day 6. It's in the first segment.
http://podcast.cbc.ca/mp3/podcasts/day6_20150731_89514.mp3

Here's one possibility: HCG was just incredibly unlucky, and happened to pick only the worst mortgages in Canada, ending up with 1/18th of its portfolio tainted by fraud.

Or - more likely in my opinion - since HCG is a responsible, well run operation (which is what you all believe right?) their mortgage portfolio is a pretty good sample from across Canada. This means there is document fraud and liar loans throughout the Canadian mortgage market.

Fraud among 1/18th or 5.6% of the loans is a really big number. For context, bad or non-performing loans in a portfolio is typically on the order of 1% of the loans.


----------



## GoldStone

James, we don't really know how many fraudulent mortgages HCG has on their books. They disclosed the numbers that cover 2014 underwriting. To the best of my knowledge, they never disclosed any numbers that cover the fraud in prior years. The mortgage brokers that committed the fraud in 2014 didn't come on board in 2014. The unanswered question is, how much fraud did they commit before 2014?

The biggest outrage in this whole story is CMHC. They insure mortgages without requiring strict income verification from the likes of HCG. Mortgage companies cut corners when they verify the documents, because they know they can dump the risk on the taxpayer. One can get an insured mortgage with a simple letter of employment. A letter of employment is super easy to forge. Anyone can write a fraudulent letter that inflates income numbers.


----------



## sags

CMHC could dump the mortages back onto Home Trust citing fraud, but it is unlikely.

In today's housing environment the homes would probably be an easy resale in the event of default.

Rising home prices solves a lot of problems.


----------



## AltaRed

I actually think insurance underwriters provide some extra scrutiny on mortgage underwriting. I think the weak link here has been the independent mortgage brokers that make money by generating business. Lender exposure will depend on how well the actual lenders scrutinize the deals.

As Killer Z suggests, unsubstantiated hyperbole undermines credibility. Opinion is one thing. Saying something as if it is indeed fact is quite another.

Obvious vested interest here in the following link but no reason to totally disbelieve it either.

http://www.theglobeandmail.com/repo...-in-canada-genworth-ceo-says/article25845447/


----------



## HaroldCrump

sags said:


> In today's housing environment the homes would probably be an easy resale in the event of default.


Only the first one will be....


----------



## sags

I agree that IF or WHEN defaults and declines start.........a tsunami can build rather quickly.

Few people are going to buy a home while home prices are falling month to month.

One mistake the US banks made was to diddle around with homes on their books waiting for higher prices. They got stuck with millions of steeply undervalued homes.

They would have been far better off selling the homes for a discount and claiming the loss.

As it was, they ended up paying maintenance costs and taxes for years, while the homes were ransacked and literally fell apart.

Should the worst happen, hopefully our banks learned from that and would price the homes to sell quickly.


----------



## besmartrich

sags said:


> I agree that IF or WHEN defaults and declines start.........a tsunami can build rather quickly.
> 
> Few people are going to buy a home while home prices are falling month to month.
> 
> One mistake the US banks made was to diddle around with homes on their books waiting for higher prices. They got stuck with millions of steeply undervalued homes.
> 
> They would have been far better off selling the homes for a discount and claiming the loss.
> 
> As it was, they ended up paying maintenance costs and taxes for years, while the homes were ransacked and literally fell apart.
> 
> Should the worst happen, hopefully our banks learned from that and would price the homes to sell quickly.


I would very love for a crash. In today's Toronto housing environment, no-one in my age has a house or even if they do, they are sitting in a huge pile of debt. I know it is not going to be as simple as I said but the housing prices will have to be controlled and maintained in a way that average Canadians should be able to afford one.


----------



## HaroldCrump

besmartrich said:


> I would very love for a crash.


Be careful what you wish for - the very same factors that can cause a housing crash will also make it unaffordable for many people, such as unemployment, recession, lack of wage growth, etc.
House prices, like everything else, has two sides - demand and supply.
Supply is not increasing at a faster rate anytime soon - there is no legislation or economic process in the works to increase supply.
The factors that will make demand fall significantly are not good in general for the economy, such as depressed wages, commodity prices, unemployment, etc.

IMO, it is far better to manage house prices using govt. policy & legislation, such as CMHC rules, HBP rules, etc. than crash the economy just so some marginal buyers can buy.


----------



## blin10

besmartrich said:


> I would very love for a crash. In today's Toronto housing environment, no-one in my age has a house or even if they do, they are sitting in a huge pile of debt. I know it is not going to be as simple as I said but the housing prices will have to be controlled and maintained in a way that *average Canadians* should be able to afford one.


average Canadians are just that "Average", you cannot expect everyone to own a house. Same way you cannot expect everyone to drive a benz or bmw. For the average Canadians there is a condo market, and with a husband and wife working (no matter what you say) it is pretty affordable. Since you said "no-one in my age group" that means you're probably in your late 20's, you cannot expect to own a house when you're starting up your career with an "average" pay. Everyone wants something for nothing. Keep in mind that Toronto is the centre of Canada, you cannot expect "affordable" prices in the heart of a country, go take a look at prices in New York, Beijing, Moscow, London, Sydney, etc.


----------



## sags

How far down would the average $1,000,000 home in Toronto or Vancouver have to drop to be affordable to the average person ?

Even if they dropped by 50%............would they be affordable ?

Young people should consider a career in a field that makes them mobile, so they can live and work somewhere other than the bubble cities.

We have nice 1 bedroom condos for $100,000..........and single family homes for $250,000. Lots of people get paid the same regardless of where they live.

I understand that if a person grew up in Toronto or Vancouver, their family and friends are located there.............it is a tough decision to move away.

But we live in Ontario and my wife is from Saskatchewan. We moved from my home to another city for work and then returned after retirement.

You have to do what you have to do.


----------



## gibor365

> but the housing prices will have to be controlled and maintained in a way that average Canadians should be able to afford one


 and who gonna control it?! who gonna tell owners that they can sell house only up to the limit that " average Canadians should be able to afford one" ?!



> In today's Toronto housing environment


 and who said that you HAVE TO buy house in Toronto?! Go to NS and you can buy big house for 60-70K... Do you thing average American can buy house in NYC?! No, they buy far in suburbs and taking several buses and subway to get to job... and not only average, but much higher than average...



> I would very love for a crash.


 Than you will be able to buy only "dog house" 



> that means you're probably in your late 20's


 and you probably a "true Canadian" (were born here) lol



> and with a husband and wife working (no matter what you say) it is pretty affordable.


 True! Canada is probably the nost affordable country to own real estate among g20

Back to topic, anyone buying HCG?


----------



## andrewf

US median home price is much, much lower (~$286k USD). In Canada it is $440k CAD. Given that Americans earn more, it is really hard to imagine that real estate in Canada is not overpriced.


----------



## AltaRed

andrewf said:


> US median home price is much, much lower (~$286k USD). In Canada it is $440k CAD. Given that Americans earn more, it is really hard to imagine that real estate in Canada is not overpriced.


Plus they have mortgage interest tax deductibility (to a certain level). North America has an unhealthy obsession with owning the abode they live in.


----------



## james4beach

With such giant mortgages, you don't really own the asset anyway. As soon as you can't make those interest payments, your lease is done. Ask the US homeowners...


----------



## HaroldCrump

andrewf said:


> US median home price is much, much lower (~$286k USD). In Canada it is $440k CAD. Given that Americans earn more, it is really hard to imagine that real estate in Canada is not overpriced.


Even at the peak of their housing bubble (2004 - 2006), typical SFHs in the US were relatively cheaper compared to Canada.
There were probably only a handful of pockets, such as NYC, California beaches, and couple of other hotspots that were more expensive than corresponding Canadian cities.
Since 2009, the valuation spread has widened ever further.


----------



## blin10

gibor said:


> Back to topic, anyone buying HCG?


I recently sold it, made a few bucks and bought big banks... figured if something happens banks will hold up better (plus they got higher dividend)


----------



## gibor365

> There were probably only a handful of pockets, such as NYC, California beaches, and couple of other hotspots that were more expensive than corresponding Canadian cities.


 I think also cities like Boston, LA or Chicago has higher home prices...
Also considering current FX rate , the spread is much less on median prices too


----------



## doctrine

HCG is breaking out. As an exercise, I've been following it for the technicals, and it has looked strong technically from early Sep when it broke through the 10 and 20 day moving average, as I noticed earlier in this thread. After several bounces off $32.70, it has finally decisively moved up. Volume has been average, so you know HCG is still heavily shorted. The 50 day moving average is now moving up which is also good. Fundamentally, it's ridiculously cheap but HCG has lagged other similar companies, which I think leaves more room to the upside.


----------



## GalacticPineapple

doctrine said:


> HCG is breaking out. As an exercise, I've been following it for the technicals, and it has looked strong technically from early Sep when it broke through the 10 and 20 day moving average, as I noticed earlier in this thread. After several bounces off $32.70, it has finally decisively moved up. Volume has been average, so you know HCG is still heavily shorted. The 50 day moving average is now moving up which is also good. Fundamentally, it's ridiculously cheap but HCG has lagged other similar companies, which I think leaves more room to the upside.


The drop last summer when they severed ties with those brokers was a bit extreme. I suspect if they report a clean quarter in November we'll see most or all of the drop erased.


----------



## CPA Candidate

Media played their dutiful role as short seller soapbox to generate clicks.

All the buzz sent the weak hands off the cliff again and now the stock is moving up. 

Toronto sales volume and pricing exceeding expectations, again.

Nothing surprising here. The results for the remainder of the year will send the last of the shorts scrambling to close their positions. This could get good fast.


----------



## andrewf

HCG doesn't just play in the Toronto market. And price risk in Toronto and Vancouver is still elevated.


----------



## treva84

Trading halted earlier this afternoon on "pending news". Last time this happened was just before they announced the mortgage broker fraud. I wonder what's coming?


----------



## doctrine

http://www.homecapital.com/press_releases/2015/Mid-term targets FINAL.pdf

They advised that, while EPS targets are unchanged, their ROE target is now 16%. They've been under 20% for a few quarters because of their high capital ratios. The more capital you hold, the lower your return on capital. Their tier 1 capital is 18% vice the major bank's at about 10-11%. HCG has been using the capital for share buybacks though, so I expect to see the share count dropping over the next few q's.


----------



## CPA Candidate

HCG raised their dividend 9% (to 96 cents) and will continue to buy back stock. Loan losses are infinitesimal and capital ratios better than ever. The only real downside is loan growth has slowed and future EPS growth will probably be mid-single digit. I do think once the oil situation improves there will be the opportunity to expand outside of their traditional Ontario base. But if anyone was looking for fire in the financials, they were disappointed....again.

CEO is stepping down soon, he is 77. (Oh my god it's because he knows there's a crash coming :stupid

The stock is performing well today up about 8%.

Oh..... but once the mother of all financial crashes is upon us, then...then...HCG will truly be finished! Finished I tell you! Straight. To. Zero. A chicken egg farmer told me.


----------



## doctrine

Up 26% off the low, really spiking lately. The buyback is quite big at $150M (nearly 10% of stock when it was announced), but I think there's an undertone that HCG could be looking at strategic alternatives with the 30-year CEO retiring.


----------



## godblsmnymkr

this is a company in a really interesting spot.
-dividend growth champion and incredible in compounding capital since inception. 
-flat YoY growth
-just bought a small bank
-questions over management letting brokers circumvent rules.
-ceo retiring soon? 
-questions over sustainability of canada's housing market

if i had some spare cash lying around I might take flyer after waiting for the price to consolidate a bit. last time price hit 200 MA it got rejected hard.


----------



## besmartrich

godblsmnymkr said:


> this is a company in a really interesting spot.
> -dividend growth champion and incredible in compounding capital since inception.
> -flat YoY growth
> -just bought a small bank
> -questions over management letting brokers circumvent rules.
> -ceo retiring soon?
> -questions over sustainability of canada's housing market
> 
> if i had some spare cash lying around I might take flyer after waiting for the price to consolidate a bit. last time price hit 200 MA it got rejected hard.


You got it right. So interesting phase right now.


----------



## treva84

besmartrich said:


> You got it right. So interesting phase right now.


In my previous experience investors don't seem to like uncertainty, yet this stock is surging despite all the uncertainty!


----------



## sags

People would rather eat cat food than give up their home, so I wouldn't expect wholesale defaults unless people lose their jobs and exhaust every other means they have.

Even then, the home would still have value and would be sold.

But all that doesn't really matter. It is whatever Mr. Market decides it is.


----------



## doctrine

As expected, the CEO is retiring.

http://www.stockhouse.com/news/press-releases/2016/02/29/home-capital-group-announces-ceo-succession

The stock is trading at interesting resistance; if it goes much above $34, it's the first breakout since the July 2015 plunge. It's trading above all moving averages from 10 day to 200 day, and the 10, 20 and 50 day moving averages are all trending upwards. Of course, it could bounce down like it has a couple of times already. It does look more fairly valued at a P/E of 8, I don't really see it hitting a 10 P/E when some of the major banks are also there.


----------



## doctrine

I finally sold my 600 shares of HCG at $36.30. While I believe the stock is still cheap, I think the 50%+ rise from the bottom has really narrowed the discount between them and the bigger banks, and HCG's growth and ROE are definitely slowing from the historical average. Could be wrong but I don't see it moving to a P/E of 10 anytime soon (i.e. a share price of $40 or so) when National and CIBC are only at about a 10 right now with similar growth but more diversification.

Made about 44% total over the last 3 years including dividends as compared to the index return of 13-14%. Not bad!


----------



## londoncalling

Not bad indeed! Well played Doc 
What's the plan for the proceeds from the sale?

Cheers


----------



## doctrine

I've been adding to CBL lately, a position I've been building over the last 2-3 months. Not followed on here but I think it's great value and basing well, above the 50 day SMA which is now trending higher.


----------



## CPA Candidate

doctrine said:


> I finally sold my 600 shares of HCG at $36.30. While I believe the stock is still cheap, I think the 50%+ rise from the bottom has really narrowed the discount between them and the bigger banks, and HCG's growth and ROE are definitely slowing from the historical average. Could be wrong but I don't see it moving to a P/E of 10 anytime soon (i.e. a share price of $40 or so) when National and CIBC are only at about a 10 right now with similar growth but more diversification.
> 
> Made about 44% total over the last 3 years including dividends as compared to the index return of 13-14%. Not bad!


You sound like a Bay Street analyst.


----------



## CPA Candidate

Wow, watch HCG go. Do you think the shorts are getting a little uncomfortable? 2.4 million short at April 1st (8 days volume), probably far less now.


----------



## treva84

CPA Candidate said:


> Wow, watch HCG go. Do you think the shorts are getting a little uncomfortable? 2.4 million short at April 1st (8 days volume), probably far less now.


Not that I think HCG should drop, but I wonder how much the buy back pushed shares up - they were paying a max of $38.00 a share (at time of writing is 39.30). I think too the housing fears are quelled in the hot markets, at least for now, so the pessimism that was surrounding this stock is gone. I'm very happy to hold HCG, will be doing so for a looooooooong time (assuming no dividend cuts).


----------



## godblsmnymkr

CPA Candidate said:


> Wow, watch HCG go. Do you think the shorts are getting a little uncomfortable? 2.4 million short at April 1st (8 days volume), probably far less now.


as of april 20th 2.64 million shares short or 3.77. its actually gone up a bit in april.


----------



## doctrine

Results out...revenue and earnings down a little but they seem to be stabilizing from Q2. They've increased the dividend by 9%. P/E of 6.5. Likely most of the downside is in, although I'm not sure what the upside is...maybe $32, so maybe 25% cap gains and 4% yield at some point in the next year. I sold out at $36.3 back in March as mentioned above but it is some of the best value on the TSX right now.


----------



## hollyhunter

HCG.TO has an ongoing P/E of 6.52, which indicates that it is undervalued. RSI(14) stands at 45.30.


----------



## humble_pie

hollyhunter said:


> HCG.TO has an ongoing P/E of 6.52, which indicates that it is undervalued. RSI(14) stands at 45.30.



salut roboholly. I am wondering if you ever met a stock you didn't like though

.


----------



## CPA Candidate

I saw a chart, which I cannot find now, that plotted the short position and the change in the HCG stock price. There appeared to be almost a perfect inverse relationship between decline in the stock price and increase in the short position which is quite large now. With the stock barely above book value, absent a TO house market crash, I think it's at a floor. At some point the trade will start to reverse as the worst thing you can say about HCG is that they aren't growing which I think is largely due to shedding risk in the highly priced market.


----------



## Janus

Some interesting new news on HCG. Smells fishy...

http://business.financialpost.com/n...over-disclosure-of-problems-with-applications

The Ontario Securities Commission has served an enforcement notice on mortgage lender Home Capital Group Inc. in connection with the company’s disclosure of the impact of falsified income information found on some loan applications, and remedial steps taken by the company including the suspension of brokers and brokerages.

In a statement issued late Friday afternoon, Home Capital said staff at Canada’s largest securities regulator has reached the “preliminary conclusion” that the mortgage company “failed to meet its continuous disclosure obligations” in 2014 and 2015.

An enforcement notice from the regulator can lead to formal allegations, but that is not always the case.

“The company has the opportunity to respond to the notice before OSC staff makes a decision whether to commence proceedings,” Home Capital said in the statement, adding that the company “believes that its disclosure satisfied applicable disclosure requirements.”

Home Capital began an internal investigation in 2014. It then suspended 45 brokers from September 2014 to March 2015 after discovering they had falsified income statements required for clients to qualify for mortgages. 

In mid-2015, publicly traded Home Capital disclosed that it had cut ties with the brokers after an external source told the company some brokers were falsifying borrower incomes on mortgage loan applications.

In July 2015, Home Capital announced a drop in originations after the brokers were sidelined. The company’s share price fell 21 per cent.

Home Capital’s statement Friday said the enforcement notice was delivered by OSC staff after the close of business on Feb. 9, and that the company intends to continue to co-operate with the regulator.


----------



## humble_pie

Janus said:


> Some interesting new news on HCG. Smells fishy...




long time ago - more than a year ago - i posted a note saying that risk lenders such as HCG & a couple others in Canada, were being over-promoted in cmf forum. I said i thought canadian chartered banks were looking safer.

to my surprise at the time, goldstone took up the same message. I can't recall anyone else.

perhaps the fanciers of high risk lending will have their come-uppance now? on the other hand, canadian banks themselves may have reached a market price zenith. TD bank's chief economist said she sees Donald trump's proposed tax legislation favouring US exporters while harming US importers, which is not good news for Canada. 

she didn't mention canadian banks in this connection, but the big exporters are the big banks' biggest clients. 

then we have falling residential home prices. Double whammy for the banks.

.


----------



## yyz

CEO fired

http://www.therecord.com/news-story/7211716-home-capital-fires-ceo-martin-reid/


----------



## doctrine

HCG is now basically at book value but the investigations are pretty scary. Technical support at $24.50 and $23. If it drops below $23, watch out below. If it holds, might be a good buy as long as the underlying business doesn't incur damage.


----------



## Janus

Official charges brought by the OSC on this one. 11-page PDF is public. They clearly misled investors...

http://www.theglobeandmail.com/repo...making-misleading-statements/article34757288/


----------



## Beaver101

^ **yawn**, at end of the day ... it's back to business as usual and nobody goes to jail. White collar crime pays.


----------



## scomac

Royal Trust anyone? :wink-new:


----------



## james4beach

Cohodes is a short seller who has been very vocal with criticisms of Home Capital Group and especially their poor underwriting standards
http://www.bnn.ca/cohodes-vs-home-capital-testing-the-short-seller-s-claims-1.593533

Thankfully for all of us, this researcher has helped with market price discovery. The market has also rewarded him handsomely for his fundamental research with about 60% profit short the stock since 2014.

The HCG scandal is similar to US problems with ninja loans and falsification

In the US, just a handful of years ago we saw that poor lending standards and fraud go hand in hand. Management encourages reckless behaviour and covers it up, because the reckless lending boosts short term profits and boosts compensation, especially bonuses for management and executives. I'm sure the same thing is happening in Canada, though I have no proof.


----------



## scomac

So the next question becomes; can you prick the real estate bubble by allowing a high risk lender to fail?


----------



## doctrine

Quite happy I sold my shares at $36.30. I actually don't think the damage from the business with bad brokers is damaging to the company. Those loans have actually been very profitable for the company even if they were falsified. As well, these brokers are gone, so you could potentially have more confidence in HCG's book moving forward. The real concern is just that they're not growing their business (competition?) and that there could be reputation damage. The OSC investigation is probably not even material even with maximum fines. It's just that their underlying business might not be good; with Toronto's market booming, their business should be booming. It is at Equitable at least, for example, and First National.


----------



## james4beach

The stock chart for HCG screams: "I'm toast"


----------



## AltaRed

james4beach said:


> The stock chart for HCG screams: "I'm toast"


I wouldn't go that far. Not a Vegas gamble I'd take since I am not into falling knives/deep value (any more - learned my lesson) but it was circa $20 just 5 years ago. It may be oversold now but is no doubt more vulnerable to a housing crash/crunch than its competition. May be able to read more into this depending how/if/when Oaken changes its HISA and GIC rates.


----------



## Eder

Not something I buy here but they actually have marketable assets so far from "toast".


----------



## GoldStone

doctrine said:


> HCG is now basically at book value but the investigations are pretty scary. *Technical support at $24.50 and $23.*


Technical support, LOL.


----------



## doctrine

I think my assessment was pretty accurate. I also said this:



> If it drops below $23, watch out below.


----------



## GoldStone

doctrine said:


> I think my assessment was pretty accurate. I also said this:
> 
> 
> 
> 
> If it drops below $23, watch out below.
Click to expand...

The subsequent drop has nothing to do with the "technical support", everything to do with the flow of negative news.


----------



## Lost in Space 2

Interesting tweet from ac_eco

RBC putting out Research on a Saturday Morning.. Where is $HCG going to find 325 million in a month? ITS OVER

https://twitter.com/alderlaneeggs/status/855784943183478784[SUP][/SUP]


----------



## AltaRed

That is an interesting. Clearly one way to attract (or just as importantly keep existing) deposits is to increase rates. If they do so, there is no issue IF one stays within the CDIC insured limit. I'd seriously consider buying a 3% 5 yr GIC from them.


----------



## Eder

Lost in Space 2 said:


> Interesting tweet from ac_eco
> 
> RBC putting out Research on a Saturday Morning.. Where is $HCG going to find 325 million in a month? ITS OVER
> 
> https://twitter.com/alderlaneeggs/status/855784943183478784[SUP][/SUP]


Huh? I think I see they have about 1.5 billion in cash.


----------



## AltaRed

There is also potential for a run on deposits, i.e. HISA money. I think that could be a tripping point.


----------



## Eder

Why would there be a run? Its all CDIC insured. I don't get it?


----------



## AltaRed

Eder said:


> Why would there be a run? Its all CDIC insured. I don't get it?


I think a lot of people throw rational behaviour to the wind in volatile situations and vote with their emotions,.. especially with a few mouse clicks these days. Why lie awake at night with that ghost in the woodwork...just for a few ice cream cones more interest over a competitive alternative? All speculative of course... Monday may be an interesting day albeit I will miss it all enroute to a few days of R&R.

Added: I have no skin in this game. No stock, no HISA, no GICs. Wifey has a few small Home Trust GICs in her RRSP.


----------



## james4beach

AltaRed said:


> There is also potential for a run on deposits, i.e. HISA money. I think that could be a tripping point.


I agree, it's a risk. There's a reason I don't ever deposit with Home Capital/Home Trust, Peoples Trust, Equitable, etc.



Eder said:


> Why would there be a run? Its all CDIC insured. I don't get it?


Because a bank failure is not a fun thing to live through. There might be delays before you get access to your money. Plus the uncertainty.

There were runs on several US banks starting 2007. For example even though deposits with Indymac Bank were FDIC insured, people still lined up around the block to withdraw their money.


----------



## NorthernRaven

AltaRed said:


> There is also potential for a run on deposits, i.e. HISA money. I think that could be a tripping point.


It's probably worth doing some ballpark quantitative figuring here. I'm too lazy to try too much, but it looks like HISA (demand) deposits run to only about 13% of Home's total retail deposits ($15B?). Brokered GICs (70%) and Oaken GICs (9%) make up the rest. Some of the latter would be short-term and slowly coming to term, but there's a limit to how much of the deposit base can flee immediately, even if it wanted to. 

With the recent stock plunge, they seem to be trading at a significant discount to book value (75% of?). I don't know if whatever problematic mortgages they may have in their book could be that serious, but take a ridiculously extreme example and say that Equitable or someone offered $1/share (currently around $20?). 5% of current market cap ($1.2B) would seem to be around $60 million, and unless they've been writing mortgages on Florida swampland instead of Toronto condos, it would seem impossible for Home not to be worth at least that much.

They could probably also start selling off assets and reduce their balance sheet, even at the cost of growth, share price, etc.
So CDIC isn't going to be writing anyone any cheques, and Home probably isn't going anywhere (except perhaps acquired). They may have short term liquidity or cost-of-funds issues, or irate shareholders who have taken a bath, or dismal growth prospects given the bad publicity. But some of the nuttier comments here are just that.


----------



## james4beach

^ If they get into a deleveraging stage, things snowball and get worse. This is the problem with banking: it's all fun and games on the (leveraged) way up. It can get pretty horrifying on the way down, if things spiral.

For example they MAY have to raise more capital. This will involve issuing more equity, pounding the share price even lower. Then their counterparties will require more collateral to be posted, so their cashflow will get drained posting collateral. Or it forces more liquidation.

Best case scenario: maybe they can manage the situation with appropriate liquidation, reducing risk exposure, and maybe their lenders/counterparties will not freak out and don't demand any more collateral or risk compensation.

Does anyone know what their off-balance-sheet derivatives situation is? Do they have big positions off balance sheet that could go sour and drain them of cash? These guys aren't a TBTF bank... they can't just borrow limitless free money from government like the Big Five do.


----------



## doctrine

I doubt they'll have to raise equity; HCG is well capitalized, far more so than the big banks (16% ratio vice 10-11%). HCG also has a Schedule I bank in Home Bank, which they acquired in 2015 (CFF).

More telling is that you can't borrow shares to short this anymore, almost the entire thing is shorted. You can't short 200% of the stock, so I'm wondering how much lower this actually goes. They don't have to grow the business to be great value, as long as it doesn't shrink, and I believe Q1 is going to show about 6% growth in adjusted EPS. If they're able to grow their loan book despite all of the headline news, then this could be really interesting. Probably though, insanely volatile.


----------



## Eder

They pre released quarterly results...per share growth q/q is up but they bought back a lot of stock so who knows. I do have a short term bond of theirs that dropped 1.5% last week. I doubt I need to be concerned though...feeling a bit sorry for the shareholders though as it has been popular with forum members in the past.
Might be a good time to load up on their bonds next week for a trade.


----------



## blin10

Looks like all noise to me, they're still making a ton of money, I'm loading up here... I remember scandal with SNC with bribes and all that, i made it out like a bandit


----------



## leeder

Interesting to see Oaken Financial increasing their GIC and saving account deposit rates. As of April 21, GIC rates:

1 year - 1.85%
1.5 years - 1.95%
2 years - 2.00%
3 years - 2.05%
4 years - 2.15%
5 years - 2.25%

New Oaken alert, effective April 25:
1 year - 2.00%
1.5 years - 2.10%
2 years - 2.20%
3 years - 2.30%
4 years - 2.40%
5 years - 2.50%


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## leeder

Saving account rate, increasing from 1.50% to 1.75%


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## Eder

oops...down $7.35...might be a good spot? Wow...down $8.48 now!


----------



## OptsyEagle

There is no good spot. This is a classic run on the bank. It does not need to be real. Perception alone will destroy the shareholder's investment. This bank will either go bankrupt or LOC like the one they signed will reduce EPS to a fraction of what they were in the past, or the eventual recapitalization will dilute the current shareholder's into the stone age. In any of those cases the current shareholders will be begging to get the price for their shares that is currently being offered today. 

This one is done. All that is left is it's eulogy.


----------



## Eder

Yep...I'm too scared to play here.Good advice.


----------



## hboy54

Eder said:


> Yep...I'm too scared to play here.Good advice.


Panic is my playground. In for 5000 @ $6.79. Also left a day limit order for 10,000 @ $3.50.

Hboy54


----------



## Beaver101

^ Trading has been temporarily suspended ... anyhow, the difference (another 50% off) in your orders seems to indicate other than panic.


----------



## gibor365

leeder said:


> Interesting to see Oaken Financial increasing their GIC and saving account deposit rates.


Do you see any danger having GICs in Oaken?


----------



## Eder

They are insured...no worries.In at $6.71....I cant stand it! Bleh I got stopped out at 6.76...easy $100 though.


----------



## Beaver101

^ Shouldn't be if Oaken is a separate entity whereby its GICs are FDIC insured ... but then investors shall find out in the real world with amounts >$100K if Oaken's deposits are are not FDIC-insured. But again, Home Capital got a $2B life-LOC.


----------



## gibor365

> They are insured


 but until you get thos insurance money from CDIC can pass a lot of time, also not sure if GIC interest will be paid out



> Shouldn't be if Oaken is a separate entity


 recently got email from Oaken that trying to calm down investors ... not sure it's a good sign


----------



## hboy54

Eder said:


> They are insured...no worries.In at $6.71....I cant stand it! Bleh I got stopped out at 6.76...easy $100 though.


LOL, don't spend it all at one place!


----------



## Eder

Yes I know but its a hot potato and I'm just fooling around till water aerobics start lol. Good luck with your buy at any rate!


----------



## blin10

insane drop, but im like hboy, in for 3k shares... let's see what happens


----------



## jargey3000

Like ya would...!!!
Last month I bought a (5-figure) 1-yr GIC with Home Trust!
Only money i have with them.
Please tell me I'm CDIC-OK??


----------



## leeder

gibor365 said:


> Do you see any danger having GICs in Oaken?


There's always some worry. I only have about $15k in GICs with them maturing in 2019 and some small $ amount in their HISA. The total amount is well below $100k, but I do take comfort it is CDIC insured (principal only). There was an interesting article on BNN about three possible ways HCG would end: http://www.bnn.ca/three-ways-the-home-capital-scandal-ends-1.732499

I think this company will struggle but live on in the near future.


----------



## doctrine

Wow. Chaos on the market. HCG down 63%, but look at others: EQB down 37%, FN down 10%, GSY down 8%, MIC down 8%. This is a real lesson in corporate governance. A) HCG should have been more clear back in 2014. It was almost a year before they reported anything - days, weeks or even months. B) Once investigated by OSC, everyone should have been immediately fired, no questions asked. If they did either of these things, HCG might be a viable business. With no trust, there is no funding. Dividend will be eliminated here for sure. I wouldn't touch this, it's going to be years to sort out so there is plenty of time to look at it in the future.


----------



## jargey3000

_Forget all that!! What about MY GIC??_


----------



## OptsyEagle

One of the problems with this stock today is that BNN was reporting that this new line of credit carried an interest rate of 22.5%. That was why I looked into the situation because it pretty much screamed desperation. It was pretty tacky reporting by BNN, in my opinion. Here is the actual new release.

http://web.tmxmoney.com/article.php?newsid=4683131916831210&qm_symbol=HCG

It's a $2 Billion line of credit. They are paying 10% on any outstanding balance and 2.5% on any available credit not used. They also are paying a whopping $100 million one time fee to set it up. I suspect that National bank financial (where BNN said they got their info) went on to say that in the first year if they borrow $1 Billion, they pay 10% on that, 2.5% on the Billion not borrowed and with the $100Million fee that makes the cost 22.5%. It does, but only in the 1st year.

Anyway, I thought I would add that. There is no doubt that Home Capital was more then a little desperate to get this money, but with the withdrawals coming out of their High Interest Savings accounts and jargey3000 soon to withdraw his multi-hundred million dollar GIC, they probably had very little choice. As I said earlier it is a classic "run on the bank" situation.

I suspect the next dividend will be cut and there is no doubt their EPS for 2017 will be negative, but it's what happens after 2017 that will be interesting to see. If they can get confidence back and Toronto real estate does not collapse, it will be a good investment. If they don't, stock investors will lose everything. 

All the above is just my opinion. Good luck with this one.


----------



## jargey3000

"multi-THOUSAND"
:blue:


----------



## like_to_retire

I guess for anyone with cash in their HISA, it takes little more than a mouse click to transfer your funds out, but even so, will this situation give anyone pause in playing this HISA game of swapping between HISA providers to get the best rate of the month?

I admit I use to do that, but decided it frustrated me more than it was worth, and so a number of years ago, just moved all that cash into my TDDI account and bought TDB8150 at a meager 0.75%. Less return, less frustration, and much, much easier to take quick advantage of buying a stock when the situation presents itself.

I suppose the ease at which the system has now allowed people to transfer funds with a mouse click is definitely working against HOME at this time.

ltr


----------



## gardner

OptsyEagle said:


> ... that makes the cost 22.5%. It does, but only in the 1st year.


Right. And after the first year it reduces to a paltry 12.5% with 1B/1B. I don't see how they can stay in business with money costing them this much. I wouldn't mind getting a piece of the 2.5% for NOT lending them money deal. I could NOT lend them a couple million I think.

I can't imagine that this is an actual deal -- I think there is a grossly misreported typo somewhere.


----------



## OptsyEagle

I could afford to NOT lend them the entire $2 Billilon dollars. I wish they had called me first. I would have dropped the set up fee down a few million as well. lol.


----------



## NorthernRaven

gibor365 said:


> but until you get thos insurance money from CDIC can pass a lot of time, also not sure if GIC interest will be paid out





leeder said:


> There's always some worry. I only have about $15k in GICs with them maturing in 2019 and some small $ amount in their HISA. The total amount is well below $100k, but I do take comfort it is CDIC insured (principal only).


CDIC covers both principal *AND* interest up to the $100K limits.


----------



## doctrine

gardner said:


> Right. And after the first year it reduces to a paltry 12.5% with 1B/1B. I don't see how they can stay in business with money costing them this much. I wouldn't mind getting a piece of the 2.5% for NOT lending them money deal. I could NOT lend them a couple million I think.
> 
> I can't imagine that this is an actual deal -- I think there is a grossly misreported typo somewhere.


It really is that bad. No, they can't stay in business with financing like that. They have $10B+ in GICs that will come due that are only costing them 1.5-2.5%. Not all at once, but they're out there, and there is no way for this company to replace even a fraction of them. It's why the stock is down 65% today and 86% from the 52 week high. 80%+ drops in stocks are usually indicative of permanent losses of capital. If I had shares in this, or EQB or FN or MIC or anything, I would sell now, even if I bought today.


----------



## NorthernRaven

gibor365 said:


> but until you get thos insurance money from CDIC can pass a lot of time, also not sure if GIC interest will be paid out
> 
> recently got email from Oaken that trying to calm down investors ... not sure it's a good sign





leeder said:


> There's always some worry. I only have about $15k in GICs with them maturing in 2019 and some small $ amount in their HISA. The total amount is well below $100k, but I do take comfort it is CDIC insured (principal only). There was an interesting article on BNN about three possible ways HCG would end: http://www.bnn.ca/three-ways-the-home-capital-scandal-ends-1.732499
> 
> I think this company will struggle but live on in the near future.





gardner said:


> Right. And after the first year it reduces to a paltry 12.5% with 1B/1B. I don't see how they can stay in business with money costing them this much. I wouldn't mind getting a piece of the 2.5% for NOT lending them money deal. I could NOT lend them a couple million I think.
> 
> I can't imagine that this is an actual deal -- I think there is a grossly misreported typo somewhere.


It is actually a $100 million fee, 10% on outstanding balance, and 2.5% on undrawn amounts from the $2 billion facility, with an initial draw of $1 billion. Assuming they don't draw down any more (things stabilize over the next few months, GICs don't crater), that would be $100M + $100M + $25M = $225M. The miniumum would be $150M+ if they somehow returned the initial draw fairly quickly; they would also save a bit ($10-15M?) on lower HISA interest being paid out. Their 2015 net income was just short of $300 million. So basically they seem to be saying that they are willing to sacrifice most of a year's profits to have a chunk of stable (albeit very expensive) funding and restore confidence in their HISA and GIC deposit base. For shareholders, this might be better than getting acquired way below book value, assuming the underlying business recovers to some sort of stable (if perhaps less lucrative) over the next year.


----------



## james4beach

Not just Home Capital / Home Equity or whatever they call it, but I also avoid Equitable, Peoples Trust, and all the other "slightly higher than average" deposit places. It's splitting hairs with ultra low interest rates anyway, and I don't see the appeal of depositing (lending money) to a sketchy bank.

In my view places like Home Capital Group and Equitable Trust should be paying much higher cash interest rates to compensate for the risk of doing business with them. Instead of 2.5% interest rates it should be more like 4% on cash (in my opinion). For GICs I would demand even higher, maybe 6% for a five year GIC.


----------



## like_to_retire

The naming of all these banks is confusing. I still don't really have it straight.

Who's good, who's bad, who's in trouble, who's not?

Home Bank

Home Equity Bank

Home Trust

Home Capital

Sheesh. I suppose TDDI has offered GIC's from most of these over the years, but it's a bit confusing for sure. I presently have GIC's with Home Equity Bank, as TDDI has stuck with them over the last few years. They don't seem to be associated, but really, I have no idea if they are a part of this debacle.

ltr


----------



## Jaberwock

When I first started investing, Home Capital was one of the first shares I bought. I paid $3, and they have split 3:1 since then. I sold a couple of years ago (after the split) for around $30, a 3000% gain.

It is sad to see the company go downhill so quickly. In trying to protect shareholders by initiating an investigation into what seems to be a relatively minor discrepancy in disclosure, the OSC may well have destroyed millions of dollars in value for existing shareholders.


----------



## Eclectic12

like_to_retire said:


> The naming of all these banks is confusing. I still don't really have it straight.
> Who's good, who's bad, who's in trouble, who's not?
> 
> Home Bank


Not sure why you care about an FDIC insured US bank.



> Home Bank SB P.O. Box 1677
> *Martinsville, IN 46151*





like_to_retire said:


> Home Equity Bank


Their main purpose/product seems to be reverse mortgages for seniors. I'd have to dig more to see if anyone has ownership. There's no mention of this one on the HCG main web page, unlike Home Trust that is listed as HCG's principal subsidiary.




like_to_retire said:


> Home Trust


Didn't know any trust companies survived without getting bought out ... though they say:



> Home Trust is a federally regulated trust company and *a wholly owned subsidiary of Home Capital Group Inc.* ...


So I'd guess bad but don't know.



like_to_retire said:


> Home Capital


This one is the holding company so unless one bought stock ... or have deposits with Home Trust, there may be no impact.


Cheers


----------



## NorthernRaven

like_to_retire said:


> The naming of all these banks is confusing. I still don't really have it straight.
> 
> Who's good, who's bad, who's in trouble, who's not?
> 
> Home Bank
> 
> Home Equity Bank
> 
> Home Trust
> 
> Home Capital
> 
> Sheesh. I suppose TDDI has offered GIC's from most of these over the years, but it's a bit confusing for sure. I presently have GIC's with Home Equity Bank, as TDDI has stuck with them over the last few years. They don't seem to be associated, but really, I have no idea if they are a part of this debacle.
> 
> ltr


Home Capital Group (*HCG*) is the parent company, which trades on the TSX. Their main operating company is *Home Trust* (that's probably the name you see at CDIC), which does the mortgages and most everything else. A while ago, they bought what was called CFF Bank (a small bank), and renamed it *Home Bank*, so you'll also see that name at CDIC. They are separate CDIC coverage, but both are operating arms of HCG, and you can get GICs from both at Oaken, the name of the online division. 

HomEquity Bank is a completely separate company unrelated to HCG, which does reverse mortgages for seniors, etc.


----------



## andrewf

james4beach said:


> Not just Home Capital / Home Equity or whatever they call it, but I also avoid Equitable, Peoples Trust, and all the other "slightly higher than average" deposit places. It's splitting hairs with ultra low interest rates anyway, and I don't see the appeal of depositing (lending money) to a sketchy bank.
> 
> In my view places like Home Capital Group and Equitable Trust should be paying much higher cash interest rates to compensate for the risk of doing business with them. Instead of 2.5% interest rates it should be more like 4% on cash (in my opinion). For GICs I would demand even higher, maybe 6% for a five year GIC.


Why? The lending is guaranteed by GoC--why would there be such a huge spread?


----------



## jargey3000

sooo.....when I go online at my RBC-DI acct., I see there's a "sell" button to click, next to my Home Trust GIC.
I haven't called RBC to see what happens if I click the "sell".
Anyone know?
(I feel a bit like Kim Jong Un ..or, whatever his name is....)


----------



## andrewf

Jaberwock said:


> When I first started investing, Home Capital was one of the first shares I bought. I paid $3, and they have split 3:1 since then. I sold a couple of years ago (after the split) for around $30, a 3000% gain.
> 
> It is sad to see the company go downhill so quickly. In trying to protect shareholders by initiating an investigation into what seems to be a relatively minor discrepancy in disclosure, the OSC may well have destroyed millions of dollars in value for existing shareholders.


You don't lose 90% of your value for minor reporting discrepancies. Where there's smoke there is often fire.


----------



## like_to_retire

NorthernRaven said:


> HomEquity Bank is a completely separate company unrelated to HCG, which does reverse mortgages for seniors, etc.


Thanks, that's the one I have, so it appears I'm OK with those GIC's.




Eclectic12 said:


> Not sure why you care about an FDIC insured US bank.


Because I've seen the name mentioned, as per NorthernRavens comment, _"A while ago, they bought what was called CFF Bank (a small bank), and renamed it Home Bank, so you'll also see that name at CDIC. They are separate CDIC coverage, but both are operating arms of HCG, and you can get GICs from both at Oaken, the name of the online division"._ 

ltr


----------



## andrewf

jargey3000 said:


> sooo.....when I go online at my RBC-DI acct., I see there's a "sell" button to click, next to my Home Trust GIC.
> I haven't called RBC to see what happens if I click the "sell".
> Anyone know?
> (I feel a bit like Kim Jong Un ..or, whatever his name is....)


My guess is some kind of error message? There is no secondary market for GICs (no one can/will buy it). Some GICs are cashable (ie, can be redeemed on demand), but they are not usually longer in term than 1 year and have low interest rates (more like a HISA).


----------



## james4beach

andrewf said:


> Why? The lending is guaranteed by GoC--why would there be such a huge spread?


There's already some spread based on risk... these lenders offer more to attract money. Otherwise why would anyone deposit with Home Capital Group at all when they could deposit with TD? You need some risk compensation.

Here's the way I think of it. You must pay me extra compensation to make it worth my while to go through the hassle of dealing with anyone like Small Mortgage Bank X. For me to have to hear about the news of how their business is falling apart, worry whether I have to rely on the CDIC. As a depositor I don't want to lose sleep thinking about whether I'm going to have to interact with CDIC and make sure my deposits are safe.

So you must pay me extra for that. The approx 1% extra spread they currently offer is not enough risk compensation for me to go through that kind of hassle.


----------



## mordko

The real question is whether this is a stand alone event or just the tip of the iceberg and the beginning of the end of the Canadian housing bubble with major consequences for everyone.

Last week the number of listings in the GTA has jumped and the number of buyers went down. And the prices have steadied a bit with the bidding wars cooling down. Again, we don't know if this is a temporary slow down or the first sign of something more significant. 

More adventurous investors should short companies overexposed to mortgages.


----------



## Eclectic12

like_to_retire said:


> Eclectic12 said:
> 
> 
> 
> Not sure why you care about an FDIC insured US bank ...
> 
> 
> 
> Because I've seen the name mentioned, as per NorthernRavens comment, _"A while ago, they bought what was called CFF Bank (a small bank), and renamed it Home Bank, so you'll also see that name at CDIC ... _
Click to expand...

_

It looks to me that the link for the FDIC insured Home Bank SB does not match up as it says it's a mutual bank ... which seems to mean that it's depositors own it. 
Like some Canadian insurers used to be when they were worried about big US corporations buying them out. Or like a credit union.

https://www.homebanksb.com/our-story/


Cheers_


----------



## Eder

Lol even Canadian Western Bank took it on the chin even though they have the same amount of money tied up in graders,excavators & trucks as home mortgages (~17%)...the sky is falling I tell you!


----------



## james4beach

mordko said:


> The real question is whether this is a stand alone event or just the tip of the iceberg and the beginning of the end of the Canadian housing bubble with major consequences for everyone.


I agree, this is the big question. Is the HCG situation a one-off thing, or is it the tip of the iceberg?

When the US credit bubble burst, the problems all started with the sketchiest lenders... the aggressive/fraudulent ones with the poorest practices. That's where the issues become visible first, like a canary in the coal mine. Too early to tell.

It's possible that the problems are entirely HCG-centered and have no broader implications.


----------



## leeder

Funny how the stocks that have done the worse in the past year or so are all Jason Donville's staple stocks (eg., HCG, VRX, CXR). Maybe people should sell Constellation Software before the Donville effect strikes again!


----------



## james4beach

Someone considered VRX a staple stock? omg


----------



## gibor365

james4beach said:


> Someone considered VRX a staple stock? omg


VRX is a typical bullshit stock , good think they don't pay dividends or I might've buy them before crush


----------



## doctrine

The Donville connection is an interesting one. CSU trades at 20 times book and 50 times earnings. Yes, something bad could easily happen there. Especially in a recession when spending on software by business will drop faster than HCG's funding sources.


----------



## mark0f0

andrewf said:


> My guess is some kind of error message? There is no secondary market for GICs (no one can/will buy it). Some GICs are cashable (ie, can be redeemed on demand), but they are not usually longer in term than 1 year and have low interest rates (more like a HISA).


Of course you can sell a GIC, just like you can buy or sell any other debt obligation. It just means you have to some someone to actually sell it to. If you try to sell it to your broker (for example), they're quite likely not to give you a good bid, but they might be able to help you find a buyer. You could try advertising on a site like craigslist as well.



> Is the HCG situation a one-off thing, or is it the tip of the iceberg?


Tip of the iceberg given just how poor in quality Canada's housing market is, the metrics. But how that's actionable short of selling your house and getting the heck away from the RE market altogether is anyone's guess.


----------



## andrewf

I should correct the comment I made earlier: some non-redeemable GICs do allow redemptions subject to penalties (say, foregoing interest).


----------



## sags

Interesting comments by Marc Cohodes, who has been shorting this stock for years and warning investors.

He says equity in the company is now worthless, because the $2 Billion dollar loan will sit on the top of the capital stack. 

He also said the dividend will be eliminated and he is also shorting other alt lenders whom he says are operating the same as Home Trust.

His advice to people is to stay renting and sell if they own and can find a buyer. He thinks the Canadian housing market will bust.

https://twitter.com/search?q=$HCG&src=ctag&lang=en


----------



## sags

From another financial website (FWF), deposits at Home Capital as of December 2016.

It represents $4 Billion that could be withdrawn by investors within 3 months, $6 Billion within 6 months, and $9 Billion within a year.

_Deposits payable on demand: $2.4b

Deposits payable at a fixed rate:

0-3 months: $1.63b 
3-6 months: $2.03b 
6-12 months: $3.27b 
1-5 years: $6.42b

Total: $13.35b

_


----------



## doctrine

sags said:


> Interesting comments by Marc Cohodes, who has been shorting this stock for years and warning investors.
> 
> He says equity in the company is now worthless, because the $2 Billion dollar loan will sit on the top of the capital stack.
> 
> He also said the dividend will be eliminated and he is also shorting other alt lenders whom he says are operating the same as Home Trust.
> 
> His advice to people is to stay renting and sell if they own and can find a buyer. He thinks the Canadian housing market will bust.
> 
> https://twitter.com/search?q=$HCG&src=ctag&lang=en


EQB is definitely in the same boat as HCG and might be screwed. I'm not sure FN is, as they aren't really vulnerable to a bank run (still wouldn't participate), and MIC definitely is not, and if that got sold down I would be interested, but otherwise best to stay away. I would really agree that this point that HCG and EQB are nearly worthless, although the debt might be interesting.


----------



## mordko

This thread should be a required reading for anyone buying stocks based on chatroom noise. Fascinating read. A few trends:

1. Several regulars keen on HCG make repeated statements indicating absolute certainty in future performance. Anyone who is 100% certain in the future is talking bollocks. 

2. "Technical analysis", "support levels" and single-criterion stats are used to justify how great the stock is at the expense of basic common sense. When people are talking about "support levels"... See item 1. 

3. A couple of people did use their head and pointed out excessive concentration in the peaking mortgage business. These individuals did not express certainty in the future but raised questions. Less certainty in statements = more common sense. 

4. The simplest rule of all: discussion of a specific stock in financial forums = higher trade volume but long-term under-performance.


----------



## mordko

This is my favourite quote from the whole thread. The poster's words are saturated with a sense of irony. 



> CEO is stepping down soon, he is 77. (Oh my god it's because he knows there's a crash coming :stupid


----------



## gibor365

doctrine said:


> EQB is definitely in the same boat as HCG and might be screwed. I'm not sure FN is, as they aren't really vulnerable to a bank run (still wouldn't participate), and MIC definitely is not, and if that got sold down I would be interested, but otherwise best to stay away. I would really agree that this point that HCG and EQB are nearly worthless, although the debt might be interesting.


And what do you think abou FC (Firm Capital Mortgage Investment Corp)? 
Also, curious how dangerous are online banks like EQ and People Trust?


----------



## james4beach

james4beach said:


> The stock chart for HCG screams: "I'm toast"


This was a technical analysis comment back on April 20. The same thing could be seen in the VRX chart when it turned bad.

I wouldn't dismiss the value of T/A especially for spotting indicators when one should ditch a stock. I traded several crashing US lenders in 2007 in the early days of the crisis, and all of their stock charts screamed that the stocks were on their way to becoming worthless.


----------



## james4beach

From the CBC description it also sounds like a run on the bank. $591 million in cash deposits were pulled in a short period, and clearly more cash is being pulled right now (just human psychology).

As you can see, people do pull deposits out of concern of a business's viability, even if CDIC guarantees deposits.


----------



## gibor365

> As you can see, people do pull deposits out of concern of a business's viability, even if CDIC guarantees deposits.


 People just don't trust CDIC


----------



## james4beach

gibor365 said:


> People just don't trust CDIC


I disagree, I think CDIC will ensure all deposits. I just think people don't want to bother with the stress and hassle about worrying about their deposits.

Gibor you should reconsider whether you want to deposit so much $ with those places like Equitable and Peoples. These are all specialized mortgage-focused lenders, and the banks just aren't as safe as the Big Six.


----------



## james4beach

jargey3000 said:


> Like ya would...!!!
> Last month I bought a (5-figure) 1-yr GIC with Home Trust!
> Only money i have with them.
> Please tell me I'm CDIC-OK??


Yes the money is OK, if you're within CDIC limits. Make sure you get your hands on a real bank statement (like a monthly statement or something, PDF format is fine) in case you need to prove to the CDIC that you have a deposit with them.


----------



## mark0f0

james4beach said:


> I disagree, I think CDIC will ensure all deposits. I just think people don't want to bother with the stress and hassle about worrying about their deposits.


Are you suggesting that CDIC will exceed the statutory limits to CDIC deposit insurance. While $100k per person may seem like a lot to many of us investor types to have in cash, there's lots of people over the past number of years who have sold their houses, and basically parked it all in GICs (thus funding the bubble, as everything a bank lends out must have been borrowed from depositors). For all the talk of the importance of diversification, there are lots of Canadians who will have significantly in excess of the CDIC limits in these accounts.

The bigger concern is that if HGC's actual LTVs are much higher in reality than they're telling investors (Canadian/Toronto/Vancouver RE hasn't appreciated since 2013, but some Realtors falsely believe it has!), how prevalent is this practice? Could all reported LTVs be works of fiction? That seems like an increasingly likely scenario given the non-performance of Canada's RE market since the 2013 apex.


----------



## james4beach

Oh yeah, to clarify, I mean CDIC will ensure up to the 100k limit.

And by the way, banks don't leave cash deposits just sitting around somewhere. When you deposit money, you are lending money to the bank. The cash immediately goes somewhere to be deployed and used.

Whenever you deposit money, think of it as lending them money. The real question is whether they can repay your loan when you go back and ask for the money back. If all their money is tied up in illiquid mortgages and they're unable to borrow on a line of credit, the answer may be "no" ... in which case the bank is insolvent (unable to pay their debts).



mark0f0 said:


> there are lots of Canadians who will have significantly in excess of the CDIC limits in these accounts.


They may be in trouble.


----------



## mark0f0

james4beach said:


> Whenever you deposit money, think of it as lending them money.


Exactly!!!!!!!!!! Can't stress this enough. Banks are borrowers. They are not merely nice people who will 'store' your money for you in a vault. I try to explain this to old people, that they are lenders to the banks and should carefully consider whether borrower is credit-worthy, and they shake their heads like I'm some sort of space alien!


----------



## gibor365

> I disagree, I think CDIC will ensure all deposits. I just think people don't want to bother with the stress and hassle about worrying about their deposits.


 I hope so, but not sure 100% , Also, even though, CDIC targeting returning money in 3 days (as per their website) , it can be stretched my months or even years.
Also, if somebody GIC is maturing in May 1, 2019 and Oaken goes belly up in May 1, 2017, the interest insured only until May 1, 2017 and I'm not sure when CDIC will return your insured money in 2017 or in 2019 (if in 2019 , investors will loose a lot of money, as for 2 years they will give 0 interest and inflation can be huge as government should print tens billions of $)


----------



## gibor365

> Gibor you should reconsider whether you want to deposit so much $ with those places like Equitable and Peoples. These are all specialized mortgage-focused lenders, and the banks just aren't as safe as the Big Six.


All my liquid cash now in HISA in Tangerine for 2,97%, and this is more than CIDC limit by far (200K+) , but because it belong to BNS, I'm not too worried.

In Peoples Trust we have only GIC and I cannot do anything right now, but it's less than 100K, so everything is insured.

In Oaken we have close to 300K , but they split between 4 different accounts (my individual, joint with wife, joint with son and joint with ny mom), no account exceeds 100K, so all should be insured 100% by CDIC.

In EQ we have zero balance (all transfered to tangerine)


----------



## mordko

mark0f0 said:


> The bigger concern is that if HGC's actual LTVs are much higher in reality than they're telling investors (Canadian/Toronto/Vancouver *RE hasn't appreciated since 2013, but some Realtors falsely believe it has!*),


Also 2+2=48958409584095840958.

Who knew that the Bank of Canada governor, governments of Ontario and the Federal government and all Canadian banks are made up entirely of realtors? 

In the real world the prices in hot markets of GTA and Vancouver went up like crazy. The risk is they will go down like they did in the US and then a lot of morgages could be under water. If that were to happen then nobody is safe from losses, least of all Canadian investors.


----------



## My Own Advisor

mordko said:


> This is my favourite quote from the whole thread. The poster's words are saturated with a sense of irony.


YUP!


----------



## My Own Advisor

@gibor,

Always wise to put <100K cash in different institutions just for CDIC reasons. Another good diversification measure I think, if I had that much in cash or GICs.

I wouldn't be too worried about any of the six big banks, but you never know!


----------



## mark0f0

mordko said:


> Who knew that the Bank of Canada governor, governments of Ontario and the Federal government and all Canadian banks are made up entirely of realtors?


Might not be made of Realtors, but those organizations have their own motivations and they may not be relying upon the best of analysis. Or they may be publicly following the Realtor narrative, but privately preparing for what they see is coming down the pipe, and that is, likely massive deflation in Canadian house prices.



> In the real world the prices in hot markets of GTA and Vancouver went up like crazy.


No in the real world, prices are similar to that of 2013, but the actual stuff the Realtors are transacting in is disproportionately weighted to the higher end of the market. As the lower end has dropped out due to lack of demand. 

It is this shift, that of the sales mix, that has been responsible for the so-called 'gains' in the post-peak period. However, mortgages are written not against shifting mixes, but rather, against collections of individual properties. And it does appear that actual LTVs are so extreme that the resale value of the mortgage obligations has been meaningfully impaired.



> The risk is they will go down like they did in the US and then a lot of morgages could be under water. If that were to happen then nobody is safe from losses, least of all Canadian investors.


There are some ways in which people can protect themselves. For example, invest in sectors which will benefit from the inevitable lowering of benchmark interest rates. Invest in sectors which will benefit from the cheap labour supply that will be available as housing market participants lay off their staff and stop consuming. Rent housing instead of owning it. Become a bankruptcy trustee. Etc.


----------



## mordko

james4beach said:


> This was a technical analysis comment back on April 20. The same thing could be seen in the VRX chart when it turned bad.
> 
> I wouldn't dismiss the value of T/A especially for spotting indicators when one should ditch a stock. I traded several crashing US lenders in 2007 in the early days of the crisis, and all of their stock charts screamed that the stocks were on their way to becoming worthless.


Nope. As the trickle of bad new turns into a flood, it's not "technical analysis" to say things ain't looking all that rosy in the short term. If the "techncal analysis" was any use, all those "analysts" would have informed us of what is about to happen in advance. And they would have given a consistent message because... Well analysis is analysis. When a bunch of prdictions are been given and 1 of them turns out true while the rest don't - that's clairvoyance.


----------



## jargey3000

james4beach said:


> Yes the money is OK, if you're within CDIC limits. Make sure you get your hands on a real bank statement (like a monthly statement or something, PDF format is fine) in case you need to prove to the CDIC that you have a deposit with them.


thanks jim.
yes. i have that paper.
i think i'll call RBC-DI & just see if i can redeem the GIC - I'd be willing to forego the few pennies in interest I earned so far.


----------



## Eclectic12

gibor365 said:


> james4beach said:
> 
> 
> 
> 
> 
> gibor365 said:
> 
> 
> 
> People just don't trust CDIC
> 
> 
> 
> I disagree, I think CDIC will ensure all deposits. I just think people don't want to bother with the stress and hassle about worrying about their deposits ...
> 
> Click to expand...
> 
> I hope so, but not sure 100% ...
Click to expand...

Not sure why one would panic yet ... CDIC has covered forty three failures with big years being 1992 (six failures) as well as 1985 and 1983 (seven failures in each year).


Cheers


----------



## blin10

7.35 in pre hours....


----------



## jargey3000

_"In a release on Thursday, the company said a “major Canadian institutional investor” has agreed to put up a $2-billion credit line which will give it access to $3.5-billion in total funding."_

ps .... it's not ME!


----------



## mordko

Yes, they are trying to borrow at an effective rate of over 20%. The positive scenario would be for someone to buy them. Might be a decent bet for a large institution looking for a mortgage portfolio for the right (very low) price. But the real question is the quality of the debt that Canadians carry. And how much the government is on the hook for.


----------



## sags

It looks like the HOOPP fund is the lender. Interesting that HOOPP CEO Jim Keohane is on the board of Home Capital and owns shares.

Home Capital has hired bankers to look for a buyer for the company.

https://www.bloomberg.com/news/arti...res-loan-and-hires-rbc-bmo-for-strategic-plan


----------



## sags

My wife collects a HOOPP pension and they are a very well run fund. They are fully funded and last year paid several years of inflation increases in one lump sum. They don't make too many investing mistakes.

Perhaps they are trying a Warren Buffet trick..........lend money to a distressed company and earn a tidy sum.

There could be some questions about it though. As a board member, Keohane had access to inside information and knew that funding was going to be needed, and Home Capital would be desperate for it. As the CEO of HOOPP, Keohane had the means to extend the loan.


----------



## My Own Advisor

I have to wonder if a big bank will step in and get them on the cheap, and re-structure things. 

I wouldn't put it past any of the big 5 banks to buy assets of a very distressed company like this.


----------



## AltaRed

My Own Advisor said:


> I have to wonder if a big bank will step in and get them on the cheap, and re-structure things.
> 
> I wouldn't put it past any of the big 5 banks to buy assets of a very distressed company like this.


They will not buy the company. They would wait for insolvency and buy only the high quality book. CDIC would be stuck with the shaky stuff. It will take time to sort out what mortgages are solid versus those that are not, especially given the mortgage broker issue HCG ran into a year or so ago.


----------



## sags

I guess this would qualify as a historic "run on the bank"............from $2 billion savings account deposits to $814 million.

My wife has a small amount in GICs there. I told her the money is insured but she says she is taking it out when she can.

She remembers when she had money in Canada Trust and they were in trouble. She had to wait to get it out.

Toronto Dominion Bank took them over............hence TD Canada Trust bank.

_Home Capital saw another steep drop in savings accounts deposits over the past few days and says it expects to have balances of roughly $814-million as soon as yesterday’s transactions are settled. That compares to $1.4-billion on Apr 24. Those balances stood at roughly $2-billion on March 28._

_Wednesday night, DBRS Ltd. downgraded the firm’s debt to junk status from investment grade citing “heightened pressure on Home Trust Company’s funding and liquidity profile”._


----------



## james4beach

sags said:


> She remembers when she had money in Canada Trust and they were in trouble. She had to wait to get it out.


Right. CDIC will protect insured deposits (provided they are insurable, within limits, in CAD) but there can be delays getting the money. This is one reason that creditworthiness of the borrowing bank still matters.

I doubt a giant bank would be quick to buy HCG. Virtually all the company's assets are totally illiquid, Level 3 assets on the balance sheet with no clear valuation. You don't buy something you can't value and HCG cannot be valued accurately *by anyone*.

The only possible reason I could see for a bank to buy HCG is if they are counterparty to the firm on some derivatives and want to buy the firm to protect themselves, even though it means taking a steep loss.


----------



## Parkuser

sags said:


> She remembers when she had money in Canada Trust and they were in trouble. She had to wait to get it out.
> 
> Toronto Dominion Bank took them over............hence TD Canada Trust bank.


Are you sure this is correct? My impression was CT had been doing very well under Ed Clark, he sort of took over TD, becoming TDCT CEO.


----------



## gardner

sags said:


> She remembers when she had money in Canada Trust and they were in trouble. She had to wait to get it out.


That doesn't ring a bell at all with me. I banked with CT (now TD) since the late seventies and I cannot recall any point where they were in even the smallest whiff of trouble. As a customer, the customer service certainly took a major hit during/after the TD takeover, but as an institution I do not believe they were anything other than wholly and entirely sound and profitable.


----------



## gibor365

Generally I'd like to know how it's working. Can Oaken/Home trust declare bankruptcy on the spot...let's say May 1 and I won't be able totake out money from there?


----------



## Beaver101

^ If you're uncomfortable with the thought of Oaken/Home Trust closing doors soon, then consider taking your money out then. But if you're stuck with a fixed GIC term, then you would have no choice but to get in inline like every other depositor.


----------



## Eclectic12

sags said:


> I guess this would qualify as a historic "run on the bank"............from $2 billion savings account deposits to $814 million.
> My wife has a small amount in GICs there. She remembers when she had money in Canada Trust and they were in trouble. She had to wait to get it out. ...


When was this?

I only became a TD bank customer because of the buyout when British American Tobacco decided to take Imasco private. BAT had no interest in banking assets, had long standing offers made to Imasco for CT Financial from CIBC but accepted the TD offer instead.

I can recall some hiccups for the integration process but never had an issue getting to my money or any reports of financial distress.


Cheers


----------



## leeder

gibor365 said:


> Generally I'd like to know how it's working. Can Oaken/Home trust declare bankruptcy on the spot...let's say May 1 and I won't be able totake out money from there?


Highly doubtful a company fold and shut down everything on the spot. I'd be surprised if they didn't give shareholders or anyone who bank with them advance warning. Maybe you (or someone) should contact CDIC and ask what their process is and how soon deposit holders get their payments back if HCG were to go under.


----------



## Eclectic12

Parkuser said:


> Are you sure this is correct?
> My impression was CT had been doing very well under Ed Clark, he sort of took over TD, becoming TDCT CEO.


I am wondering if it was restriction on the investment or a glitch in the integration.

As a CT customer with money on deposit, I had no issues and don't recall any concerns (beyond consolidation, fears that CT would end up with Big 5 banker's hours instead of the extended hours people had chosen them for etc.).


Cheers


----------



## gibor365

> Maybe you (or someone) should contact CDIC and ask what their process is and how soon deposit holders get their payments back if HCG were to go under.


 Yea, I called  . The rep told me that in several days after bank failture, CDIC gonna mail checks to everyone


----------



## Beaver101

gibor365 said:


> Yea, I called  . The rep told me that in* several days *after bank failture, CDIC gonna mail checks to everyone


 .. so the answer of "several days" is that soon you get your money? lol.


----------



## Synergy

Smartened me up a little. I've been playing the HISA game and way over the CDIC limits. Thanks to you all for putting a little scare into me!


----------



## gibor365

Synergy said:


> Smartened me up a little. I've been playing the HISA game and way over the CDIC limits. Thanks to you all for putting a little scare into me!


I'm way over CDIC only in tangerine


----------



## Synergy

gibor365 said:


> I'm way over CDIC only in tangerine


EQ bank is the one that had me a little concerned. I'm not too concerned at Tangerine but you never know! I'm sure everything will blow over in a few months and it will be business as usual, or not.


----------



## gibor365

Synergy said:


> EQ bank is the one that had me a little concerned. I'm not too concerned at Tangerine but you never know! I'm sure everything will blow over in a few months and it will be business as usual, or not.


Me 2 , less concerned about Tangerine , so practically nothing hold in EQ.
P.S. My MIL asked me what is better, to hold 200K in tangerine or 100K in Tangerine and 100 in EQ. I don't know what to tell her....


----------



## jargey3000

gibor365 said:


> Yea, I called  . The rep told me that in several days after bank failture, CDIC gonna mail checks to everyone


sooo...you mean *IF* it happens (i.e. HCG goes t**s up) , not *WHEN* it happens - correct???


----------



## Parkuser

Eclectic12 said:


> I am wondering if it was restriction on the investment or a glitch in the integration.
> 
> As a CT customer with money on deposit, I had no issues and don't recall any concerns (beyond consolidation, fears that CT would end up with Big 5 banker's hours instead of the extended hours people had chosen them for etc.).
> 
> 
> Cheers


If I remember correctly at first BofM wanted to merge with RY and CIBC with TD. Paul Martin would not allow. (He probably saved the big 5 from themselves. I do not know what would happen in 2006-2008.) As a consolation price he allowed all of them to swallow Trusts. Late 90's - very early 2000's.

I loved CT 8am to 8pm hours. And I still have a radio I got for opening the account I am using today (now it requires k$2 balance to be a no-fee).


----------



## like_to_retire

Synergy said:


> Smartened me up a little. I've been playing the HISA game and way over the CDIC limits. Thanks to you all for putting a little scare into me!


The banks offer 5 year GIC's at the brokerage for 1.3% and OAKEN offers them for 2.5%. 
The banks HISA's usually pay about 0.75% and the "other financial institutions" HISA's can offer up to 3.5%.

You must have realized that the difference is risk? Do not go over the CDIC limits.

ltr


----------



## gibor365

jargey3000 said:


> sooo...you mean *IF* it happens (i.e. HCG goes t**s up) , not *WHEN* it happens - correct???


The rep said "several days after this happens" ... No idea what several days means .... imho if it won't be done fast, i suspect a lot of demostrations on 79 Wellington St W ... and I also will go...


----------



## gibor365

> The banks HISA's usually pay about 0.75% and the "other financial institutions" HISA's can offer up to 3.5%.


Bank also have their promos, CIBC paid 1.75% until March 31 .... Also what do you consider "the bank"?! Is Tangerine or PCF are banks?! And tangerine pays me now 2.97%, much higher than Oaken, PT or EQ


----------



## mordko

Things are never as good or as bad as they appear. No real reason for concern regarding anything other than Oaken but then I don't hold any GICs.


----------



## like_to_retire

gibor365 said:


> .... Also what do you consider "the bank"?!


There are 5 of them. I'll let you investigate the names.

ltr


----------



## james4beach

like_to_retire said:


> You must have realized that the difference is risk? Do not go over the CDIC limits.


You can look back through countless threads where I said Scotiabank or CIBC offers this good GIC interest rate presently, followed by many replies where people would say you could find higher rates at Oaken/Equitable/Peoples ISA.

And then I'd say, yeah but bigger banks are safer and the small mortgage focused banks are riskier. And the replies were always: but they're all CDIC insured, what's the difference?

So here you go everyone... here is your difference


----------



## gibor365

> You can look back through countless threads where I said Scotiabank or CIBC offers this good GIC interest rate presently, followed by many replies where people would say you could find higher rates at Oaken/Equitable/Peoples ISA.





like_to_retire said:


> There are 5 of them. I'll let you investigate the names.
> 
> ltr


really?! National bank doesn't count?! And if Tangerine is owned by BNS and PCF by CIBC?!


----------



## james4beach

Yeah I think Big Six (including National Bank) are all safe, plus all their subsidiaries.

Tangerine is BNS
PCF bank accounts are CIBC accounts


----------



## gibor365

james4beach said:


> Yeah I think Big Six (including National Bank) are all safe, plus all their subsidiaries.
> 
> Tangerine is BNS
> PCF bank accounts are CIBC accounts


Imho, if you follow CDIC rules, and bank is CDIC member, everything is safe.

and in "Big Six (including National Bank) plus all their subsidiaries." - is rather safe to exceed CDIC threshold


----------



## james4beach

Healthcare of Ontario Pension Plan (HOOPP) is the lender that is giving HCG a huge rescue loan. This is quite a risky loan, the borrower has junk credit rating.

HOOPP is exposing pensioners to this risk. Are there potential problems with this? The HOOPP president sits on the Home Capital Group board and is a shareholder too - smells kind of funny to me.

Home Capital Group has been downgraded to junk.


----------



## Beaver101

james4beach said:


> Healthcare of Ontario Pension Plan (HOOPP) is the lender that is giving HCG a huge rescue loan. This is quite a risky loan, the borrower has junk credit rating.
> 
> *HHOOPP is exposing pensioners to this risk*. Are there potential problems with this? *The HOOPP president sits on the Home Capital Group board and is a shareholder too *- smells kind of funny to me.
> 
> Home Capital Group has been downgraded to junk.


 ... not only smells funny but sounds scary ... a white-knight to the rescue to save a company or share prices, with OPM's only worst it's Other Pensioners' Money. Is this transaction not subject to regulatory approval?


----------



## james4beach

Right, who is checking conflicts of interest on this? HOOPP is responsible to its pensioners. Was this loan in the best interest of pensioners, or was the decision biased by James E. Keohane's interests and involvement with HCG?


----------



## sags

I doubt HOOPP would stick their neck out this far without knowing something about something coming up.

Bail in ? Sale ? Priority debtor in case of insolvency ? I suspect HOOPP is guaranteed their money regardless of what happens.

The HOOPP Board of Trustees consists of 16 members, equally appointed by the OHA and the unions involved.

https://hoopp.com/about-hoopp/pension-leadership/hoopp-board-of-trustees


----------



## james4beach

So maybe this is like Buffett's insider bailout deals, where he is told (in private) that Goldman Sachs will not be allowed to fail, so when he lends them money it's a guaranteed profit... yeah could be something like that. I don't consider that honest business either.

Such arrangements are dishonest because there are shareholders who are selling shares based on known information -- since they're not in the loop, they are getting screwed on business deals. The shareholders selling HCG shares are doing so based on best available information.


----------



## Eclectic12

james4beach said:


> gibor365 said:
> 
> 
> 
> really?! National bank doesn't count?! And if Tangerine is owned by BNS and PCF by CIBC?!
> 
> 
> 
> Tangerine is BNS
> PCF bank accounts are CIBC accounts
Click to expand...

BNS definitely owns Tangerine, after buying from ING Groep in the Netherlands.


PCF on the other hand is owned by Loblaws where the banking/savings/ATMs etc. are provided by CIBC. Some articles list the accounts part as a joint venture so maybe there is some ownership by CIBC but it is not clear.

The PCF MC is singled out as having no connection to CIBC where it is issued by PCF Bank, a wholly owned by Loblaws subsidiary.

The insurance products are offered by PC Financial Insurance Brokers Inc., another wholly owned by Loblaws subsidiary.


Cheers


----------



## NorthernRaven

I suspect the cross-linked boards are part of what brought this about, rather than being an actual problem. The familiarity may have led to quicker action than others might have been capable of when Home needed a reassurance backstop right away. The regulators will be all over this case, and probably blessed or even strongly suggested some sort of funding support.

I doubt HOOPP is taking any significant risk at all. They have a pile of mortgages as collateral, are raking in a $100 million fee (5% right there) off the top, and 10% on the initial $1 billion draw would be another $100 million, plus at least $25 million on the remaining undrawn $1 billion (at 2.5%). A nice fat return and little or no real risk.


----------



## jargey3000

_Never mind all that! Is my GIC with Home Trust safe???_


----------



## james4beach

Eclectic12 said:


> PCF on the other hand is owned by Loblaws where the banking/savings/ATMs etc. are provided by CIBC. Some articles list the accounts part as a joint venture so maybe there is some ownership by CIBC but it is not clear.
> 
> The PCF MC is singled out as having no connection to CIBC where it is issued by PCF Bank, a wholly owned by Loblaws subsidiary.


With Presidents Choice Financial, the bank accounts are a different matter than the loans. The loans are with PCF Bank.

The bank accounts (chequing and savings) are definitely CIBC accounts. First, the electronic routing code is CIBC's code. More importantly here is CIBC's statement on deposit insurance:

https://www.cibc.com/en/legal/deposit-insurance.html
https://www.cibc.com/content/dam/legal/10093-v01.pdf

This document lists the CIBC account types that are eligible fir CDIC insurance. On page 2 you will find "President's Choice Financial". Specifically listed as CDIC insured (under CIBC's name) are:

President's Choice Financial bank account (no fee bank account)
President's Choice Financial savings account (Interest First savings account)
President's Choice Financial Interest Plus savings account


----------



## NorthernRaven

jargey3000 said:


> _Never mind all that! Is my GIC with Home Trust safe???_


If it is within CDIC limits, your only worry is whether the government printing presses might jam...


----------



## james4beach

jargey3000 said:


> _Never mind all that! Is my GIC with Home Trust safe???_


Yes it's safe, as long it's under the CDIC limit (under 100k) and in CAD


----------



## jargey3000

Well..OK then....thanks guys :calm:


----------



## james4beach

jargey3000 said:


> Well..OK then....thanks guys :calm:


Do you hold the GIC at a discount brokerage? Make sure you have an account statement (monthly statement) that shows the holding, so you have paperwork that clearly shows your deposit.


----------



## Mechanic

I transferred some money out of our EQ bank accounts so we are below 100k each. But OTOH I also bought a few shares of EQ in my non-reg.


----------



## sags

james4beach said:


> Yes it's safe, as long it's under the CDIC limit (under 100k) and in CAD


And a term of 5 years or less. CDIC also does not cover losses due to fraud or theft.


----------



## fplan

Is it good buying opportunity here?? Given that govt entity is funding hcg , they will fund more if needed.. govt will do their best to save hcg to keep RE moving..


----------



## james4beach

fplan said:


> Is it good buying opportunity here?? Given that govt entity is funding hcg , they will fund more if needed.. govt will do their best to save hcg to keep RE moving..


Extremely risky. The share price could go up, but it could also become worthless and you could lose your entire investment. It all depends on back room conversations and insider deals that you are not privy to.

You should also consider whether you have any exposure to real estate -- do you own a home, work in construction, work in finance? If you buy HCG and the real estate market implodes, then you will suffer double losses: your home/job will suffer, and your HCG investment will get wiped out.

Instead of gambling on HCG stock, I advise that you check that your general financial sector exposure is not too high. Most Canadian investors already have too much exposure to the financial sector, and it's 40% of the TSX 60 index.


----------



## mordko

I don't believe that even this government is sufficiently dumb to bail out a small private entity like HCG. That really would send a strong message to investors that the taxpayer will always carry the risk even for tiny mismanaged companies. It would inflate yet another bubble.


----------



## AltaRed

mordko said:


> I don't believe that even this government is sufficiently dumb to bail out a small private entity like HCG. That really would send a strong message to investors that the taxpayer will always carry the risk even for tiny mismanaged companies. It would inflate yet another bubble.


I agree. There's nothing in this for the Feds to set that kind of precedent. They've gone to a lot of trouble to make even the big banks increase their capital ratios AND make their prefs, etc. NVCC compliant, i.e. convertible to common equity at the direction of the regulator. There is no reason to save a second (or third tier) entity.

But having read the last several pages of this thread, why is anyone who is under CDIC lmits with their holdings concerned? That said, it is a good idea to pull HISA money since it's supposed to be liquid anyway, not investment assets.


----------



## hboy54

james4beach said:


> Extremely risky. The share price could go up, but it could also become worthless and you could lose your entire investment. It all depends on back room conversations and insider deals that you are not privy to.
> 
> You should also consider whether you have any exposure to real estate -- do you own a home, work in construction, work in finance? If you buy HCG and the real estate market implodes, then you will suffer double losses: your home/job will suffer, and your HCG investment will get wiped out.
> 
> Instead of gambling on HCG stock, I advise that you check that your general financial sector exposure is not too high. Most Canadian investors already have too much exposure to the financial sector, and it's 40% of the TSX 60 index.


I am in luck as my financial weighting is 29% and the house is immaterial.

Been exciting so far: day one, down $4K, day 2 up $6K.

I wonder what people figure is the expected value. Even 40% of book value of $25 and 60% bankruptcy gives EV of $10. Everything I read suggests the loan book is no worse than similar businesses. Other banks and private equity won't be competing with each other to scoop this up at $10 or $15?

Reminds me of the panic around Nova Chemicals back in early 2009. The banks wanted $200M in a hurry from the $8B sales company. Shares troughed at under $2, but got taken private at ~$7.50. It did not make any sense to me at the time that the company would fold for a sum that would be likely well under the net worth of the board of directors.

Is it really reasonable that this will go to zero, or is it more likely that someone scoops this up?

Hboy54


----------



## mark0f0

hboy54 said:


> Everything I read suggests the loan book is no worse than similar businesses.


That's what they want you to believe. But the fact they needed such a loan says something _very_ different. 



> Is it really reasonable that this will go to zero, or is it more likely that someone scoops this up?


Why would their existing depositors accept 2% or whatever they're offering, when they're paying double digits to another entity? The run continues, and they're likely looking for more money ASAP. 

Systemic runs can be suppressed by central banks with policy action, but I've never heard of an individual bank experiencing a publicly-known run to ever come out of it alive.


----------



## Userkare

With Oaken RRSPs, TFSAs, and un-registered GIC & HISA, I'm not going to be feeling very comfortable until all this gets resolved. One of the RRSPs is over the CDIC limit ( it grew to that ), but everything else seems to be covered according to the CDIC calculator. The RRSP and un-registered GICs are not close to maturing, but with ~ $50K in the HISA, I'm wondering if I should be clicking that magic mouse button that sends the money elsewhere. By doing so, aren't I helping the demise of the bank? Kind of like a self-fulfilling prophesy thing?

No matter what happens, I think I'll not be so quick in the future to jump at flashy interest rates for GICs. :uncomfortableness:


----------



## AltaRed

If your non-registered GICs and HISA are in the same name and the total is over $100k, then I believe the aggregate is what is covered up to $100k, not the individual sums. Why risk it with your HISA money?


----------



## andrewf

It would be very important for the gov't to step in to the extent they promised (CDIC), but absolutely no further.


----------



## mark0f0

andrewf said:


> It would be very important for the gov't to step in to the extent they promised (CDIC), but absolutely no further.


If there's CMHC-insured paper involved, and HCG needs it be liquefied, I'm sure the CMHC/GoC would be happy to oblige, much like they did in 2008/2009 when they bought CMHC-insured mortgages from the banks to enhance their liquidity position. Rather than have any rights in those mortgages to interest rate escalation and/or calling exercised that might put them into default and cause the CMHC to have actual deficiency claims.

The whole situation still smells heavily of being a solvency, rather than merely a liquidity problem.


----------



## zylon

Synergy said:


> EQ bank is the one that had me a little concerned...


Should be no worries.

https://www.eqbank.ca/general-banking/deposit-insurance-information


----------



## gibor365

andrewf said:


> It would be very important for the gov't to step in to the extent they promised (CDIC), but absolutely no further.


Maybe government is scared because of potential domino effect?! Then governement will need to print too much papers


----------



## james4beach

It's impossible to value Home Capital Group. Too many of their assets are Level 3.

Of the $20.5 billion in their assets (page 109 of Q4 report) , $18.3 billion are Level 3 assets. These types of assets don't have a liquid market, can't be independently priced, and are valued based on many estimates and accounting judgement calls.

Basically their entire balance sheet (89% of assets) are illiquid and difficult to price accurately. People are suspicious that the company was over-valuing these assets. _(None of this is new, it's exactly what happened to US subprime lenders)_


----------



## mark0f0

james4beach said:


> It's impossible to value Home Capital Group. Too many of their assets are Level 3.
> 
> Of the $20.5 billion in their assets (page 109 of Q4 report) , $18.3 billion are Level 3 assets. These types of assets don't have a liquid market, can't be independently priced, and are priced based on many estimates and accounting judgement calls.
> 
> Basically their entire balance sheet (89% of assets) are illiquid and difficult to price accurately.
> 
> As of Q4, their leverage is approx 20,528,777 assets / 1,617,192 equity = 13:1. Let's say their completely illiquid level 3 assets declined in value by about 10% ... that could easily happen (or has already happened) due to mispricing or even illiquidity. 13 x leverage on that decline renders the company worthless.


Yup, and if they start selling assets, then they get price discovery. Price discovery forces them to mark the entire book down. Kaboom! 

Only reason it went up 33% today was simply technical; short sellers trying to exit their winning trades all at once.


----------



## james4beach

By the way I edited my comment and removed that part about 10% decline in assets, because I have no idea how their particular assets (these mortgages) work... I have no clue what their pricing might be like. One thing is clear though, any price change is amplified by their 13x leverage... or whatever their leverage currently is. It might be higher now.


----------



## mark0f0

james4beach said:


> By the way I edited my comment and removed that part about 10% decline in assets, because I have no idea how their particular assets (these mortgages) work... I have no clue what their pricing might be like. One thing is clear though, any price change is amplified by their 13x leverage... or whatever their leverage currently is. It might be higher now.


Yeah I saw that and your edit. You're basically right on the money. The US subprime lenders went to significant lengths to keep their delusion alive, that of stagnant or rising prices. The Canadian RE industry appears to be doing the same even when there is significant evidence of stagnation over the past few years.


----------



## leoc2

Zero Hedge posted this last night:

Crashing Canadian Mortgage Lender Bailed-Out By 321,000 Retired Ontario Healthcare Workers
http://www.zerohedge.com/news/2017-...d-out-321000-retired-ontario-healthcare-worke


----------



## mordko

mark0f0 said:


> The Canadian RE industry appears to be doing the same even when there is *significant evidence of stagnation over the past few years.*


If there is this "significant evidence", should be dead easy for you to provide it. Why haven't you done anything except for making these wild and crazy claims in the face of all statistics and statements by the BOC, Canadian banks and the government?


----------



## mordko

leoc2 said:


> Zero Hedge posted this last night:
> 
> Crashing Canadian Mortgage Lender Bailed-Out By 321,000 Retired Ontario Healthcare Workers
> http://www.zerohedge.com/news/2017-...d-out-321000-retired-ontario-healthcare-worke


KGB trying to stir things up a bit.


----------



## Eclectic12

gibor365 said:


> andrewf said:
> 
> 
> 
> It would be very important for the gov't to step in to the extent they promised (CDIC), but absolutely no further.
> 
> 
> 
> Maybe government is scared because of potential domino effect?! Then governement will need to print too much papers
Click to expand...

Question is ... has the gov't changed their way of dealing with banks in trouble?

Assuming the press release indicating the gov't had arranged for other banks to provide liquidity to Canadian Commercial Bank and Northland Bank was missed when it was arranged, it was detailed in the Royal Commission looking into those bank bank failures.

At other times, some of the buyouts by other banks were with gov't involvement/pressure.


One can look at it as the gov't attempting to save the bank, the gov't interfering or the gov't attempting to avoid CDIC coming into play.


Cheers


----------



## Mortgage u/w

If their assets are sound and client base is solid , Equitable will (should) buy them out. Its a small price to pay to eliminate a competitor and increase market share.


----------



## mordko

Increasing market share isn't always wise. Not when the market for a particular product is at the very top and about to fall off a cliff. Of course we don't know that is about to happen but surely a plausible scenario. 

Nor will they know how sound the assets are until after the fall occurs. This scenario simply hasn't been tested; we don't know if people would be walking away from their mortgages once they are under water.


----------



## Mortgage u/w

^^ its tested by looking at their current collection rate, LTV exposure and marketability of the assets (mortgages).


----------



## NorthernRaven

mordko said:


> Increasing market share isn't always wise. Not when the market for a particular product is at the very top and about to fall off a cliff. Of course we don't know that is about to happen but surely a plausible scenario.
> 
> Nor will they know how sound the assets are until after the fall occurs. This scenario simply hasn't been tested; we don't know if people would be walking away from their mortgages once they are under water.


For a homeowner to be underwater they have to have a remaining mortgage balance higher than what they could get by selling the house into current market. As a regulated FI, I think Home has to require a minimum 20% down payment on uninsured mortgages, and 35% where their credit profile is particularly shaky. So there is a buffer before they can go underwater. People are usually very reluctant to give up their homes, unless there is no alternative.


----------



## mordko

Mortgage u/w said:


> ^^ its tested by looking at their *current*, collection rate, LTV exposure and marketability of the assets (mortgages).


When one is buying a bond, current rate of interest payment could be stellar but the rating and pricing depends on what is going to happen in the future. That's the difficult part and we might be going through a change in trends right now.


----------



## mordko

NorthernRaven said:


> For a homeowner to be underwater they have to have a remaining mortgage balance higher than what they could get by selling the house into current market. As a regulated FI, I think Home has to require a minimum 20% down payment on uninsured mortgages, and 35% where their credit profile is particularly shaky. So there is a buffer before they can go underwater. People are usually very reluctant to give up their homes, unless there is no alternative.


I think its 15% and... How much fiddling has been going on? In the US people gave up en mass; we haven't tested if the same would occur in Canada if the prices were to drop significantly.


----------



## sags

This may be a real coup for HOOPP depending on the conditions it may be less risky than buying commercial assets, which pensions do all the time.


----------



## mark0f0

NorthernRaven said:


> For a homeowner to be underwater they have to have a remaining mortgage balance higher than what they could get by selling the house into current market. As a regulated FI, I think Home has to require a minimum 20% down payment on uninsured mortgages, and 35% where their credit profile is particularly shaky. So there is a buffer before they can go underwater. People are usually very reluctant to give up their homes, unless there is no alternative.


But if they are using fictitious valuations to underwrite the mortgage loans, ie: assuming that prices have appreciated since 2013 for instance, then a minimum 20% down payment, very well may be, in reality, a 0% downpayment. 

A good chunk of the business of a company like this, a so-called alternative lender is not to individual homeowners with jobs, for which they can just eat Krap Dinner for a few years and eventually get themselves out of the mess. It is owners of many units, and no job aside from being a landlord. They pick up more spread, but its a much risker type of credit, especially to be writing at the higher end of LTVs without CMHC subprime insurance.


----------



## sags

Maybe HOOPP secured $3 Billion in mortgages for a $1.9 Billion dollar loan, just in case ?


----------



## NorthernRaven

mordko said:


> I think its 15% and... How much fiddling has been going on? In the US people gave up en mass; we haven't tested if the same would occur in Canada if the prices were to drop significantly.


I think it is not. From OSFI: "_By law, residential mortgages underwritten for the purpose of purchasing, renovating or improving a property must be insured if their LTV ratios are greater than 80 percent.Footnote 11 Also, OSFI expects FRFIs to impose a maximum LTV ratio less than or equal to 65 percent for nonconforming residential mortgages._"

As for fiddling, there are probably various things going on to let borrowers skirt this to some extent. But if, say, a bundled loan is provided by some other entity, and Home has the primary lien on the property, they'd still have first call on foreclosure proceeds, and it is the secondary loan that is at first risk.

In the US subprime included all sorts of wacky things that gave people little or no (or negative!) equity from the start, and underwater was much easier to get to. Here anything like that would have to go through CMHC guarantees or private lending, not Home's uninsured mortgages.


----------



## gardner

Oaken put up their GIC rates earlier this week. I wonder if that has has an effect on their ability to attract deposits? If they put their rate back up to 3.25% + on 5Y, I would likely add a bit to my ladder there, staying under the CDIC limit, of course. Heck, if they would beat EQBank they would likely get some of my plain HISA deposits.


----------



## Eder

I'll buy their GIC if I could get 3% but only 100k


----------



## gardner

NorthernRaven said:


> In the US subprime included all sorts of wacky things that gave people little or no (or negative!) equity from the start


Interest deductability is, IMO, one of the biggest incentives to over-borrow in the US. People would purposely have low or even 0 principle payments.


----------



## AltaRed

gardner said:


> Oaken put up their GIC rates earlier this week. I wonder if that has has an effect on their ability to attract deposits? If they put their rate back up to 3.25% + on 5Y, I would likely add a bit to my ladder there, staying under the CDIC limit, of course. Heck, if they would beat EQBank they would likely get some of my plain HISA deposits.


As did Equitable raise their rates. All part of the calming process to lessen the outflow of funds. For those who trust CDIC (and I have no reason to believe CDIC shouldn't be trusted), it is an appropriate move. 

Neither EQ nor HCG should need to raise their rates extraordinarily so to keep depositers....and if they had too, they wouldn't want those depositers anyway (nor would the market trust it). It is like a dividend paying stock with a 8% yield vs a market competitive 4%. If such a stock is such an outlier, that is immediately a red flag. We've all seen those outliers and they typically have warts or leprosy.


----------



## Mortgage u/w

mordko said:


> I think its 15% and... How much fiddling has been going on? In the US people gave up en mass; we haven't tested if the same would occur in Canada if the prices were to drop significantly.


Its indeed 20% to avoid insurance but their B-division is even higher - 35% range.
The risk is still there but we're not at the same level as the US was nor do I think HT's loans are as poorly underwritten.
In any case, HCG has a bigger problem on their hands. The Canadian RE market will not go down because of this group.


----------



## Eclectic12

AltaRed said:


> As did Equitable raise their rates. All part of the calming process to lessen the outflow of funds ... Neither EQ nor HCG should need to raise their rates extraordinarily so to keep depositers ...


Am I looking at the wrong virtual bank?

EQ bank for deposits is listing the same 2.00% that they were about a month ago.
https://www.eqbank.ca/personal-banking/features-rates

Or are these increases in GIC rates instead of deposit accounts?


Cheers


----------



## gardner

AltaRed said:


> if they had too, they wouldn't want those depositers anyway (nor would the market trust it)


I do agree as regards liquid deposits, but for multi-year GIC deposits, the fickleness of the depositor is not so much a factor. A major run on their GIC deposits would still take years to transpire.


----------



## gardner

Eclectic12 said:


> Or are these increases in GIC rates instead of deposit accounts?


Equitable Group does sell GICs, but not via EQBank, AFAIK. EQBank is strictly liquid deposits.
https://www.equitablebank.ca/gic

I do not see any rate information. Last I checked by emailing them, the rates they quoted were uncompetitive.


----------



## mordko

Mortgage u/w said:


> Its indeed 20% to avoid insurance but their B-division is even higher - 35% range.
> The risk is still there but we're not at the same level as the US was nor do I think HT's loans are as poorly underwritten.
> In any case, HCG has a bigger problem on their hands. The Canadian RE market will not go down because of this group.


Got it, 20%. Agree with what you are saying generally. Guessing the risk is not insignifcant but it just a guess. And taking a provider of specialized mortgages out of the market at a sensitive time could help precipitate changes in the trends.


----------



## Beaver101

gardner said:


> Equitable Group does sell GICs, but not via EQBank, AFAIK. EQBank is strictly liquid deposits.
> https://www.equitablebank.ca/gic
> 
> *I do not see any rate information*. Last I checked by emailing them, the rates they quoted were uncompetitive.


 ... isn't it weird that the "bank" itself doesn't post the rates but do sell "some" GIC which you have to apply for and yet their sub division EQBank (confusing names or are the entities interchangeasble?) does.


----------



## zylon

Mentioning this in case someone doesn't know;

Oaken = Home Trust = Home Capital Group

https://www.oaken.com/our-roots/


----------



## al42

From CDIC this morning.

Thank-you for your email,

In the event of failure, depositors do not have to file a claim. CDIC contacts insured depositors advising them of the amount of insured deposits and of the method of payment. • The time required to pay out depositors depends on the size and complexity of the failed institution. For smaller institutions, deposits in savings and chequing accounts may be paid out within a few days. Trust accounts and registered accounts would take a few more days.

CDIC may make payment by making the amount of insured deposits available at another member institution, or by issuing cheques to insured depositors. Accrued interest (monthly or annually), will be calculated on eligible deposits up to the date of the deposit insurance payment or the date on which a court application is filed to wind up the failed, whichever comes first, and will be included in the deposit insurance payment, subject to coverage limits.


----------



## gibor365

> For smaller institutions, deposits in savings and chequing accounts may be paid out within a few days


 when I called and asked specifically about Oaken, I was told "a several days" 



> CDIC may make payment by making the amount of insured deposits available at another member institution, or by issuing cheques to insured depositors


 I aws told that cheque will be mailed.


----------



## AltaRed

Eclectic12 said:


> Am I looking at the wrong virtual bank?
> 
> EQ bank for deposits is listing the same 2.00% that they were about a month ago.
> https://www.eqbank.ca/personal-banking/features-rates
> 
> Or are these increases in GIC rates instead of deposit accounts?
> 
> 
> Cheers


Sorry folks. I cannot find the link to where I "thought" I saw an increase in Equitable Bank rates by 25bp. May have been a senior's moment. Via Scotia iTrade, I see Equitable Bank has their 5 yr GIC @ 1.98% while Home Trust (now listed again at iTrade) @ 2.05%. I wouldn't buy either of them when I can get Zag at 2.0% or CWB at 1.95%.

P.S. I don't pay attention to HISA/deposit rates.


----------



## humble_pie

mordko said:


> If there is this "significant evidence", should be dead easy for you to provide it. Why haven't you done anything except for making these wild and crazy claims in the face of all statistics and statements by the BOC, Canadian banks and the government?



mark zero does not make "wild and crazy claims" 

he appears to be a knowledgeable finance professional, ie a person who is very welcome around here

.


----------



## Beaver101

gibor365 said:


> when I called and asked specifically about Oaken, I was told "a several days"


 ... that's in line with Oaken, being a sub of big HCG is not a small institution which should take 'several days' instead of a 'few days' which could be anymore than 5 business days I would think.

[/QUOTE] I aws told that cheque will be mailed.[/QUOTE] ... interesting that the email from CDIC states they may make payment by "making the amount of insured deposits at another member institution ..." instead of simply issuing cheques to insured depositors or making the payment through a fund transfer to an institution of choice of the depositor (if this is a quicker method). 

Anyhow, from the part:


> ... Accrued interest (monthly or annually), will be calculated on eligible deposits up to the date of the deposit insurance payment or the date on which a court application is filed to wind up the failed, whichever comes first, and will be included in the deposit insurance payment, subject to coverage limits.


 ... it doesn't sound like payment (principal + interest) will be made anytime quick or after the failed institution wind up ... whenever. And this is only for payments within CDIC insured limits.


----------



## mark0f0

mordko said:


> If there is this "significant evidence", should be dead easy for you to provide it. Why haven't you done anything except for making these wild and crazy claims in the face of all statistics and statements by the BOC, Canadian banks and the government?


The median transaction price has moved up much faster than the mean transaction price.

That is 'significant evidence' that there is an underlying mix shift causing the alleged 'appreciation'.

Then you have the anecdotal evidence. The "low supply" issue which generally wouldn't happen in a rising price environment. The lack of consumer vibrancy which you'd typically have in a rising equity environment (the CAD$ depreciated 30% in the post-2013 era, yet no inflation appeared!). The spread expansion and increased risk aversion that's occurring at the banks. The recent rush to the highest quality GoC credit. Just too many factors that run completely contrary to the narrative presented, without critical analysis, and almost a verbatim re-print of RE-board press releases, of rising prices.

If it smells, looks like, and reads like propaganda.....it probably is! That's been my experience in life.


----------



## fatcat

james4beach said:


> There's already some spread based on risk... these lenders offer more to attract money. Otherwise why would anyone deposit with Home Capital Group at all when they could deposit with TD? You need some *risk compensation*.


baloney, it has nothing to do with risk compensation

your *risk* is precisely the same with an rbc gic or an oaken gic ... your risk is the faith and credit of the government of canada ... in both cases

the reason oaken and peoples trust offer the rates they do is the hegemony of the big 5/6 banks who magnetically attract money from their massive customer bases who because of fear, lack or knowledge or laziness will accept lower rates

they (the smaller, online lenders) cannot get money unless they offer higher rates to attract money ... why go to the trouble of buying an oaken gic when you can walk in to your local td bank and just say "i'll take a 5-year for 25K please"

there is no "risk compensation"

i had an account at an fdic insured bank in the states that went belly up ... i walked in to the bank one morning and there was a typewritten notice on the front door that said something to the effect of "due to insolvency as a member of fdic this bank is now operated by the federal deposit insurance corporation pending the sale of assets"

seriously, a typewritten notice that appeared on the door put up when the bank opened for business the very next day after it went insolvent

i went in and just did my business and never gave it a second thought

i expect cdic to move at lightening speed if they need to in order to maintain full faith in the canadian banking system


----------



## mordko

mark0f0 said:


> The median transaction price has moved up much faster than the mean transaction price.
> 
> That is 'significant evidence' that there is an underlying mix shift causing the alleged 'appreciation'.
> 
> Then you have the anecdotal evidence. The "low supply" issue which generally wouldn't happen in a rising price environment. The lack of consumer vibrancy which you'd typically have in a rising equity environment (the CAD$ depreciated 30% in the post-2013 era, yet no inflation appeared!). The spread expansion and increased risk aversion that's occurring at the banks. The recent rush to the highest quality GoC credit. Just too many factors that run completely contrary to the narrative presented, without critical analysis, and almost a verbatim re-print of RE-board press releases, of rising prices.
> 
> If it smells, looks like, and reads like propaganda.....it probably is! That's been my experience in life.


This is your claim:



> The Canadian RE industry appears to be doing the same even when there is *significant evidence of stagnation over the past few years*.


If "significant evidence" of stagnation is available, then it should be dead easy for you to provide 1 (just ONE!) specific example of a house which sold in GTA or Vancouver for the same price in 2017 as it did in 2013. Otherwise your claim "smells, looks like and reads like" complete nonsense. Statements like this make me wonder which planet you are from: "*The "low supply" issue which generally wouldn't happen in a rising price environment. *" See... on planet Earth low supply is often one of the causes of a rising price environment.


----------



## Eclectic12

gardner said:


> Equitable Group does sell GICs, but not via EQBank, AFAIK. EQBank is strictly liquid deposits ...
> I do not see any rate information. Last I checked by emailing them, the rates they quoted were uncompetitive.


Yes ... which is why I had trouble understanding where the perceived uptick in rates was coming from with GICs a guess. As per post # 314, it looks like deposit rates have stayed constant and possibly the parent (?) that does more than deposits (ex. commercial, HELoC & residential mortgages to name a few).




Beaver101 said:


> ... isn't it weird that the "bank" itself doesn't post the rates but do sell "some" GIC which you have to apply for and yet their sub division EQBank (confusing names or are the entities interchangeasble?) does.


Not sure it is all that different than the range BNS offers versus what their purchased subsidiary, Tangerine offers. EQ Bank is certainly a more limited offering than Tangerine.


Cheers


----------



## gibor365

> interesting that the email from CDIC states they may make payment by "making the amount of insured deposits at another member institution ..." instead of simply issuing cheques to insured depositors or making the payment through a fund transfer to an institution of choice of the depositor (if this is a quicker method)


From my precious job (I was working in company that doing soft for financial institutions), I remember that we had mandatory development for CDIC, in case of failure financial institution send XML with all eligible accounts data to CDIC, so CDIC gonna have all req'd info to mail cheques and how much... but "fund transfer to an institution of choice" is much more complex as somehow you have to let CDIC know which institution, probably mail void cheque... it will take weeks or months... I'd prefer simple cheque....



> your risk is precisely the same with an rbc gic or an oaken gic ... your risk is the faith and credit of the government of canada ... in both cases


 True! I believe CDIC will pay , but not sure how it will hit already depressed CAD$


----------



## james4beach

fatcat said:


> baloney, it has nothing to do with risk compensation
> 
> your *risk* is precisely the same with an rbc gic or an oaken gic ... your risk is the faith and credit of the government of canada ... in both cases


I disagree. When I put deposits in a bank, I want a bank that stays solvent -- not one that collapses.

fatcat the market has spoken and it disagrees with you too. If people really thought CDIC insurance made all deposits everywhere equal, there wouldn't be a bank run on Home Capital.

CDIC is deposit insurance, it's a back-stop protection. Maybe this is just me, but I don't want to have to go through a CDIC claim process.


----------



## yyz

james4beach said:


> If people really thought CDIC insurance made all deposits everywhere equal, there wouldn't be a bank run on Home Capital.
> 
> CDIC is deposit insurance, it's a back-stop protection. Maybe this is just me, but I don't want to have to go through a CDIC claim process.



And that's what is happening people may not want to go through a CDIC process. I would even venture that alot of people have very little idea of CDIC insurance or the limits.It's fear driving the withdrawals .
But doesn't CDIC insurance do that exactly , make all deposits everywhere equal? There is no more risk of losing your money with HCG vs RY bank if CDIC is there.


----------



## Eclectic12

james4beach said:


> With Presidents Choice Financial, the bank accounts are a different matter than the loans ...
> The bank accounts (chequing and savings) are definitely CIBC accounts. First, the electronic routing code is CIBC's code. More importantly here is CIBC's statement on deposit insurance:


This does not change that Loblaws is the owner with CIBC at best having a partial ownership.

As for CIBC accounts & listed under their CDIC eligibility ... why would Loblaws want anything different? 
By being under CIBC direction/documentation - that would be a lot more acceptable to the average consumer than Loblaws going out on their own with no partner.


Bottom line here is that while CIBC is running the computers/ATMs/etc., they are not sole owners like a CIBC bank account where one can walk into a branch to speak to a CIBC rep directly.


Cheers


----------



## like_to_retire

james4beach said:


> I disagree. When I put deposits in a bank, I want a bank that stays solvent -- not one that collapses.
> 
> fatcat the market has spoken and it disagrees with you too. If people really thought CDIC insurance made all deposits everywhere equal, there wouldn't be a bank run on Home Capital.
> 
> CDIC is deposit insurance, it's a back-stop protection. Maybe this is just me, but I don't want to have to go through a CDIC claim process.


Exactly, fatcat isn't considering that the hassle of going through a CDIC claim process is a risk, but it is. It's a risk that is very real, and so the risk is higher on Home Capital than a regular big 5 banks GIC.

ltr


----------



## Eclectic12

james4beach said:


> I disagree. [with CDIC makes the RBC and Oaken GIC the same] ...
> If people really thought CDIC insurance made all deposits everywhere equal, *there wouldn't be a bank run on Home Capital.*
> 
> CDIC is deposit insurance, it's a back-stop protection. Maybe this is just me, but I don't want to have to go through a CDIC claim process.


Doesn't your second statement about not wanting to go through the CDIC claim process imply that some/all of the run is about convenience, not concern about CDIC coverage?

Having had a few car accidents that were covered by my insurance - I have no qualms that I won't be covered. I will still go out of my way to avoid an accident - not because of coverage concerns but because of convenience.


I have no doubt that some are concerned about risk but based on the statement made - it is clearly possible that some are part of the run that have no such concerns.




yyz said:


> ... There is no more risk of losing your money with HCG vs RY bank if CDIC is there.


In theory ... though I can't help think that if a behemouth like RY is both in trouble as well as deemed too far gone to be rescued by the gov't - the other big banks as well as the middle/smaller players are in extreme shape as well.


Cheers


----------



## james4beach

Here some bond quotes from iTrade for Home Trust Co. The bond market says Home Trust will go bankrupt before May 24.

2017/05/24 maturity 2.35 coupon Home Trust Co, yield 64.96%
2018/03/06 maturity 2.28 coupon Home Trust Co, yield 14.84%
2018/12/10 maturity 3.40 coupon Home Trust Co, yield 10.13%

Does anyone want to get a 65% yield between now and May 24 ? Here is a more detailed quote with fees, for the first option.

If you buy 100,000 of 2017/05/24 maturity 2.35 coupon Home Trust Co,
You pay 9,650.00 plus fees plus 103.01 accrued interest = *pay 9,778 today*.

Then in 24 days, if Home Trust is still solvent, you will be paid 10,000 principal plus 117.5 coupon = *10,117.50 repayment*
In 24 days, if Home Trust has gone bankrupt, you will not be repaid the principal and coupon.

That's a 3.47% return in 24 days or 65% yield

Anyone want to take that gamble? I think the market is saying: Home Capital Group / Home Trust will be insolvent within 24 days


----------



## Beaver101

Eclectic12 said:


> ...
> 
> Not sure it is all that different than the range BNS offers versus what their purchased subsidiary, Tangerine offers. EQ Bank is certainly a more limited offering than Tangerine.
> 
> 
> Cheers


 ... yeah, but BNS publishes their GIC rates but "Equitable Bank", the "bank" does *not* whereas its EQBank (their online sub) does and that's where the weirdness comes in.


----------



## Beaver101

fatcat said:


> ...


 ... hey, fatcat welcome back!


----------



## james4beach

On the Home Capital Group bond, can also phrase this at: are you willing to risk 10,000 principal to make a very quick $340 ? Fascinating.

65% yield! lol. The bank is toast.


----------



## mark0f0

james4beach said:


> Anyone want to take that gamble? I think the market is saying: Home Capital Group / Home Trust will be insolvent within 24 days


I don't know if I'd say insolvent. I've bought bonds in that situation before, in distress, and actually did quite well as we essentially forced a _Plan of Arrangement_ onto the company and diluted their existing equity almost to zero in a debt to equity restructuring. 

But the prospects for the common equity are basically zero or a nominal sum at this point. The only reason, IMHO, that it isn't zero is that the short selling process is imperfect, requires share borrows, etc., to which the traders can play certain hijinks on each other.

If you believe the mortgage valuations aren't just a giant ruse, and that the company is sound, if not for a short-term liquidity crisis, then buying these bonds could be a cheap way to ultimately acquire shares and huge upside.

I'm of the view though that the Canadian RE market is done as dinner, and there's probably no going back now since there is obvious contagion to other institutions at this point.


----------



## Beaver101

gibor365 said:


> From my precious job (I was working in company that doing soft for financial institutions), I remember that we had mandatory development for CDIC, *in case of failure financial institution send XML with all eligible accounts data to CDIC, so CDIC gonna have all req'd info to mail cheques and how much*..


 ... so this confirms that they got all the necessary info (depositor, address, amount) at hand to simply print off those cheques so what's with the "making the amount of insured deposits at another member institution"? what other member institution are they referring to? Sounds like an institution of their determination or choosing.

[/QUOTE] but "fund transfer to an institution of choice" is much more complex as somehow you have to let CDIC know which institution, probably mail void cheque... it will take weeks or months... I'd prefer simple cheque....

[/QUOTE] ... agree as just said.


----------



## james4beach

They could also default on their May coupon payment, but the bank could still survive.

Either way, I don't touch distressed debt... if you feel like buying junk bonds, buy something like JNK, XHB, or XTR instead. At least they are much more diverse.


----------



## mark0f0

Beaver101 said:


> ... so this confirms that they got all the necessary info (depositor, address, amount) at hand to simply print off those cheques so what's with the "making the amount of insured deposits at another member institution"? what other member institution are they referring to? Sounds like an institution of their determination or choosing.


Its in reference to the process where the CDIC takes an entire institution under conservatorship, and arranges for a sale of the institution to another institution with adequate capitalization to hold the assets. With or without some guarantees as to the valuation of assets in the book. 

This was S.O.P. in the United States. The FDIC wrote a few big cheques for equity deficiencies to the acquiring banks, but I'm not aware of many, if any instances where they actually had to reimburse an individual depositor.

Having to generate code to provide XML files was likely just a bureaucratic exercise and/or a rudimentary safeguard to protect against document destruction if a failing bank went rogue.


----------



## NorthernRaven

james4beach said:


> Then in 24 days, if Home Trust is still solvent, you will be paid 10,000 principal plus 117.5 coupon = *10,117.50 repayment*
> In 24 days, if Home Trust has gone bankrupt, you will not be repaid the principal and coupon.


Actually, if they don't pay out on that bond, you don't have nothing. You have a claim on the estate in bankruptcy. There's $1.5 billion in shareholder equity to wipe out, and unless it turns out that no-one wants their functioning subprime mortgage book some reasonable valuation, you'll likely get most or all of your money back eventually. Certainly nothing close to zero, and if there is a significant haircut, it probably means that Equitable will implode, and other alts get sick, since it would be a fatal vote of non-confidence in the underlying business. Tens of thousands of Canadians would be at risk of non-renewal over the next couple of years. Not a pretty picture, and certainly nothing that seems justified.


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## james4beach

Good point, you'll get something back after bankruptcy proceedings and after the equity holders get totally wiped out


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## doctrine

james4beach said:


> On the Home Capital Group bond, can also phrase this at: are you willing to risk 10,000 principal to make a very quick $340 ? Fascinating.
> 
> 65% yield! lol. The bank is toast.


Wait a minute, 65% yield is technically true but very misleading and I had to look back at your posts. The bond is trading at a 3.5% discount, or $965 to buy $1000 of bond, or 96.5 cents on the dollar. I've seen crazy stuff like bonds going for 10-20 cents on a dollar for really distressed companies, and even those sometimes ended up with some value after breakup. Those had yields well in excess of 65%, sometimes 100-200% or more. Granted it is a short period we are talking about, but 3.5% yield over 24 days does not strike me as that big of a premium, especially for a company that might go bankrupt or insolvent like a bank (HCG) that is experiencing a run on deposits. Maybe at 50 cents, but not 96.5 cents. And the coupon is what, 2.5-3%? If people thought the bonds were worthless, they'd pay a worthless price with an insane yield, not 96.5% of par value at 2.5% coupon. That means investors are confident they will get back 96.5% of their assets at a minimum.

Really there are so many lessons here. HCG used to sell GICs to match mortgage maturities 100% of the time before Oaken. The fact that they had $1.8 billion in liquid deposits that was being used as a backstop is pretty crazy, and there might be a serious regulatory issue here. I actually expect change to occur here. OSFI will not likely allow this to happen in the future - this isn't a bank people have to go to, look at how fast those HISA deposits vanished in a week through electronic transfers. Change is coming.


----------



## gibor365

> what other member institution are they referring to?


 actually I understood it as "other financial institution of member (account holder)", but not sure ... as English is my 3rd language


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## fatcat

james4beach said:


> I disagree. When I put deposits in a bank, I want a bank that stays solvent -- not one that collapses.
> 
> fatcat the market has spoken and it disagrees with you too. If people really thought CDIC insurance made all deposits everywhere equal, there wouldn't be a bank run on Home Capital.
> 
> CDIC is deposit insurance, it's a back-stop protection. Maybe this is just me, but I don't want to have to go through a CDIC claim process.


james, regarding the bank run, this is human nature, the god pan lives in all of us, if we heard a steady drumbeat of bad news about bns or td, we would see the same kind of panic eventually surface

this says nothing about your comment that oaken has to pay a risk premium, no, they pay a hassle premium since the overwhelming majority of canadians have their money in the big 5 banks and they (oaken, peoples etc) must pay a premium to attract funds

as i said earlier why bother to seek out oaken if you can get the same fat rates at your local royal bank branch ?

the *risk* is exactly the same whether you buy your gic at royal or oaken

the cdic is in the portfolio of the minister of finance and i promise you that he and the ceo of the cdic are burning up the phone lines talking about how they can maintain faith in our banking system, making people whole quickly and painlessly will be part of those discussions

nevertheless, i take your point, i and you and others would rather have the certainty of having the cash in hand rather than await the hassle of being made whole

though, as i said above, the fdic takeover of my bank was a total non-event, seriously the fdic sent in it's team to open the bank after it went belly up and the process was seamless, the fdic managed the bank until it was bought by another

i assume the cdic will do the same if it comes to it, they will manage deposits, gic payments, withdrawals just as seamlessly ... 

they have nothing to gain and a *lot* to lose by doing it any other way ...


----------



## james4beach

I see your point fatcat. And to clarify, I have faith in the CDIC insurance. I think anyone with insured deposits at Home Capital (or whatever they call it) will be OK ... their money won't disappear, they will be made whole.

CDIC insurance is rock solid, a federal guarantee.


----------



## fatcat

Beaver101 said:


> ... hey, fatcat welcome back!


hey thanks beav, i have recommended and used oaken in the past so i had to get in on this one 

i pulled my money in january, fortuitously, not based on any hint of the current events, i had a terrible customer service event that pissed me off so much that i decided to pull my money ... they are not providing good customer service at all



> Exactly, fatcat isn't considering that the hassle of going through a CDIC claim process is a risk, but it is. It's a risk that is very real, and so the risk is higher on Home Capital than a regular big 5 banks GIC


you are assuming claims will need to be made and i am assuming that business will continue as usual as assets are parceled out and sold off by the cdic, in the meantime, i assume they will pay gic's that come due, make interest payments and honour withdrawals ... how else would they do it ?

if you have an oaken gic that matures on 12/25/2018 as an example, why would they do anything other than sell it or assign it to another institution who would then pay it and any interest on the maturity date ?

if you want to withdraw your 34,232.25 after oaken has gone belly up then i assume the cdic will issue a cheque for 34,232.25 drawn on another bank

what exactly is it that you guys all think the cdic will make you do ?

the logical thing is that they will carry on business as usual in place of oaken


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## james4beach

There are additional concerns with GICs held through a brokerage (e.g. you buy a Home Trust GIC through TD Direct Investing). In these arrangements, there is a broker -- a middle man -- between you and the actual bank deposit. Any repayments will first go to the broker, and then to you. There's additional paperwork and record keeping for the broker to handle for this special case.

In the US, this scenario with "brokered CDs" resulted in some extra delays during the banking crisis when the FDIC paid out CDs for failed banks. It just meant some extra delay getting the money to you. For some first hand accounts, take a look at this thread discussing payments for Indymac CDs held at brokerages.

*People mention 2-6 week processing times for FDIC payments on CDs held at brokerages*. Other interesting comments in that thread mention an initial 50% payment from the FDIC for uninsured deposits (above the 100k guarantee).

This is the worst case scenario I expect. For something complicated such as GICs held at brokerages, you might experience something similar to the 2-6 week delay experienced in the US. I think deposits or GICs directly at the bank will be easier to deal with, and like fatcat says, might even be seamless.


----------



## Userkare

gibor365 said:


> when I called and asked specifically about Oaken, I was told "a several days"
> 
> I aws told that cheque will be mailed.


I sure hope they don't do that for RRSPs, then it would have to be declared income for 2017! Kinda would defeat the whole purpose of an RRSP, no?


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## AltaRed

In my case in the 1980s, I never did anything. CDIC took care of everything and all I saw was a new account statement issued from a new instiitution that had purchased the deposits. I've never heard of anyone having to make a 'claim' with CDIC. They simply took care of business. Both my ex and my spouse have Home Trust GICs in their brokerage account RRSPs....with expiry dates as late as 2022. In the worst case, I simply expect them to be notified that those GICs are now held by FI X without perhaps even a name* change. 

* There are many examples of different names being associated with different entities. I hold a British Columbia Telephone bond (the predecessor to the merger of BCT and AGT into Telus). It is not a big deal.


----------



## AltaRed

Userkare said:


> I sure hope they don't do that for RRSPs, then it would have to be declared income for 2017! Kinda would defeat the whole purpose of an RRSP, no?


Indeed. I saw that comment too.... No bloody way! Honor the GIC and its terms....to end of term.


----------



## Eclectic12

Beaver101 said:


> ... yeah, but BNS publishes their GIC rates but "Equitable Bank", the "bank" does *not* whereas its EQBank (their online sub) does and that's where the weirdness comes in.


Fair enough ... I was thinking it was the restricted range was the issue.




james4beach said:


> They could also default on their May coupon payment, but the bank could still survive.
> Either way, I don't touch distressed debt... you'll get something back after bankruptcy proceedings and after the equity holders get totally wiped out


I don't touch it either but have read of forensic types who wait for the bankruptcy then look for over the top pessimism as to what the wind up will work out to being. Picking numbers out of a hat to illustrate, they look at the assets and whatever else to see that the market's value of $0.10 is going to more likely be a windup payout of $0.50 or so.



Cheers


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## zylon

U.S. financials XLF *+1.6%* for the week.

TSX financials *-0.5%* for the week.

http://investdb.theglobeandmail.com...02&pi_currency=&pi_param_1=TSX+Sector+Indexes

So far - so good!

Taking a look inside TSX financials;
contagion doesn't seem to be spreading out of control.

(click on thumbnail for larger view)


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## james4beach

As far as I can tell the big story is HCG and closely related moves in Genworth (MIC) and Equitable (EQB).

Genworth is a big one at $3.2 billion market cap. It's down 8% over the last month


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## Eclectic12

gibor365 said:


> actually I understood it as "other financial institution of member (account holder)", but not sure ... as English is my 3rd language


I read it as another institution that is a member of CDIC.
Likely this would be a member that was buying out that block of business so that CDIC has to do a top up instead of cutting cheques for the full amount.


I have no experience so this is a guess based on the wording.

Cheers


----------



## fatcat

AltaRed said:


> In my case in the 1980s, I never did anything. CDIC took care of everything and all I saw was a new account statement issued from a new instiitution that had purchased the deposits. I've never heard of anyone having to make a 'claim' with CDIC. They simply took care of business. Both my ex and my spouse have Home Trust GICs in their brokerage account RRSPs....with expiry dates as late as 2022. In the worst case, I simply expect them to be notified that those GICs are now held by FI X without perhaps even a name* change.


thank you for a real-world example 

why would we expect to have to "do" anything ?

what was home trust or oaken will now be managed by the cdic ... gic's and other debt obligations will be assigned / honoured / paid by other institutions (as they come due) under the guidance of the cdic


----------



## gibor365

> Both my ex and my spouse have Home Trust GICs in their brokerage account RRSPs....with expiry dates as late as 2022. In the worst case, I simply expect them to be notified that those GICs are now held by FI X without perhaps even a name* change.


 I don't have RRSP with Oaken, but CDIC rep told me over the phone that if Oaken goes belly up, they won't wait until GIC matures , but will pay the principal + interest up to the date of bankruptcy.

P.S. He also told that a lot of Oaken customers are calling in


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## AltaRed

If so, presumably through the broker to one's brokerage RRSP account so that it is not an RRSP (or TFSA) withdrawal. But I suspect what will really happen is what has been repeated many times here.... a sale of the 'good' assets and matching deposits to a third party FI. That makes the most sense.


----------



## mark0f0

gibor365 said:


> I don't have RRSP with Oaken, but CDIC rep told me over the phone that if Oaken goes belly up, they won't wait until GIC matures , but will pay the principal + interest up to the date of bankruptcy.
> 
> P.S. He also told that a lot of Oaken customers are calling in


So you'd have to pursue an unsecured claim against the legal estate of the Home Trust for the damage you suffered in such a scenario when your GIC was early terminated?


----------



## Synergy

zylon said:


> Should be no worries.
> 
> https://www.eqbank.ca/general-banking/deposit-insurance-information


I was way over the CDIC limit so this is why I was concerned. Within CDIC limits, no worries.


----------



## james4beach

Someone correct me if I'm wrong, but I don't think Canada has ever had banks fail when GICs were held at discount brokerages (e.g. Home Trust GIC at TD Waterhouse).

Due to the extra intermediate party, this is a more complex scenario than just having a high interest savings account or traditional GIC at the bank itself.

Isn't this a "first"? I'm very interested to see how it plays out.


----------



## Eclectic12

First at a discount broker, I expect so.

I suspect full server brokers held GICs for some clients in the '80's and '90's so it may not be the first time there was an extra intermediate party.


Cheers


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## AltaRed

Agree. There have been GICs at full service brokerages for a very long time. This won't be a first for 'brokered' GICs.


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## gibor365

Some analysts had it as Top Pick on BNN just several months ago :cocksure:

like Michael Sprung , in Nov 16 


> This has really fallen out of favour. Last year they had problems with brokers. The origination of loans was in question, as to who they were lent to, and how well they were papered. Now they are hit with a whole change in regulatory issues. This is going to affect the whole industry, not just mortgage providers like this. They have currently been putting a lot of money into systems, modernizing themselves and preparing to be a bit more leaner. *An extremely well-managed company*. Dividend yield of 4.09%


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## james4beach

AltaRed said:


> Agree. There have been GICs at full service brokerages for a very long time. This won't be a first for 'brokered' GICs.


Great! I'm happy to hear this.


----------



## james4beach

gibor365 said:


> Some analysts had it as Top Pick on BNN just several months ago :cocksure:
> 
> like Michael Sprung , in Nov 16


No surprise here. As US lenders were crashing, TV analysts couldn't pump them fast enough. Small investors lost a fortune buying up worthless companies like New Century and Countrywide Financial, becoming the "bag holders" for worthless shares dumped by institutional experts.


----------



## gibor365

> No surprise here


 So , do you think BNN is scam? btw, David Baskin also gave HCG Top Pick in 2016


----------



## sags

As suspected, HOOPP secured double the mortgage assets as collateral for their loan.

Excerpt from Jim Keohane interview on BNN.

_“The investment itself is backed by a significant pool of mortgages,” he said in an interview on BNN. “So, for every $1 we lend Home Capital, they’re going to provide us with $2 of mortgages as collateral. That’s where we get our protection from.”_


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## zylon

My first adventure away from GICs and into the "market" was not long after _The Principal Group Collapse_, so my first question for the salesman was, "are mutual funds covered by CDIC"?

He said, no they aren't, but if a large number of financial institutions run into trouble, CDIC won't be able to cover all the losses anyway.

I think he's correct, which is why I'm wary of 'contagion'. If the problem were to grow, eventually depositors would be on their own.

Anyone interested in history of _Principal Group_, link follows.
http://www.businessedge.ca/archives/article.cfm/life-savings-swallowed-by-principal-scandal-4691

Snips:

_*The Principal Group Collapse: The Man Who Knew - August 1987*_

"The Principal Group began life in 1954 as an Edmonton-based investment company, First Investors Corporation, which sold budget installment savings plans to people of modest means. A typical plan, similar to an insurance policy with a cash surrender value, would commit a person to save a few dollars a month over a specified number of years. At the end of that time the plan holder would receive the total saved plus interest. The plan holder had no direct stake in any of the investments bought by the company with the money, so each plan was in effect an IOU payable by the company at maturity."

"If I buy a mongrel puppy for a dollar and sell it to you in exchange for an IOU of $1,000, and you sell the puppy to your uncle for an IOU of $1,000, and he sells the puppy back to me for an IOU of $1,000 is there $1,000 anywhere?"
*~Wendy Smith* author of _Pay Yourself First: Donald Cormie and the Collapse of the Principal Group of Companies_.


----------



## Beaver101

sags said:


> As suspected, HOOPP secured double the mortgage assets as collateral for their loan.
> 
> Excerpt from Jim Keohane interview on BNN.
> 
> _“The investment itself is backed by a significant pool of mortgages,” he said in an interview on BNN. “So, for every $1 we lend Home Capital, they’re going to provide us with $2 of mortgages as collateral. That’s where we get our protection from.”_


 ... so is he saying those $2 collateral mortgages are creditworthy enough to be a sure bet in getting double his money? Where is CMF's expert Mortgage u/w on this?


----------



## andrewf

They are saying that if the mortgages are bad, they'll be able to recover at least 50% of their value.


----------



## sags

I read his statement a different way.

If they loan $1.9 Billion dollars ($2 Billion minus a $100 million dollar fee) they will have $4 Billion worth of mortgages as security. If they secured the highest rated mortgages available it is even better for them.

It would also remove $4 Billion worth of mortgages from equity in a possible bankruptcy. As I doubt they want to become a mortgage company they would probably sell the mortgages for a steep discount and still earn a tidy profit.

I don't think loan security is an issue for HOOPP. The issue may be they had inside information that allowed them to make a sweetheart deal that wasn't available to anyone else, and they took advantage of Home Capital at the expense of the share holders.

It would be a fair question.


----------



## Bill G

scomac said:


> I have owned shares in HCG for five years, purchasing them initially during the 2008 credit crisis. I have trimmed my position a couple of time along the way, but will continue to hold the balance. There are very few legitimate growth companies in Canada; this is one.


Add HCG to Bloomberg's Luke Kawa (twitter @LJKawa) "never trust a Canadian growth stock" meme ...


----------



## AltaRed

zylon said:


> Anyone interested in history of _Principal Group_, link follows.
> http://www.businessedge.ca/archives/article.cfm/life-savings-swallowed-by-principal-scandal-4691
> 
> Snips:
> 
> _*The Principal Group Collapse: The Man Who Knew - August 1987*_
> 
> "The Principal Group began life in 1954 as an Edmonton-based investment company, First Investors Corporation, which sold budget installment savings plans to people of modest means. A typical plan, similar to an insurance policy with a cash surrender value, would commit a person to save a few dollars a month over a specified number of years. At the end of that time the plan holder would receive the total saved plus interest. The plan holder had no direct stake in any of the investments bought by the company with the money, so each plan was in effect an IOU payable by the company at maturity."
> 
> "If I buy a mongrel puppy for a dollar and sell it to you in exchange for an IOU of $1,000, and you sell the puppy to your uncle for an IOU of $1,000, and he sells the puppy back to me for an IOU of $1,000 is there $1,000 anywhere?"
> *~Wendy Smith* author of _Pay Yourself First: Donald Cormie and the Collapse of the Principal Group of Companies_.


It was that part of the company that caused the collapse when the daisy chain stopped with RE investments (I think) gone bad in the AB housing crisis. But they also had Principal Trust which sold CDIC insured GICs that were available in registered and non-registered accounts. The point is that when the weak link in a daisy chain of a house of cards falls, the loss in confidence brings down everything in it. And hence the underwriting lapses at HCG.


----------



## Eclectic12

james4beach said:


> AltaRed said:
> 
> 
> 
> Agree. There have been GICs at full service brokerages for a very long time. This won't be a first for 'brokered' GICs.
> 
> 
> 
> Great! I'm happy to hear this.
Click to expand...

What could be new is that with the increased numbers of DIY types with discount brokerages, there may be more people paying attention then asking CDIC and possibly their discount broker. I have no way of knowing but it wouldn't be surprising if those affected in the full service brokerage days/MF days didn't pay attention (or know). Even where they did, they may have had confidence on the full service broker's staff/MF staff who would be following up on likely much bigger numbers.

The process should be worked out already and with computers etc, may be more streamlined than days gone by.


Cheers


----------



## AltaRed

AltaRed said:


> Sorry folks. I cannot find the link to where I "thought" I saw an increase in Equitable Bank rates by 25bp. May have been a senior's moment. Via Scotia iTrade, I see Equitable Bank has their 5 yr GIC @ 1.98% while Home Trust (now listed again at iTrade) @ 2.05%. I wouldn't buy either of them when I can get Zag at 2.0% or CWB at 1.95%.
> 
> P.S. I don't pay attention to HISA/deposit rates.


This isn't the link I thought I remembered....but this one refers to the jump in Equitable Bank HISA rates https://www.equitablebank.ca/hisa


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## mordko

^Most people use EQ bank HISA, which pays 2%. No change. Same bank, but different trademark.


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## AltaRed

mordko said:


> ^Most people use EQ bank HISA, which pays 2%. No change. Same bank, but different trademark.


Understood, but in the context of HCG's problems, Equitable Bank was quick to shore up its HISA rate to mitigate a potential run.


----------



## Mechanic

I don't believe the interest rate has been changed since August 2016 on the EQ bank HISA


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## AltaRed

Mechanic said:


> I don't believe the interest rate has been changed since August 2016 on the EQ bank HISA


I am talking about Equitable Bank, not EQ bank.


----------



## Mechanic

Thanks. Equitable stock price has taken a big hit.


----------



## gibor365

So guys, in your opinion what are chances that Oaken will go belly up? and when?


----------



## Beaver101

^ My bet on this mini_Prediction contest - in the 90 percentages it'll fold and by July 1st


----------



## Eclectic12

sags said:


> andrewf said:
> 
> 
> 
> 
> 
> Beaver101 said:
> 
> 
> 
> ... so is he saying those $2 collateral mortgages are creditworthy enough to be a sure bet in getting double his money? Where is CMF's expert Mortgage u/w on this?
> 
> 
> 
> They are saying that if the mortgages are bad, they'll be able to recover at least 50% of their value.
> 
> Click to expand...
> 
> I read his statement a different way.
> 
> If they loan $1.9 Billion dollars ($2 Billion minus a $100 million dollar fee) they will have $4 Billion worth of mortgages as security. If they secured the highest rated mortgages available it is even better for them.
Click to expand...

Based on what has been posted, I read it like Sags.

I don't see any claims about how much they could recover or what quality is being received - just that their collateral is $2 for each one loaned. The implication is that all of those who signed off on it figure that the worst case will be better than selling $2 of mortgage for $1.


Cheers


----------



## Eclectic12

AltaRed said:


> Understood, but in the context of HCG's problems, Equitable Bank was quick to shore up its HISA rate to mitigate a potential run.


True ... though these only seem to be available through fund dealers, with trailing fees. 

This may explain why they started up the EQ Bank online savings division.


Cheers


----------



## AltaRed

Eclectic12 said:


> True ... though these only seem to be available through fund dealers, with trailing fees.
> 
> This may explain why they started up the EQ Bank online savings division.
> 
> 
> Cheers


Indeed, as did HCG with Oaken. There was obviously a direct retail market ready to be tapped.


----------



## jargey3000

...duh....does it make any difference (good, or bad) that I actually bought my Home Trust GIC thru my RBC-DI account?
(i.e. I didn't buy it directly from HT)


----------



## Userkare

al42 said:


> From CDIC this morning.
> 
> Thank-you for your email,
> 
> In the event of failure, depositors do not have to file a claim. CDIC contacts insured depositors advising them of the amount of insured deposits and of the method of payment. • The time required to pay out depositors depends on the size and complexity of the failed institution. For smaller institutions, deposits in savings and chequing accounts may be paid out within a few days. Trust accounts and registered accounts would take a few more days.
> 
> CDIC may make payment by making the amount of insured deposits available at another member institution, or by issuing cheques to insured depositors. Accrued interest (monthly or annually), will be calculated on eligible deposits up to the date of the deposit insurance payment or the date on which a court application is filed to wind up the failed, whichever comes first, and will be included in the deposit insurance payment, subject to coverage limits.


And from what they e-mailed me, it continues...

_"When it comes to paying out RRSP eligible deposits, for tax implications we will insure up to 100K principle and interest combined up to the date of failure, and transfer the funds to another member institution."

_
So I guess this means it stays registered. Bad enough I could lose any amounts over the CDIC limit, but then to have to declare it as lump-sum income would be just too much!


----------



## Beaver101

Userkare said:


> ... So I guess this means it stays registered. Bad enough I could lose any amounts over the CDIC limit, but then to have to declare it as lump-sum income would be just too much!


 ... are you interpreting that amounts over the CDIC insured limit in a registered account loses its registered status, when it gets paid? That don't make sense.


----------



## Userkare

Beaver101 said:


> ... are you interpreting that amounts over the CDIC insured limit in a registered account loses its registered status, when it gets paid? That don't make sense.


Sorry for my badly formed sentence. If the institution fails, any amount over the $100K CDIC limit is gone.. poof! Then, my concern was that if the insured $100K were to be paid out lump-sum, rather than transferred to another RRSP, it would have to be declared as income in this year. CDIC assured me that this is not the case; they'll transfer the $100K to another RRSP. Did I say it better this time, or do I need to have a nap and try again?

While on the whole topic of HCG... They want to borrow money to offset their fleeing HISA accounts. Don't you find it strange that they would be willing to borrow at 22.5% on the first $1 billion, yet only offer a measly additional .25% ( from 1.5% to 1.75% ) to try to keep their depositors. Offer any existing account holder 5% to remain ( 3% better than the current highest HISA rate), and I bet the outflow will halt tout suite!


----------



## james4beach

Userkare said:


> Don't you find it strange that they would be willing to borrow at 22.5% on the first $1 billion, yet only offer a measly additional .25% ( from 1.5% to 1.75% ) to try to keep their depositors.


I think this is a nice illustration of how central banks really heavily distort risk/reward in the financial system.

Because of their risky area of banking, Home Trust, Oaken, Equitable and Peoples Trust should be paying cash interest rates north of 4% or 5%

Yet the Bank of Canada suppresses all cash rates for the country down towards 1%. If someone were to pay 5% on cash, it would look very suspicious.

*In reality, it's the 1% cash rate that's very suspicious* and it's the effect of market manipulation: the central bank forces the cash rate norm down to that level.


----------



## fatcat

jargey3000 said:


> ...duh....does it make any difference (good, or bad) that I actually bought my Home Trust GIC thru my RBC-DI account?
> (i.e. I didn't buy it directly from HT)


i don't see why it would ... the only difference is that in the case of the broker, they are acting as the intermediary and actually tendering money on your behalf which they have taken from you

traditional gic brokers don't handle any money, they merely act as something like traffic cops who hook depositors up with institutions looking for money, the depositor writes their cheque directly to the institution

or you could go to the institution yourself and buy directly (using a cannex search for example: https://www.cannex.com/public/term02e.html)

in all three cases the gic is in your name and owned by you ... if your broker goes belly up, the gic would fall outside the cipf protection since it would already be backstopped by the cdic

you can buy a gic through your broker and then, at a later date have it transfered out of that broker to another broker or presumably simply to yourself

you can also transfer gic's bought outside the broker into your brokerage account if they will allow it based on it being a company whose gic's they sell


----------



## AltaRed

Purchasing that GIC through RBC DI doesn't change anything. Indeed, in a registered account it is even better since CDIC, in the event of HCG failure, could just send the cash to the RBC DI registered account. Just like a maturing GIC. Simple as that.


----------



## Eder

Userkare said:


> If the institution fails, any amount over the $100K CDIC limit is gone.. poof!


This statement is incorrect.


----------



## NorthernRaven

fatcat said:


> i don't see why it would ... the only difference is that in the case of the broker, they are acting as the intermediary and actually tendering money on your behalf which they have taken from you
> 
> traditional gic brokers don't handle any money, they merely act as something like traffic cops who hook depositors up with institutions looking for money, the depositor writes their cheque directly to the institution
> 
> in all three cases the gic is in your name and owned by you ... if your broker goes belly up, the gic would fall outside the cipf protection since it would already be backstopped by the cdic
> 
> you can buy a gic through your broker and then, at a later date have it transfered out of that broker to another broker or presumably simply to yourself
> 
> you can also transfer gic's bought outside the broker into your brokerage account if they will allow it based on it being a company whose gic's they sell





AltaRed said:


> Purchasing that GIC through RBC DI doesn't change anything. Indeed, in a registered account it is even better since CDIC, in the event of HCG failure, could just send the cash to the RBC DI registered account. Just like a maturing GIC. Simple as that.


Actually, through your brokerage it is different, if it is bought in the "street name" of the broker in trust for you. That is a separate CDIC category from you, personally. This is deja vu all over again - see here and many other threads.


----------



## NorthernRaven

james4beach said:


> I think this is a nice illustration of how central banks really heavily distort risk/reward in the financial system.
> 
> Because of their risky area of banking, Home Trust, Oaken, Equitable and Peoples Trust should be paying cash interest rates north of 4% or 5%
> 
> Yet the Bank of Canada suppresses all cash rates for the country down towards 1%. If someone were to pay 5% on cash, it would look very suspicious.
> 
> *In reality, it's the 1% cash rate that's very suspicious* and it's the effect of market manipulation: the central bank forces the cash rate norm down to that level.


I don't think this makes much sense. The Bank of Canada can only have one rate level, and it is set where it is judged best for the country's economy as a whole, not to suit some sub portion of the deposit sector. Are you saying the BoC rate should be, say, 3% instead of 0.5% right now? Those screams of terror you hear are from pretty much the entire economic community. And in any case, for most purposes a higher rate would just life all other rates in their current proportions, and you have to argue that the subprime should have to pay 7% or 8% instead of the 3%-4% the rest of the market gave.

What you may mean is that *CDIC* is holding down the rates that things like Oaken have to pay. That is probably true, but you'd basically be arguing that we should have a class of retail consumer deposit-taking institutions _without_ insurance, which would cause just as much terrified screaming. Consumers aren't equipped to evaluate the relative merits of banks, and shouldn't be put in that position. Also, note that nothing has come out indicating that Home is not a sustainable business on the mortgage side, just that they may have tried to bury some unpleasant and material but not fatal information. That shouldn't be "game over" for its employees, its customers etc., whatever might happen to management or the stockholders.


----------



## jargey3000

NorthernRaven said:


> Actually, through your brokerage it is different, if it is bought in the "street name" of the broker in trust for you. That is a separate CDIC category from you, personally. This is deja vu all over again - see here and many other threads.


not sure what you're talking 'bout NR?
what do you mean "if it is bought in the street name of the broker"?
How am I supposed to know that????


----------



## Userkare

Eder said:


> This statement is incorrect.


This statement is curt and not at all helpful.


----------



## Eder

Ok, I wasn't trying to be rude but to point out the obvious...any amount over 100k does not go poof unless there are no assets to dissolve...which is far from certain.


----------



## NorthernRaven

jargey3000 said:


> not sure what you're talking 'bout NR?
> what do you mean "if it is bought in the street name of the broker"?
> How am I supposed to know that????


Did you actually read the linked thread? It was started by you! It should have most of the answers you need. I suspect GICs through RBC-DI would work this way, like the stocks in your portfolio, but I have no actual knowledge and you'd have to ask RBC.


----------



## NorthernRaven

Userkare said:


> This statement is curt and not at all helpful.


But accurate. Amounts outside of CDIC coverage do _not_ go poof, they are simply not covered by CDIC. If the institution goes insolvent, your remaining balance is a claim on the estate in bankruptcy. Where exactly depositors would rank for whatever assets remain, and how much they would recover, would depend on the details of the particular institution. But it would probably take a very badly run and monitored institution in bad times to generate a serious haircut, although I'm not sure of the exact outcomes of some of those sketchy western banks or mortgage trusts from the 1980s.


----------



## AltaRed

NorthernRaven said:


> Actually, through your brokerage it is different, if it is bought in the "street name" of the broker in trust for you. That is a separate CDIC category from you, personally. This is deja vu all over again - see here and many other threads.


I understand that. But any payout from CDIC to the brokerage would land into my account anyway, even if the brokerage is the intermediary. My main point is that unlike a standalone Oaken Financial GIC account where the CDIC payout may end up in FI X of CDIC's choosing, at least in a brokerage account (removed from the HCG companies), the funds from CDIC can land in a real account in the brokerage itself.

All this is pretty moot at this point though as you keep pointing out. There is no indication HCG is going insolvent, merely that it has a real liquidity problem...now backstopped by a loan shark. Don't think the loan shark story is over on that loan either.... probably shouldn't be allowed to stand in its current form by the regulator.


----------



## sags

I am thinking the regulator will be taking a close look at that HOOPP loan as well.

In a BNN interview, Jim Keohane said the loan terms are justified as it is equivalent to a DIP (debtor in place) insolvency loan. He also said that not only does HOOPP have priority creditor status with the security of $4 billion in mortgages, but the mortgages are mostly for 70% of the value of the underlying homes (did they pick over the mortgages ?). He says that gives HOOPP a 2.8 times loan to security safety net and homes would have to fall 65% in value for HOOPP to not earn a profit. Warren Buffet would be jealous of this deal.

Great deal for HOOPP members (of which my wife is one), but given the situation, terms of the deal and increased liability to the CDIC (hundreds of millions of dollars going to HOOPP instead of depositors), regulators may decide to find another solution or let the company go under.

If the government is serious about saving the company, they should loan Home Capital $2 billion for 0% interest and hold the same mortgages as security.


----------



## Userkare

Eder said:


> Ok, I wasn't trying to be rude but to point out the obvious...any amount over 100k does not go poof unless there are no assets to dissolve...which is far from certain.


N.P. thanks for coming back to qualify your previous post. Yes, a deposit is a liability on the FI's book; and as such it doesn't just go "poof" - so arrest me for hyperbole in the first degree! 

As NorthernRaven points out, though, it's not a given that all money will be recovered, nor how long it might take.


----------



## NorthernRaven

AltaRed said:


> All this is pretty moot at this point though as you keep pointing out. There is no indication HCG is going insolvent, merely that it has a real liquidity problem...now backstopped by a loan shark. Don't think the loan shark story is over on that loan either.... probably shouldn't be allowed to stand in its current form by the regulator.


If Home can't continue by itself, then there would be questions about how they get carved up, even if the value is there. Is there someone out there who would buy them out to run as an ongoing mortgage concern, perhaps selling off a few pieces? It would have to be an entity that could plausibly supply funding, and there may not be (m)any who want to enter the alt-mortgage business. One story I read suggested the most likely scenario would be selling the mortgage book in pieces to various regional B-lenders. They likely wouldn't be interested in assuming the deposits, and in that case CDIC might pay out the GICs (from the proceeds) and shut things down sooner rather than have to maintain an ongoing "wind-down" entity. You'd need finance gurus to give some sense of what things are likely in the real world.


----------



## Eclectic12

AltaRed said:


> ... But any payout from CDIC to the brokerage would land into my account anyway, even if the brokerage is the intermediary.
> 
> My main point is that unlike a standalone Oaken Financial GIC account where the CDIC payout may end up in FI X of CDIC's choosing, at least in a brokerage account (removed from the HCG companies), the funds from CDIC can land in a real account in the brokerage itself ...


I am not sure there's a ton of difference for the Oaken GIC direct holder. There's no reason for CDIC I can think of to choose a member FI payout as the destination over a cheque, *unless* the member institution bought out those GICs as part of the sell off.

After all, a cheque in the mail means CDIC has more time to come up with the money.


It would take someone with experience or confirmation from CDIC to be sure.


Cheers

*PS*

Why would the other FI want to setup an account for the Oaken GIC payout if they have no expectation of keeping the business?
They know CDIC can cut a cheque.


----------



## gibor365

> Why would the other FI want to setup an account for the Oaken GIC payout if they have no expectation of keeping the business?
> They know CDIC can cut a cheque.


 The most reasonable for CDIC is to mail the cheques, and this is what CDIC rep told me over the phone..... I should expect 4 cheques....
If somebody gets cheque please let me know


----------



## AltaRed

Eclectic12 said:


> Why would the other FI want to setup an account for the Oaken GIC payout if they have no expectation of keeping the business?
> They know CDIC can cut a cheque.


Those with registered accounts don't want cheques because it means withdrawals... That was the point of this part of the discussion. I suspect the 'new' FI gets paid to set up those accounts. Regardless, no one in a registered account wants a cheque.


----------



## gibor365

AltaRed said:


> Those with registered accounts don't want cheques because it means withdrawals... That was the point of this part of the discussion. I suspect the 'new' FI gets paid to set up those accounts. Regardless, no one in a registered account wants a cheque.


oic ,I have only non-reg GIC with Oaken, so I didn't ask this question (about RRSP)... Who wants to know just may call CDIC, they answer rather quickly


----------



## james4beach

I'm surprised a CDIC rep has not showed up on this thread. One of their agents has posted a few times on here before.

It's an insurance system, but it's also a confidence system.


----------



## mark0f0

NorthernRaven said:


> If Home can't continue by itself, then there would be questions about how they get carved up, even if the value is there. Is there someone out there who would buy them out to run as an ongoing mortgage concern, perhaps selling off a few pieces?


It seems likely that there is already overcapacity in Canada's mortgage finance sector, so what would be the point of that? Its not like Home Capital is a brand name with a lot of brand value. At this point, the brand value may very well be completely non-existent given the media coverage. No doubt management is trying to sell the company to save their skins and trigger any change of control clauses in their contracts, but it sounds like the Board/company is going to be embroiled in litigation for a long time to come, much like Nortel. 



> It would have to be an entity that could plausibly supply funding, and there may not be (m)any who want to enter the alt-mortgage business. One story I read suggested the most likely scenario would be selling the mortgage book in pieces to various regional B-lenders. They likely wouldn't be interested in assuming the deposits, and in that case CDIC might pay out the GICs (from the proceeds) and shut things down sooner rather than have to maintain an ongoing "wind-down" entity. You'd need finance gurus to give some sense of what things are likely in the real world.


Realistically how much time do they have left? In a declining RE market, who's even interested in any of this paper? 



> Great deal for HOOPP members (of which my wife is one), but given the situation, terms of the deal and increased liability to the CDIC (hundreds of millions of dollars going to HOOPP instead of depositors), regulators may decide to find another solution or let the company go under.


Wouldn't granting a specific security interest and subordinating CDIC's position trigger further regulatory action? After all, if assets on their books are being used as security interests, those assets may no longer be considered part of equity to satisfy regulatory capital requirements. I suspect there's a bunch of lawyers making some pretty significant decisions this weekend.


----------



## Userkare

gibor365 said:


> oic ,I have only non-reg GIC with Oaken, so I didn't ask this question (about RRSP)... Who wants to know just may call CDIC, they answer rather quickly


From the CDIC...

"_Thank you for your e-mail.
*
*
In the event of failure, depositors do not have to file a claim. CDIC contacts insured depositors advising them of the amount of insured deposits and of the method of payment. • The time required to pay out depositors depends on the size and complexity of the failed institution. For smaller institutions, deposits in savings and chequing accounts would be paid out in two days. Trust accounts and mortgage tax accounts would take a few more days.
*
CDIC may make a payment by making the amount of insured deposits available at another member institution, or by issuing cheques to insured depositors. Accrued interest (monthly or annually), will be calculated on eligible deposits up to the date of the deposit insurance payment or the date on which a court application is filed to wind up the failed, whichever comes first, and will be included in the deposit insurance payment, subject to coverage limits.
*
When it comes to paying out RRSP eligible deposits, for tax implications we will insure up to 100K principle and interest combined up to the date of failure, and transfer the funds to another member institution.
*
For more information on CDIC and deposit insurance, you may wish to visit CDIC's Web site at http://www.cdic.ca/, or call CDIC's toll-free information line at 1-800-461-2342.
*_"


What's not stated after the "... transfer the funds to another member institution" is "of your choosing", or "that we select". Of course, in the latter case, one could always do a subsequent transfer on their own.


----------



## like_to_retire

Userkare said:


> When it comes to paying out RRSP eligible deposits, for tax implications we will insure up to 100K principle and interest combined up to the date of failure, and transfer the funds to another member institution.
> 
> What's not stated after the "... transfer the funds to another member institution" is "of your choosing", or "that we select". Of course, in the latter case, one could always do a subsequent transfer on their own.


If you have all your GIC's at a discount broker (as I do), then I guess the most that would happen would be a name change in the list of all the GIC's shown when you log into the broker and examine the holdings?

ltr


----------



## AltaRed

like_to_retire said:


> If you have all your GIC's at a discount broker (as I do), then I guess the most that would happen would be a name change in the list of all the GIC's shown when you log into the broker and examine the holdings?
> 
> ltr


Or it simply shows as cash in your brokerage account if the GICs were collapsed. I am guessing (my speculation only) that because they are in street name at your broker, CDIC would have the good sense to not send the collapsed GIC (principal and interest) to yet another 3rd party. BWTFDIK


----------



## humble_pie

Userkare said:


> From the CDIC...
> 
> " When it comes to paying out RRSP eligible deposits, for tax implications we will insure up to 100K principle and interest combined up to the date of failure, and transfer the funds to another member institution."



it's principal, not principle. 

one would think that as august an institution as the CDIC would - in principle at least - be able to get their spelling straight at a time like this.

the possibility that HCG might go under is the closest cmf forum has ever come to witnessing the meltdown of a canadian financial institution. Of course the forum is only 7 or 8 years old.

.


----------



## sags

Bank runs are so civilized these days, at least in Canada.

Online banks don't even have a place for the angry crowds to congregate and storm.

Last Thursday, $290 million was withdrawn for HC accounts. Imagine what that would have looked like in the "old days".

The "optics" today are financial news headlines instead of frantic customers lined up around the block.


----------



## fatcat

james4beach said:


> I'm surprised a CDIC rep has not showed up on this thread. One of their agents has posted a few times on here before.
> 
> It's an insurance system, but it's also a confidence system.


exactly, which is why i think we shouldn't spend too much time fussing about what we will have to *do* in the event that home/oaken go under

i think the cdic will act proactively to let people know they will be made whole in a timely way

if wikipedia is to be believed they have 2.44B on hand and are authorized to borrow 19B more and are backstopped by our parliament

our feminist-in-chief, aka, the most handsome man in the world, is likely to be very concerned that our banking system be seen as rock solid


----------



## gibor365

> i think the cdic will act proactively to let people know they will be made whole in a timely way


 I'm curious if CDIC and Home Trust are already talking to each other


----------



## AltaRed

gibor365 said:


> I'm curious if CDIC and Home Trust are already talking to each other


I have little doubt, including OSFI too. They will all want to know on a daily basis what HC's liquidity is, and no doubt already have graphed maturing GICs against maturing term of mortgages. I'd love to see that graph. As long as HCG can stop renewing mortgages faster than GICs mature (and are not renewed), HCG does not have a liquidity crisis (well... only if the homeowner has not been able to replace the HCG mortgage with someone else). There could be more mortgage defaults if some scumbag homeowner cannot obtain a mortgage elsewhere.... albeit I'd suggest Equitable might be glad to take on HCG's customers. Damn... I'd like to see a graph of that! Did I say that alreaday?


----------



## gibor365

btw, somebody know who is EQ doing (I mean do people withdraw cash from HISA in masses)? and they don't have GICs...


----------



## Beaver101

^ Why is EQ a concern here? Is it under the HCG umbrella?


----------



## like_to_retire

Beaver101 said:


> ^ Why is EQ a concern here? Is it under the HCG umbrella?


No, they're just in the same business.

ltr


----------



## Davis

sags said:


> Bank runs are so civilized these days, at least in Canada.
> 
> Online banks don't even have a place for the angry crowds to congregate and storm.


I, for one, am standing in my living room shaking my fist angrily at my Wi-fi router.


----------



## jargey3000

Davis said:


> I, for one, am standing in my living room shaking my fist angrily at my Wi-fi router.


:chuncky::chuncky::encouragement:


----------



## splatapus

Ok so HCG has gone, I'm wondering about Equitable Bank. Let's say that the mortgages of Equitable were sound, no fraud committed as in the case of HCG, then I suppose we have two scenarios:
a) A bank run does not occur (or not in such a large scale to have large impact on liquidity)
b) A bank run does occur due to fear.

So in a) I would suppose EQ would be fine, correct? If a) is the case that plays out, then right now EQB would be a buying opportunity right?
If b) occurs, then Equitable Bank would suffer the same fate as HCG, even though it did nothing wrong?

Is that a fair summary of the situation for EQ? Long shot here: Does anyone have (or know where to get) information of the mortgages that Equitable Bank lent out? (Income, House Prices, Loan to Value). Like if we could just see the numbers and the locations of these mortgages (Vancouver, Calgary vs a more stable location such as Ottawa) we would have a better sense of the situation rather than blindly guessing on this forum.

EDIT: so I looked through Marc Cohodes Twitter. Hard for a noob like me to understand the bigger picture but I guess summary on the liquidity can be found here: https://twitter.com/AlderLaneeggs/status/858009436970827776/photo/1.

He's pointing out that 1 year deposits to total liquidity ratio is 6.3x. Meaning (correct me if I'm wrong) if there is a bank run, EQ has only 1/6 of the money to cover it.

Hmm... Looks like the big fish has left long ago: https://twitter.com/Mr_Silbergleit/status/851962765950545921

I'm under the $100k CDIC in EQ Bank, but to save myself the trouble dealing with CDIC, I'll be making call to Tangerine to ask for promo interest rate and transferring out tomorrow. Jeez thanks for the thread guys, I honestly didn't know about this.


----------



## AltaRed

This discussion should be in an Equitable Group thread..... But to respond, what Marc is saying is that IF all $6+ billion of the 1 year deposits were to NOT renew (and be withdrawn) over the course of the next year, EQB has only $1 Billion of liquidity to fund all those withdrawals. A severe shortage in liquidity in event of a run. 

What is not on the chart is the amount of <1 year (left in term) mortgages out there that EQB could decide not to renew to provide additional liquidity. Granted recalling all those mortgages may not be easy, but it is a little biased to provide one part of the answer.

Banking institutions cannot afford to have 'bad' publicity/behaviour/shortcomings because once the tide turns, it can get ugly quickly.


----------



## sags

My sister had a subprime mortgage from a US based lender years ago.

When they decided to exit the Canadian market they didn't renew any mortgages, which left lot of home owners without financing.

She couldn't get a mortgage anywhere due to her low income, despite having made all her mortgage commitments.

Her son had to "buy" the home from her and rent it back to her.

Refusing to renew a large number of mortgages that "they" created would be a public relations disaster for HCG at the very least.

Sprinkling some subprime mortgages in with higher rated mortgages may be attractive to a buyer, but a portfolio of all subprime mortgages is going to be a tough sell and deeply discounted in value at best.

One wonders as well, which mortgages HOOPP siphoned off the top and what is left.

And what is their business model going forward ? They can't borrow at higher rates than they lend.

Home Trust also has a secured credit card business. They hold GICs on deposit equal to the credit card limits.

They only return the GIC if the credit card balance is paid off in full. What happens to those GICs and credit cards ?

All of this mess because they didn't bother to check loan applications from brokers thoroughly enough.


----------



## mark0f0

sags said:


> Refusing to renew a large number of mortgages that "they" created would be a public relations disaster for HCG at the very least.


Doesn't really matter at this point.



> Sprinkling some subprime mortgages in with higher rated mortgages may be attractive to a buyer, but a portfolio of all subprime mortgages is going to be a tough sell and deeply discounted in value at best.


Yup, hence the equity is toast or will be taken out for an extremely low amount. 



> One wonders as well, which mortgages HOOPP siphoned off the top and what is left.


If they pledged the 'best', then you gotta wonder what's left in the portfolio unencumbered.


----------



## sags

They probably started out with a few people checking mortgage applications and everything was going well.

Then one day, somebody said........."hey, we can trust our brokers. Why don't we layoff these people and make more profit"?

I don't know if that is what happened, but often the trouble starts when the number crunchers gain control.

The old GM was taken over by the number crunchers. They bragged about how they were a mortgage company that sold cars on the side.

That worked out well. They calculated and slide ruled GM right out of business.


----------



## Eclectic12

AltaRed said:


> Those with registered accounts don't want cheques because it means withdrawals... That was the point of this part of the discussion. I suspect the 'new' FI gets paid to set up those accounts. Regardless, no one in a registered account wants a cheque.


Fair enough ... for the non-registered, it seems more reasonable that a buyout would need to be in play before a cheque would be skipped.

For a registered account, I would hope the default would be a transfer to an already existing member FI registered account. Otherwise, after being received - transfer fees might be an issue to get the proceeds to a preferred registered account.


Cheers


----------



## Eclectic12

mark0f0 said:


> It seems likely that there is already overcapacity in Canada's mortgage finance sector, so what would be the point of that?


You haven't heard of "the company is bankrupt, bonds are trading for $0.10 but the forensic analysis says assets being counted to be sold are worth $0.60 - so let's buy those bonds"?

Mortgages are not that different. As long as it's a price the buyer is happy with, the asset may or may not continue in a similar fashion.




mark0f0 said:


> ... it sounds like the Board/company is going to be embroiled in litigation for a long time to come, much like Nortel.


OOH, you seem familiar with Nortel yet you seem to be ignoring that Nortel assets were sold for billions.





mark0f0 said:


> ... In a declining RE market, who's even interested in any of this paper?


People likely thought the same after Lehman Bros. collapsed in the US yet Buffett didn't seem to be concerned when he pumped $5 billion into Goldman Sacs. It may look bleak but there may be interest out there.


Cheers


----------



## Rusty O'Toole

Latest word is Home Capital has HISA deposits of $391 million as of this morning, down from $130 million on Friday and $1.4 billion a week ago. In other words depositors have already removed 72% of their money.

Wonder if they are thinking about the bail in provision in the 2013 budget?


----------



## Eclectic12

The report on Friday that I can find said subsidiary Home Trust has over $2 Billion a month ago, $814-million Thursday and $521-million Friday morning. It looks to me that the $130 million is today's report instead of Friday's and the $391 million is Friday's.

GICs on April 24th are supposed to be unchanged at $13+ Billion.


Cheers


----------



## NorthernRaven

Rusty O'Toole said:


> Latest word is Home Capital has HISA deposits of $391 million as of this morning, down from $130 million on Friday and $1.4 billion a week ago. In other words depositors have already removed 72% of their money.
> 
> Wonder if they are thinking about the bail in provision in the 2013 budget?


No. Bail-in only applies to the D-SIBs (too big to fail Big 6).


----------



## AltaRed

FWIW, Equitable Group told BNN this morning that they have had 'manageable' withdrawals of HISA funds, but have lined up $2 Billion in a LOC from the Big Banks at reasonable terms. The terms are reasonable


> Terms include a 0.75 per cent commitment fee and a 0.50 per cent standby charge on undrawn amounts. Raymond James says the backstop credit facility was "obtained at reasonable cost."


----------



## fatcat

Rusty O'Toole said:


> Wonder if they are thinking about the bail in provision in the 2013 budget?


why would they ... depositers ... be thinking that ?

hisa's are covered by cdic ... the bail-in is designed for some kind of catastrophic failure of one or more large institutions


----------



## gibor365

AltaRed said:


> FWIW, Equitable Group told BNN this morning that they have had 'manageable' withdrawals of HISA funds, but have lined up $2 Billion in a LOC from the Big Banks at reasonable terms. The terms are reasonable


Curious if anybody still holding cash in EQ bank?


----------



## AltaRed

gibor365 said:


> Curious if anybody still holding cash in EQ bank?


Why not? As has been stated many times, anything under $100k is as good as gold (better even).


----------



## mordko

I am. $100K plus change. 

Actually impressed with the management. Not to say the company won't be hurt -or that I know anything beyond common knowledge - but Equitable seems to be well managed.


----------



## james4beach

AltaRed said:


> ... is as good as gold (better even).


Last I checked, an ounce of gold does not go "poof" as soon as people lose confidence in an institution. All of these leveraged banks are a confidence game.

It's a strong reason to own physical gold, actually. Immunity to banking risk and fraud too. It has its own risks though (price volatility).


----------



## AltaRed

Nor any interest (not an income generating investment). I wouldn't hold (and never have held) an ounce of gold for anything in my entire life. Obviously I am not a fan of gold. CDIC insurance is thus better than gold (in my opinion).


----------



## NorthernRaven

james4beach said:


> Last I checked, an ounce of gold does not go "poof" as soon as people lose confidence in an institution. All of these leveraged banks are a confidence game.
> 
> It's a strong reason to own physical gold, actually. Immunity to banking risk and fraud too. It has its own risks though (price volatility).


Actually, the analogy would be that you are holding gold with someone, rather than having it under your bed. If that someone absconds with it, it has gone "poof" just like a deposit, and some hypothetical Canadian Gold Insurance Corporation who backs your gold agent reimburses you. You could simulate the "no poof" gold in your possession by keeping bricks of $100 bills, but both cases have their own liabilities...


----------



## Eder

I'm kinda thinking this rescue loan to Home Capital should be under review for fraud by RCMP. I have no skin in the game really but no way is high grading shareholders equity like that legit.


----------



## AltaRed

Maybe not. Maybe the problem is: 1) Yes Boards beholden to the CEO, 2) insufficient internal controls on Board/Executive authority levels, 3) complacent Executive Management


----------



## Userkare

gibor365 said:


> Curious if anybody still holding cash in EQ bank?


I am presently withdrawing all cash from RBC, BMO, ScotiaBank, and CIBC and stuffing the bills into my mattress. j/k

The whole point of FDIC/CDIC was to insure that depositor's money would be safe in the event of a bank collapse... to prevent a run on the bank that would cause just that!

And as I've been recently informed (schooled?)... even funds in excess of the CDIC insured limits are not necessarily going "poof".


SHEESH - Chicken Little was an optimist!


----------



## lonewolf :)

james4beach said:


> Last I checked, an ounce of gold does not go "poof" as soon as people lose confidence in an institution. All of these leveraged banks are a confidence game.
> 
> It's a strong reason to own physical gold, actually. Immunity to banking risk and fraud too. It has its own risks though (price volatility).


 The problem with physical gold is it can be picked up with metal detector. Diamonds are easier to move across boarders. The cycles of war are coming together which has historically been good for moveable assets. Real estate is not moveable & if your country goes to war & you want to leave the country your house does not have much value.


----------



## gibor365

Eder said:


> I'm kinda thinking this rescue loan to Home Capital should be under review for fraud by RCMP. I have no skin in the game really but no way is high grading shareholders equity like that legit.


Eder, please stop giving tips for RCMP, as if it's fraud, CIDC may not cover deposits


----------



## Eclectic12

gibor365 said:


> Curious if anybody still holding cash in EQ bank?


Yes ... though only a fraction of the $100K limit.




NorthernRaven said:


> james4beach said:
> 
> 
> 
> Last I checked, an ounce of gold does not go "poof" as soon as people lose confidence in an institution. All of these leveraged banks are a confidence game ...
> 
> 
> 
> Actually, the analogy would be that you are holding gold with someone, rather than having it under your bed ...
Click to expand...

True.




james4beach said:


> ... It's a strong reason to own physical gold, actually. Immunity to banking risk and fraud too. It has its own risks though (price volatility).


Aren't you under stating the risks of owning physical gold?

Last I checked, thieves like gold.
http://www.cbc.ca/news/canada/ottawa/ottawa-mint-gold-stolen-guilty-1.3843169
http://www.ibtimes.com/new-york-cit...16m-worth-flakes-bucket-armored-truck-2452773
http://www.thecourier.com.au/story/...re-he-stole-my-gold-webster-street-homeowner/


Cheers


----------



## Mechanic

gibor365 said:


> Curious if anybody still holding cash in EQ bank?


Still have money in 2 HISA's plus bought some of their shares end of last week. Watching closely but I think it will be fine.


----------



## like_to_retire

AltaRed said:


> Why not? As has been stated many times, anything under $100k is as good as gold (better even).


I hang my hat on that guarantee, and I suspect many others do too. If CDIC is tested and doesn't make good, then that would be quite the catastrophe. 

The $100K is quite low, so many (including myself) have to play a dance with $100K for each account type, and each institution, if we want to create ladders for sums of one or two million. TDDI handles ten to twelve GIC institutions, and then there are usually three account types to divide between (RRSP, TFSA, NON-REGISTERED). 

This combination of $100K possibilities is suffice, but I find myself moving to offerings from TDDI such as Equitable Bank and HomeEquity Bank when I run out of possibilities to get GIC's from the more reputable big 5 Banks. I hold my nose and count on CDIC. 

_Let's hope_ it's as good as gold. I don't like worrying about my fixed income. I have enough to worry about with my equities. I should never have to worry about my GIC ladders.

ltr


----------



## james4beach

True, gold is stolen too, but I'm not sure it's too big a threat.

What would happen if you stacked up the $s lost due to banking and investment fraud (Lehman, MF Global, Refco, Madoff, etc ... billions of dollars) vs amounts of physical gold stolen from investors? Shall we include the losses on Nortel promises/liabilities in that figure as well?

I strongly suspect that theft/fraud in the banking and brokerage world exceeds losses from theft of gold.


----------



## like_to_retire

Why are we talking about gold - sheesh!


----------



## NorthernRaven

james4beach said:


> I strongly suspect that theft/fraud in the banking and brokerage world exceeds losses from theft of gold.


Not necessarily...


----------



## mordko

What are you arguing about? Nothing is 100% safe. The only way to not have your assets exposed to any risk is to not have any assets. Anything could be stolen, eroded by inflation, taxed by future governments or disappear in a crash or war. 

So, let's use a little common sense, diversify and relax and all will be well.


----------



## ian

We HISA's with EQ bank. We are in the process of pulling most of it out. Not because of Home issue but because we need the money for a real estate transaction.

Not the least bit worried about the remainder. It is well under CDIC limits. Don't understand the comment about CDIC not honouring it's commitments because of fraud. I have to wonder what on what basis a comment like this is made. We have HISA accounts with several of the eBanks but keep those deposits within CDIC insurance limits.


----------



## Beaver101

mordko said:


> What are you arguing about? Nothing is 100% safe. The only way to not have your assets exposed to any risk is to not have any assets. Anything could be stolen, eroded by inflation, taxed by future governments or disappear in a crash or war.
> 
> So, let's use a little common sense, diversify and relax and all will be well.


 ... true including earth being hit by an asteroid tomorrow or Trump trigger happy with that red button.


----------



## james4beach

mordko said:


> What are you arguing about? Nothing is 100% safe. The only way to not have your assets exposed to any risk is to not have any assets. Anything could be stolen, eroded by inflation, taxed by future governments or disappear in a crash or war.
> 
> So, let's use a little common sense, diversify and relax and all will be well.


Yup... diversity is key.

Like I've said numerous times before, I am not concerned about any CDIC insured amounts. The CDIC will make good on its guarantee.


----------



## Eder

lonewolf :) said:


> Real estate is not moveable & if your country goes to war & you want to leave the country your house does not have much value.


I would like to think if Canada goes to war and if theres fighting on our turf we would all stay & fight...unlike many able bodies fleeing there home countries today. Maybe I'm wrong.


----------



## gibor365

> I would like to think if Canada goes to war and if theres fighting on our turf we would all stay & fight


 War on our turf against whom?! Looks like US is the only option


----------



## mordko

Totally. Canadian armed forces should be able to hold ground against a medium-strength girl scout brigade for at least a month.


----------



## yyz

mordko said:


> Totally. Canadian armed forces should be able to hold ground against a medium-strength girl scout brigade for at least a month.


I agree as long as the month is February and not a leap year


----------



## fatcat

like_to_retire said:


> I hang my hat on that guarantee, and I suspect many others do too. If CDIC is tested and doesn't make good, then that would be quite the catastrophe.
> 
> The $100K is quite low, so many (including myself) have to play a dance with $100K for each account type, and each institution, if we want to create ladders for sums of one or two million. TDDI handles ten to twelve GIC institutions, and then there are usually three account types to divide between (RRSP, TFSA, NON-REGISTERED).
> 
> This combination of $100K possibilities is suffice, but I find myself moving to offerings from TDDI such as Equitable Bank and HomeEquity Bank when I run out of possibilities to get GIC's from the more reputable big 5 Banks. I hold my nose and count on CDIC.
> 
> _Let's hope_ it's as good as gold. I don't like worrying about my fixed income. I have enough to worry about with my equities. I should never have to worry about my GIC ladders.
> 
> ltr


i would look at a gic broker for those kinds of numbers, you are looking at a couple dozen institutions and gic brokers often have many more institutions than tdw ... they do all the legwork of the ladder and so on, you can easily make double or more in interest vs tdw, of course, the simplicity factor doesn't compare, tdw is lot easier




james4beach said:


> True, gold is stolen too, but I'm not sure it's too big a threat.
> 
> What would happen if you stacked up the $s lost due to banking and investment fraud (Lehman, MF Global, Refco, Madoff, etc ... billions of dollars) vs amounts of physical gold stolen from investors? Shall we include the losses on Nortel promises/liabilities in that figure as well?
> 
> I strongly suspect that theft/fraud in the banking and brokerage world exceeds losses from theft of gold.


just not true james, read any gold bug forum and there are endless circular discussions of how to hide your gold ... its hard to do ... the ground isn't really safe because of detectors ... safe deposit boxes can be put off limits by the government ... etf's can defraud investors or be put in lockdown by government ... friends and family become risks even if accidentally ... memories go stale etc .... there are huge risks of owning physical gold


----------



## gibor365

mordko said:


> Totally. Canadian armed forces should be able to hold ground against a medium-strength girl scout brigade for at least a month.


In winter Canada is undefeatable


----------



## lonewolf :)

gibor365 said:


> War on our turf against whom?! Looks like US is the only option


 We are inviting the enemy in. Come in through Mexico then Mexicans takes them near US boarder where they sneak across then up into Canada where we welcome with welfare checks is one path. France now has over 700 no go zones where French law is not in forced, there is no respect for French law instead Sharia law is implemented & rules the no go zones. Sweden 55 no go zones. The reason there are no Christians living in some Moslim countries is because they have been killed off. We are lucky we have an ocean between us. Hard to say how out of control the situation will get. Might have to flee to live to fight another day. Civil war in Europe is pretty much baked in the cake for Europe.


----------



## lonewolf :)

Anyone that has a mortgage through home capital group & has used bogus numbers might want to consider selling their home. They might not qualify for another mortgage on their home or have to pay high interest to qualify.


----------



## lonewolf :)

CDIC insurance help to make HGC a house of cards. If HGC was not CDIC insured HGC would have had to less risk on their books to get IOUs from investors.


----------



## doctrine

I think that it is very interesting and indicative that Equitable Bank was able to receive a $2B line of credit at a fraction of the price of Home Capital, and supported by the big banks. It is actually cheap enough that EQB can operate profitably by withdrawing from it, if necessary. 

Truly, HCG has no support in the Canadian financial market. If you believe the short sellers, who are trotting around like hot stuff despite being wrong on the reason for the potential failure (bank withdrawals, not housing crash), EQB is actually *worse* than HCG. The founders must really, really be hated by Bay street. They buried them. EQB, on the other hand, is not. I wonder if this will come back to haunt them. They let a couple billion in shareholder value evaporate for no real underlying business reason that couldn't have been managed. And what if the OSC investigation in the end turns out to be...nothing? They could very well be held liable for these losses, for waiting 2 years after a potential issue was disclosed. Wow, imagine that lawsuit, if a very late OSC investigation turns out to be frivolous and causes a bank run and the first bank failure in over 20 years. Those loans that were falsified have turned out, in various disclosures, to be performing better than the average HCG mortgage, which are performing better than average of all mortgages.

Or maybe a regulator, or even the government/minister, stepped in here and told the banks they couldn't let a second one fail, even if they wanted to as well, to stop the contagion effect. Something is going on. The two credit deals are too far apart.


----------



## james4beach

We can only guess at what's happening behind the scenes. Most of the parties are very closely linked: Bay Street, big banks, the bank regulator, Finance Dept, Bank of Canada, etc.

Banking is a dirty (I'd call it crooked) business. It's very possible that the government told the big banks that they have to create the perception of banking stability. Was this $2 billion credit line in the best interest of bank shareholders? Who knows. Maybe that's only $400 million from each big bank, heck maybe each bank is just acting as a conduit for Bank of Canada money (free money) so it's really just an indirect central bank liquidity infusion.

In any case, all you can do is guess because the parties will keep this secret for as long as they can. The banks keep it secret from their own shareholders, too. They think the ends justify the means, i.e. anything you can do to create the perception of stability is a legitimate action to take. This is after all what they did in 2008 with a ton of secret loans behind the scenes. Many of these only became public knowledge because Bloomberg media sued the US Federal Reserve, and the Supreme Court forced the Federal Reserve to provide the documentation (against their will).


----------



## sags

All of these "alternative" lenders are in the loan shark business.

CitiFinancial, Easyfinancial, Meridian, Home Trust, EQ............all cut from the same cloth.

HOOPP determined that $4 Billion in Home Trust mortgages was worth $1.9 billion cash. It is what it is.

http://torontolife.com/real-estate/...ing-torontos-real-estate-market-to-the-brink/


----------



## james4beach

Must watch Genworth (MIC) closely now too. Given their position as the key player in the secondary market, it will be very important to watch their financial results to see what's going on with the mortgage market in Canada.

Big picture, we have a Canadian credit bubble. I'm not sure it's popped yet.


----------



## sags

Drive around or go online and you wonder how all the lenders keep their doors open.


----------



## mark0f0

The Canadian mortgage market is basically a bubble in search of a pin to pop it. With prices not moving upwards since 2013, but many outfits clearly writing loans with LTV's that assume appreciation, it was little more than a disaster waiting to happen. 

They'll probably do a bit of a tap dance and be in denial about the slow-motion trainwreck that the Toronto and Vancouver RE marketplaces are, but the fact remains that houses are priced at a few standard deviations of historic norms, and mean reversion with overshoot was inevitable. 

I just hope not too many people get hurt badly. But the sector has serious over-capacity and a liquidation is desperately required.


----------



## mordko

> With prices not moving upwards since 2013,


Again... Complete nonsense. I note you still have not provided a single example of a house which sold recently in either GTA or Vancouver for the same price as in 2013. Just one example would suffice. All I ask is that the house hasn't been burnt to the ground in the intervening years. Where is it?


----------



## Beaver101

mark0f0 said:


> The Canadian mortgage market is basically a bubble in search of a pin to pop it. With prices not moving upwards since 2013, but many outfits clearly writing loans with LTV's that assume appreciation, it was little more than a disaster waiting to happen.
> 
> They'll probably do a bit of a tap dance and be in denial about the slow-motion trainwreck that the Toronto and Vancouver RE marketplaces are, but the fact remains that houses are priced at a few standard deviations of historic norms, and mean reversion with overshoot was inevitable.
> 
> I just hope not too many people get hurt badly. But the sector has serious over-capacity and a liquidation is desperately required.


 ... yeah, and add to this is the 15% tax on foreign investments, I think the bubble is going to burst a lot quicker ... and a lot of realtors are going to line up at EI.


----------



## ian

It is not just the alternative lenders that have had issues with mortgage approvals.

There was a significant mortgage fraud in Calgary about two years ago involving one of the major banks. Two reasons for the fraud. First was the bank cutting back, and in some cases outsourcing, the qualification process. Simply put, they were not verifying income even when it was obviously incorrect. Not certain if it is correct but the reports said that they were saving $150. on each mortgage by doing this. Second issue was a few dishonest lawyers. At least one of them has been sentenced. 

The major banks and the law firms are the same. When mortgage fraud or theft of trust funds are stolen they both try to hush it up so as not to make the public skeptical. This one got out of hand and made the news because of it's size.


----------



## Eclectic12

james4beach said:


> doctrine said:
> 
> 
> 
> ... Or maybe a regulator, or even the government/minister, stepped in here and told the banks they couldn't let a second one fail, even if they wanted to as well, to stop the contagion effect. Something is going on. The two credit deals are too far apart.
> 
> 
> 
> We can only guess at what's happening behind the scenes. Most of the parties are very closely linked: Bay Street, big banks, the bank regulator, Finance Dept, Bank of Canada, etc ...
Click to expand...

Unless there is a failure or two of banks ... the last time that happened, there was royal commission that brought the details forward.




james4beach said:


> ... It's very possible that the government told the big banks that they have to create the perception of banking stability. Was this $2 billion credit line in the best interest of bank shareholders? Who knows ...


There's lot of history where the gov't arranged meetings with big banks when smaller banks were in trouble.



> In early 1985 Canadian Commercial Bank ("CCB") faced a solvency crisis owing to a sharp deterioration in its loan portfolio. *A support group consisting of the governments of Canada and of Alberta, the Canadian Deposit Insurance Corp. and six major Canadian banks* (the "participants") entered into an arrangement to provide the emergency financial assistance requested.


Of course this involvement likely beats the Home Bank of Canada failure in 1923. 

The Minister of Finance in 1918 was sent a letter outlining how the books were being cooked as well as, among other things, problems with the audit process. With nothing done by gov't, the bank's assets at the wind up were estimated at $2.7 million and liabilities at $15.5 million. The gov't paid $5.4 million out but had the gov't acted in 1918, the estimate was that depositors would not have been affected.


Cheers


----------



## hboy54

hboy54 said:


> I am in luck as my financial weighting is 29% and the house is immaterial.


Actually my financial weighting is at 28% after doubling my HCG yesterday.

Now there is approximately zero HISA deposits left, so the panic will now proceed at the rate that GICs come off. As the rate of panic is now no longer determined by the folks doing the panicking, but rather the contractual nature of the GICs, perhaps things will cool down a bit in a few weeks or months, providing an opportunity for something interesting to develop to the upside.

hboy54


----------



## sags

Financial institutions have failed in Canada, notably in the 1980s and 1990s.

This is the CDIC insured list that failed. It doesn't include lenders who weren't covered by CDIC insurance.

I posted elsewhere that Canada Trust was in some difficulty in the 1980s. A lot of trust companies were in trouble around that time. Interest rates were high and they were paying out high returns on deposits while few people were looking for a mortgage.

_Since its creation by Parliament in 1967, CDIC has handled 43 bank failures, affecting more than 2 million depositors. No one has lost a single dollar of insured deposits.
_
_Member Institution - Year of Failure

Security Home Mortgage Corporation	1996
NAL Mortgage Company	1995
North American Trust Company	1995
Income Trust Company	1995
Monarch Trust Company	1994
Confederation Trust Company	1994
Prenor Trust Company of Canada	1993
Dominion Trust Company	1993
First City Mortgage Company	1992
First City Trust Company	1992
Central Guaranty Trust Company	1992
Central Guaranty Mortgage Corporation	1992
Shoppers Trust Company	1992
Standard Trust Company	1991
Standard Loan Company	1991
Saskatchewan Trust Company	1991
Bank of Credit and Commerce Canada	1991
Settlers Savings and Mortgage Corporation	1990
Financial Trust Company	1988
Principal Savings & Trust Company	1987
North West Trust Company	1987
Columbia Trust Company	1986
Bank of British Columbia Mortgage Corporation	1986
Bank of British Columbia	1986
Western Capital Trust Company	1985
Pioneer Trust Company	1985
Northland Bank	1985
London Loan Limited	1985
Continental Trust Company	1985
Canadian Commercial Bank	1985
CCB Mortgage Investment Corporation	1985
Northguard Mortgage Corporation	1984
Seaway Trust Company	1983
Seaway Mortgage Corporation	1983
Greymac Trust Company	1983
Greymac Mortgage Corporation	1983
Fidelity Trust Company	1983
Crown Trust Company	1983
AMIC Mortgage Investment Corporation	1983
District Trust Company	1982
Astra Trust Company	1980
Security Trust Company Limited	1972
Commonwealth Trust Company	1970_


----------



## sags

Great West Life announced layoffs of 1500 people a few days ago. They took over the London Life insurance company and their layoffs will affect 450 people in London alone. Other financial institutions have announced layoffs and cutbacks. The local GM CAMI plant has been going full tilt for a couple of years and they recently announced future layoffs. Other places have announced layoffs. Retail is having a tough time.

One wonders how strong our economy actually is and how a real estate downturn would affect it.

There are 48,000 real estate agents in Toronto. How many sold a home in the last 6 months ?

It all doesn't bode well for alternative types of lenders. They would be among the first casualties.


----------



## mordko

The math seems to be working against HCG. They might well survive or someone may save them but my guess is that the probability is less than 50%. What's interesting is that the problem is old and has been known but its only circa April 19th that the regulator decided to do something about it. 

All the other Canadian financial institutions are as safe as any company can be. People are looking for patterns; thats how we are wired. They are finding patterns even if there aren't any. Now the crowd is thinking that Canada 2017 is USA 2007. Well, we did have the crazy uptick in house prices looking very much like a bubble. Yes the prices may fall. 

So what? What about the rest of it? Do we have huge numbers of properties with zero LTV? Do we have triple A "bonds" made up entirely of bad mortgages? Are the interest rates going up? Is it easy for Canadians to walk away from underwater mortgages? 

If the answer to the above is "no" (which it is) then we have no condition for massive failures beyond one specific case of fraud. The rest is an emotional reaction to a presumed pattern which has no basis in reality.


----------



## Beaver101

^ Isn't one case of fraud sufficient to shake the confidence of the lending systems? Confidence (or lack thereof here), fear and perception are all real as emotionally responsive as they can be. And to sag's earlier post(s) - the keyword is "contagion" in the financial sector.


----------



## sags

Nobody knows how systemic the fraud is throughout the financial system. 

Mortgage applications are approved automatically. Home appraisals are issued automatically based on postal codes.

There is an element of trust baked into an automated system and when random audits reveal problems it is a warning sign.

It isn't the loss of money that is most important. It is the loss of trust.


----------



## mordko

Beaver101 said:


> ^ Isn't one case of fraud sufficient to shake the confidence of the lending systems? Confidence (or lack thereof here), fear and perception are all real as emotionally responsive as they can be. And to sag's earlier post(s) - the keyword is "contagion" in the financial sector.


That's true but at some point perceptioon ends and the reality takes over. And the reality is that:

- Nothing else has been uncovered.
- HCG is a very minor player which operated in a specialized area.
- Canadian financial institutions have a large moat and tremendous cash piles.

Hypothetically - yes, anything can happen. On the balance of probabilities the risk of a "chain event" is very low.


----------



## AltaRed

And EQ is cocky this morning. Quote from BNN


> CEO Andrew Moor told us that he's not interested buying loans from Home Capital, whose stock has slid after the Ontario Securities Commission said investors were misled on fraudulent loans. "We believe that we've got really strong internal controls and a strong loan book," Moor said. "The analogy I'd make is that we are a Volvo and [Home Capital] is a Pinto. I have incredible confidence in our loan book loan-by-loan because I know how they were processed and created."


----------



## Beaver101

mordko said:


> Hypothetically - yes, anything can happen.


 ... I wouldn't call it 'hypothetically' then when it does happen. 



> On the balance of probabilities the risk of a "chain event" is very low.


 ... and how sure are you on that?


----------



## Eclectic12

sags said:


> Financial institutions have failed in Canada, notably in the 1980s and 1990s.


Not sure what the point is.



sags said:


> ... I posted elsewhere that Canada Trust was in some difficulty in the 1980s. A lot of trust companies were in trouble around that time.


The other trusts ... sure. 

CT OTOH, I don't recall anything at the time and have found nothing beyond British American Tabacco that controlled Imasco decided to take Imasco private with no desire to keep CT that Imasco controlled.


There's also the 1923 Home Bank failure where the Finance Minister's lack of reaction to a letter detailing a host of issues meant depositors lost what looks like half their savings and could have lost 85% of their savings.


Cheers


----------



## Eclectic12

mordko said:


> ... What's interesting is that the problem is old and has been known but its only circa April 19th that the regulator decided to do something about it.


I am not sure we know what the regulators have been doing or when they became active.

Canadian Commercial Bank failed around Labour Day 1985 where the investigation later indicated that the Feds working with the Big 5 arranged a special liquidity facility in 1983.


Cheers


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## Eclectic12

Beaver101 said:


> mordko said:
> 
> 
> 
> That's true but at some point perceptioon ends and the reality takes over ... On the balance of probabilities the risk of a "chain event" is very low.
> 
> 
> 
> ... and how sure are you on that?
Click to expand...

While nothing is written in stone, so far - one lender is reporting struggles versus previous years where as many as five or six went under *in the same year*. There's also seven consecutive years of failures that was dealt with.


Cheers


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## ian

If Home goes down, and I suspect that it will, the big losers will be the shareholders, bondholders, and of course the employees. Hopefully few depostiors an GIS holders have exceeded the CDIC parameters.

On a smaller scale, Walton International went down on Saturday for a court re-org. Alberta based international land developer. My understanding is that they issued lots of notes to investors under the exempt banner. Suspect that many of those folks will be taking a haircut. They had apparently been loosing money for the past 5 years.


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## NorthernRaven

Eclectic12 said:


> mordko said:
> 
> 
> 
> What's interesting is that the problem is old and has been known but its only circa April 19th that the regulator decided to do something about it.
> 
> 
> 
> I am not sure we know what the regulators have been doing or when they became active.
Click to expand...

Actually, they served Home with a preliminary enforcement notice back in February (which Home made public); April was when the official allegations were filed. What the actual OSC timeline in 2016 was I don't know, but between being a regulatory agency and having to line everything up to survive the platoons of expensive lawyers the defendants will employ, these wheels probably grind slowly.


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## namelessone

Well done OSC! Thry are harming investors they suppose to protect.

I think HCG will br profitable for years to come without this allegation.

http://www.financialpost.com/m/wp/f...t-fall-from-the-edge-of-a-cliff-it-was-pushed


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## AltaRed

ian said:


> On a smaller scale, Walton International went down on Saturday for a court re-org. Alberta based international land developer. My understanding is that they issued lots of notes to investors under the exempt banner. Suspect that many of those folks will be taking a haircut. They had apparently been loosing money for the past 5 years.


That is a whole different industry loaded with shady characters. They fleece investors with regular abandon and we have had our share of them domestically over the years. They market to accredited investors for a reason... Cannot get lending from elsewhere and don't have to file prospectuses, etc, etc, etc.


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## gibor365

Just did exact calculation (in case Oaken is going belly up). Assuming that CDIC will pay insured money (and I very hope they do ), I may loose some interest if bankruptcy happens between 09-Oct-17 and 04-Dec-17. The worst case if it's happens on 04-Dec-17 and I gonna loose $407


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## Eclectic12

NorthernRaven said:


> Actually, they served Home with a preliminary enforcement notice back in February (which Home made public); April was when the official allegations were filed. What the actual OSC timeline in 2016 was I don't know ...


OSC asked for more info as part of the second-quarter earnings release in July 2015 so there is clearly a lot longer time line than this year plus a bit of last year.

http://www.theglobeandmail.com/real...-last-fall-company-officials/article25776197/
http://business.financialpost.com/i...suspended-after-discovery-of-falsified-income


Cheers


----------



## Beaver101

namelessone said:


> Well done OSC! Thry are harming investors they suppose to protect.
> 
> I think HCG will br profitable for years to come without this allegation.
> 
> http://www.financialpost.com/m/wp/fp...-it-was-pushed


 ... so you think it is the OSC's fault for pursuing the shady practices being done in the industry? Hush hush. Perhaps OSC is trying to use HCG as an example for the rest of the industry ... it does have bite and not just bark.


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## james4beach

I'm not worried about a series of bank failures.

What I'm more worried about is the economic outlook. Real estate market is a huge part of the Canadian economy ... between the financial sector, loan businesses, real estate services and construction, quite a bit of the GDP is dependent on real estate.

If a country wide real estate slowdown happens, we're going to see a big uptick in unemployment, a drop in GDP, layoffs at many companies, higher loan defaults, and generally worse credit conditions. That in turn will lead to reduced consumer spending and a general slowdown in everything. Plus, worse retirement outlooks.

Canadians have enjoyed the many benefits of a tremendous real estate bull market. It's come to be accepted as the norm, but the flip side -- a real estate bear market -- will cause lots of damage.


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## Jaberwock

According to G&M there are several potential buyers lined up to buy Home Capital.

The company's book value is around $24/share. The "sub-prime" mortgages on the books have a default rate that is lower than those of the major banks. Many of the loans were given to self employed, immigrants and people with no credit history. On renewal, after five years, a lot of those loans will no longer be sub-prime. Mortgages with more than 75% ratio have to be insured, so it is going to take a big drop in house values to put the uninsured ones under water. HCG would be able to continue as a going concern if were not for the withdrawals from HISA accounts. 

Any company that has access to enough cash is likely to make a killing by buying HCG at a fire sale price.


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## james4beach

I don't know what's going on with Home Trust GICs, or Equitable for that matter.

Checking at Scotia iTrade today, I still see them listed at 2.0% for the 5 year GICs. Or maybe it was 2.05%. Why wouldn't they boost that to attract more deposits?

Why on earth would I get a Home Trust GIC at 2.0% when I can get an actual Scotiabank GIC at 2.0% ?


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## gaspr

james4beach said:


> I'm not worried about a series of bank failures.
> 
> What I'm more worried about is the economic outlook. Real estate market is a huge part of the Canadian economy ... between the financial sector, loan businesses, real estate services and construction, quite a bit of the GDP is dependent on real estate.
> 
> If a country wide real estate slowdown happens, we're going to see a big uptick in unemployment, a drop in GDP, layoffs at many companies, higher loan defaults, and generally worse credit conditions. That in turn will lead to reduced consumer spending and a general slowdown in everything. Plus, worse retirement outlooks.
> 
> Canadians have enjoyed the many benefits of a tremendous real estate bull market. It's come to be accepted as the norm, but the flip side -- a real estate bear market -- will cause lots of damage.


So let's just just keep on selling houses to each other at ever and ever higher prices until we are all rich!!

How can this possibly end well?


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## sags

On the one hand subprime lenders say the mortgages are a high risk of default to justify higher interest rates.

On the other hand they say their mortgages perform better than the traditional banks.


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## Userkare

james4beach said:


> I don't know what's going on with Home Trust GICs, or Equitable for that matter.
> 
> Checking at Scotia iTrade today, I still see them listed at 2.0% for the 5 year GICs. Or maybe it was 2.05%. Why wouldn't they boost that to attract more deposits?
> 
> Why on earth would I get a Home Trust GIC at 2.0% when I can get an actual Scotiabank GIC at 2.0% ?


Today Oaken 5yr GIC is 2.5%. My 2014 5yr Oaken RRSP GIC is 3.05%.

Of course, if I had to choose today between 2.5% HTC/Oaken 5yr GIC, 2% ScotiaBank 5yr GIC, or 2% EQ HISA, I would go with EQ ( kept under CDIC limit ).


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## gibor365

> Why on earth would I get a Home Trust GIC at 2.0% when I can get an actual Scotiabank GIC at 2.0% ?


 Because Oaken's rate is 2.5% for 5 y , 
and _Why on earth would I get_ 2% with 5 years GIC if I get now in Tangerine 2,97% in HISA ?!


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## james4beach

Well gibor I see a Tangerine ISA rate of 0.80%


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## gibor365

james4beach said:


> Well gibor I see a Tangerine ISA rate of 0.80%


It's a promo  , until Mar 31 was 3.25% , now until Jun 30 is 2.97%. However, if I won't have this promo as Usercare, I'd invest into EQ 2% within CDIC limits...
Not really appealing to lock money for 5 years with 2% annual, when inflation can sharpy increase


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## fatcat

james4beach said:


> I don't know what's going on with Home Trust GICs, or Equitable for that matter.
> 
> Checking at Scotia iTrade today, I still see them listed at 2.0% for the 5 year GICs. Or maybe it was 2.05%. Why wouldn't they boost that to attract more deposits?
> 
> Why on earth would I get a Home Trust GIC at 2.0% when I can get an actual Scotiabank GIC at 2.0% ?


ahh, well because the scotia gic locks your money for 5-years and the home trust / oaken locks it for 1-year

in an interest-rate-on-the-bottom environment why would you lock money for 5 years when you could lock it for only 1 and take advantage of any rate raise ? ... there is something called "opportunity cost" ... you are paying a steep price with the scotia gic


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## AltaRed

I don't play any of those games. My RRSP is a 7 year ladder mix of bonds, debentures and GICs. When its time to renew a 5 year GIC, I renew it. Stay with the plan. You would have asphixyiated waiting for higher interest rates the past 5 years.


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## james4beach

I always buy 5 year GICs. You can't time the bond market. Even if interest rates go up, the GIC ladder will immediately benefit from this.


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## AltaRed

james4beach said:


> I always buy 5 year GICs. You can't time the bond market. Even if interest rates go up, the GIC ladder will immediately benefit from this.


Will benefit when the next shortest duration GIC matures and can be renewed at the higher rate. The weighted average GIC ladder interest rate (distributions) behaves in a 'similar' (but not exact) way as the distributions in a 'buy and hold' short term bond ETF. Investors are deceived by the perception of lack of control and in a belief they can 'time' the market. Maybe yes, most likely no.


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## Mortgage u/w

james4beach said:


> If a country wide real estate slowdown happens, we're going to see a big uptick in unemployment, a drop in GDP, layoffs at many companies, higher loan defaults, and generally worse credit conditions. That in turn will lead to reduced consumer spending and a general slowdown in everything. Plus, worse retirement outlooks.


I tend to see it the other way around: 

*IF* "we're going to see a big uptick in unemployment, a drop in GDP, layoffs at many companies, higher loan defaults, and generally worse credit conditions." *THEN*, "a country wide real estate slowdown happens"


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## Userkare

Mortgage u/w said:


> I tend to see it the other way around:
> 
> *IF* "we're going to see a big uptick in unemployment, a drop in GDP, layoffs at many companies, higher loan defaults, and generally worse credit conditions." *THEN*, "a country wide real estate slowdown happens"


It looks like a 'cart-horse' situation to me; which comes first?

Driving through the 'burbs' of Ottawa there just seems to be more and more large housing developments being built. My wife and I both wonder where the people buying those homes are working. We speculate that they're all working in the construction industry, building homes for construction workers. If that's the case, that cannot end well.


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## Mortgage u/w

^^As long as homes are being sold, it means there is a demand. For there to be a demand, it means people have money to spend. For people to have money to spend, it means people have jobs. And to have jobs, it means the economy is going well. I don't see how it can work in reverse.


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## james4beach

AltaRed said:


> Will benefit when the next shortest duration GIC matures and can be renewed at the higher rate. The weighted average GIC ladder interest rate (distributions) behaves in a 'similar' (but not exact) way as the distributions in a 'buy and hold' short term bond ETF. Investors are deceived by the perception of lack of control and in a belief they can 'time' the market. Maybe yes, most likely no.


I agree. The total return of the GIC ladder also is very similar to a short term bond fund. They're really more or less the same thing: a portfolio of fixed income securities, where you maintain constant maturity by immediately reinvesting the maturing amount.


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## like_to_retire

james4beach said:


> I agree. The total return of the GIC ladder also is very similar to a short term bond fund. They're really more or less the same thing: a portfolio of fixed income securities, where you maintain constant maturity by immediately reinvesting the maturing amount.


Agreed, a five year ladder is a many-splendored thing. Every year, 20% of your holdings matures, you enjoy a 2.5 year duration while picking up 5 year interest rates.

ltr


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## james4beach

like_to_retire said:


> Agreed, a five year ladder is a many-splendored thing. Every year, 20% of your holdings matures, you enjoy a 2.5 year duration while picking up 5 year interest rates.


All with a federal guarantee of safety 

You can also use a short term bond fund for the same thing and similar exposure (3 year avg maturity). VSB and XSH are two that are quite good, though no federal guarantees behind those of course.


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## Beaver101

like_to_retire said:


> Agreed, a five year ladder is a many-splendored thing. Every year, 20% of your holdings matures, you enjoy a 2.5 year duration while picking up 5 year interest rates.


 ... maybe it's my thick head but how do you enjoy a 2.5 duration and while you're picking up 5 year interest rates, it's only in your favour if 5 year rates are trending up, not down, right?


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## andrewf

Mortgage u/w said:


> I tend to see it the other way around:
> 
> *IF* "we're going to see a big uptick in unemployment, a drop in GDP, layoffs at many companies, higher loan defaults, and generally worse credit conditions." *THEN*, "a country wide real estate slowdown happens"


Vicious cycle. Employment in RE sector (FIRE) is very high vs historical average, and higher than the US at its peak in 2006.


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## andrewf

Mortgage u/w said:


> ^^As long as homes are being sold, it means there is a demand. For there to be a demand, it means people have money to spend. For people to have money to spend, it means people have jobs. And to have jobs, it means the economy is going well. I don't see how it can work in reverse.


Some of that demand is speculation, which doubly doesn't end well.


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## sags

I guess incomes just don't matter anymore.

As long as the homes go up in price, people are earning free cash the new, improved way.


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## AltaRed

Beaver101 said:


> ... maybe it's my thick head but how do you enjoy a 2.5 duration and while you're picking up 5 year interest rates, it's only in your favour if 5 year rates are trending up, not down, right?


It's like a rolling average, moving up or down according to interest yielld curve trends but always having at least one 5 yr GIC maturing in a year or less. It's a way to get average 5 year rates on a 2.5 year commitment. Needless to say, this strategy isn't for everyone.


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## Userkare

Mortgage u/w said:


> ^^As long as homes are being sold, it means there is a demand. For there to be a demand, it means people have money to spend. For people to have money to spend, it means people have jobs. And to have jobs, it means the economy is going well. I don't see how it can work in reverse.


If an economy is doing well because of only one sector, construction for example, then if there's a downturn in that one sector ( run out of places to build, or no more construction workers moving in ) the dominoes fall.


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## blin10

Userkare said:


> If an economy is doing well because of only one sector, construction for example, then if there's a downturn in that one sector ( run out of places to build, or no more construction workers moving in ) *the dominoes fall.*


why do people always say that? you're going from 100 to 0, why can't dominoes just stay still without more being added? if there's a downturn in one sector it doesn't automatically mean house prices will go down drastically... one interesting thing I noticed over many years, people who do not own property always super negative about real estate and say exact same thing "dominoes will fall" or "bubble is about to burst". I have few friends like that, they been renting for 15 years+ and every time conversation is about houses, every single year they keep saying (with a lot of confidence mind you) that houses are over priced and they're waiting for prices to go down...


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## gibor365

> one interesting thing I noticed over many years, people who do not own property always super negative about real estate and say exact same thing "dominoes will fall" or "bubble is about to burst". I have few friends like that, they been renting for 15 years+ and every time conversation is about houses, every single year they keep saying (with a lot of confidence mind you) that houses are over priced and they're waiting for prices to go down...


True! My wife's sister family waiting for bubble burst and renting exactly fo 15 years


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## Mortgage u/w

andrewf said:


> Some of that demand is speculation, which doubly doesn't end well.


I don't see how speculation alone will cause the market to overheat and crash. If you mean foreign investors, the percentage is very small. I think the majority of demand is created by a growing population, who are looking for a place to live. Unemployment rate is very low. Economy is good. Our banks are healthy. Don't be fooled by the mess at Home Trust. Their loans are not confirmed to be in default. And even if they all were, their book is not large enough to take down the country. As long as people earn money to afford these large mortgages, the economy keeps rolling. You'll have slow downs here and there - but the indicators of a catastrophic meltdown are not there.


----------



## Userkare

blin10 said:


> why do people always say that? you're going from 100 to 0, why can't dominoes just stay still without more being added? if there's a downturn in one sector it doesn't automatically mean house prices will go down drastically... one interesting thing I noticed over many years, people who do not own property always super negative about real estate and say exact same thing "dominoes will fall" or "bubble is about to burst". I have few friends like that, they been renting for 15 years+ and every time conversation is about houses, every single year they keep saying (with a lot of confidence mind you) that houses are over priced and they're waiting for prices to go down...


I've owned my own home since 1976. I have no plans to sell in the foreseeable future. I have no stake whatsoever in the housing/mortgage market today, aside from deposits at HTC & EQ. Your statement about renter negativity doesn't apply. 

You seemed to have missed up-thread what I said about what I observe in Ottawa. There are new housing developments going up all over the place. Ottawa does not have that diversified of an employment base; there's the federal government, and some hi-tech. Of course there's the service industry and tourism, but aside from the 2017 celebrations, I don't believe there have been that many new positions here. 

So, if it is the case that the housing boom here is fueled by one sector - construction, and it's construction workers who are buying those new homes, how could that self-fueled growth possibly be sustained? I hope it isn't the case, but I just can't see how there are so many people moving here for work. If anybody has any insight, I'd love to hear it.


----------



## andrewf

Mortgage u/w said:


> I don't see how speculation alone will cause the market to overheat and crash. If you mean foreign investors, the percentage is very small. I think the majority of demand is created by a growing population, who are looking for a place to live. Unemployment rate is very low. Economy is good. Our banks are healthy. Don't be fooled by the mess at Home Trust. Their loans are not confirmed to be in default. And even if they all were, their book is not large enough to take down the country. As long as people earn money to afford these large mortgages, the economy keeps rolling. You'll have slow downs here and there - but the indicators of a catastrophic meltdown are not there.


Things that can go wrong:

-interest rates rise due to US rate hikes
-construction slowdown leads to recession
-crisis in Asia induces hot money to flee the country


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## sags

Mortgage interest rates are low but the offset is mortgage balances are very high.

Even a 3% interest rate is a lot of money with a $700,000 debt.

If home prices simply level out, they would become a depreciating asset when considering all the extraneous costs of home ownership.

Municipal taxes, utilities, insurance, maintenance..........start adding up.

Struggling to pay the housing bills while your home is rising in value every year is bearable for many people.

Struggling to pay the same bills when your home isn't going up in value becomes wearisome very quickly.

I don't look for a big crash in real estate to change the dynamics. All it will take is for homes to level off in price for demand to ebb away.


----------



## sags

Interesting that when a lottery prize reaches $50 million dollars, people spend more on tickets than when the prize is $5 million dollars.

The reality that $5 million would change their lives as significantly as $50 million doesn't seem to matter.

If home prices stop going up, I think it will be enough to upset the apple cart.

Some young home buyers have never known anything but low interest rates and rising home prices.

It may come as a shock to them that home prices may not always "go up".


----------



## sags

Home Capital and Home Trust got downgraded again.

_DBRS lowered its rating on Home Capital to CCC from BB, which the agency considers “very highly speculative grade quality” and one notch away from likely default.

It also lowered the financial instrument ratings on Home Trust Company, a subsidiary, to R-5 from R-4. This is the lowest rating, and is considered highly speculative._

http://www.theglobeandmail.com/repo...-credit-rating-slashed-again/article34892626/


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## ian

How does this downgrade occur, ie what is it based on?

Has there been any public disclosure about Home's book of business or details of how their loan/mortgage portfolio is performing vis a vis generally accepted industry norms. What percentage of mortgages are in default, how many days on average, what are the percentages based on dollars versus number of loans.

I recognize that the OSC had highlighted irregularities but have these actually negatively impacted the business to the extent that the value of their entire business is in question?


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## mark0f0

ian said:


> How does this downgrade occur, ie what is it based on?
> 
> Has there been any public disclosure about Home's book of business or details of how their loan/mortgage portfolio is performing vis a vis generally accepted industry norms. What percentage of mortgages are in default, how many days on average, what are the percentages based on dollars versus number of loans.
> 
> I recognize that the OSC had highlighted irregularities but have these actually negatively impacted the business to the extent that the value of their entire business is in question?


Well if the borrowers can't get credit from anywhere other than HCG based on the lending standards, then the loans will default and are only worth the underlying property value, minus $60-$200k+, for rehabilitation and the cost of sale. 

Toronto RE is at such elevated nosebleed levels that it is entirely plausible that the loans could be only worth 50-60 cents on the dollar, if not less. The marginal buyer in the GTA market has not been a person with a job owning a single property, but rather, mini-cartels of "landlord families" owning dozens of properties and adding a property or two to their portfolio, while serially refinancing their existing portfolios. There is very little strength behind these sorts of participants.


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## Jaberwock

ian said:


> How does this downgrade occur, ie what is it based on?
> 
> Has there been any public disclosure about Home's book of business or details of how their loan/mortgage portfolio is performing vis a vis generally accepted industry norms. What percentage of mortgages are in default, how many days on average, what are the percentages based on dollars versus number of loans.
> 
> I recognize that the OSC had highlighted irregularities but have these actually negatively impacted the business to the extent that the value of their entire business is in question?


From HCGs MD&A statement last February:

"The credit quality of the loan portfolio remains strong with continued low non-performing loans. Net non-performing loans as a percentage of the gross loan portfolio ended the year at 0.30%, slightly up from 0.28% one year ago"

For comparison, Royal Bank non performing loans are 0.66% of their total loan portfolio


----------



## blin10

Userkare said:


> I've owned my own home since 1976. I have no plans to sell in the foreseeable future. I have no stake whatsoever in the housing/mortgage market today, aside from deposits at HTC & EQ. Your statement about renter negativity doesn't apply.
> 
> You seemed to have missed up-thread what I said about what I observe in Ottawa. There are new housing developments going up all over the place. Ottawa does not have that diversified of an employment base; there's the federal government, and some hi-tech. Of course there's the service industry and tourism, but aside from the 2017 celebrations, I don't believe there have been that many new positions here.
> 
> So, if it is the case that the housing boom here is fueled by one sector - construction, and it's construction workers who are buying those new homes, how could that self-fueled growth possibly be sustained? I hope it isn't the case, but I just can't see how there are so many people moving here for work. If anybody has any insight, I'd love to hear it.


I don't get it, why would construction workers buy houses? I think you're bit off here... This year I went to 4 house releases (looking to move up north), all 4 developers were sold out in about few days (1mill+ houses), who did the majority buying? It was mostly Asian buyers, they are definitely not construction workers. From seeing that, I believe a lot of immigrants coming in to Canada every year (not just Asian) with a lot of money. I asked my friend who is the developer how can they afford it, he said when they sell their condo for example in Hong Kong, they can buy a house here with cash and still have a ton left in their bank account (most don't even need mortgage). Canadian population is also growing, people need to live somewhere.


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## Mortgage u/w

Blin10, looks like we share the same point of view and I'm glad I'm not the only one. The hike in prices is indeed fueled by high demand. This demand is being created by an influx of immigrants who have deep wallets, but also everyone else who is looking for a home to sleep in. Its unfortunate for the rest of the Canadians who have no choice to keep up with these prices, but this is the reality today. 

Its not the foreign investors (don't mix this up with immigrants) and its not the construction workers buying (not sure how that makes sense). Its demand, pure and simple.

Prices will eventually level off - but not because RE is crashing. Every economist will tell you that employment and demographics are the main ingredients which fuel the economy. RE doesn't crash just because people think that prices are too expensive. And rate hikes alone will not do that either. One can choose not to buy for those reasons, but there is always someone else who will.

I'm sure I'm in the minority to think that the market will not crash. At least, not as dramatic as people say. I can see a downturn but in the long term only and over a long period of time. I'm hoping that over this time, inflation catches up and maintains everything relatively stable.


----------



## Eder

sags said:


> Interesting that when a lottery prize reaches $50 million dollars, people spend more on tickets than when the prize is $5 million dollars.
> .


It's all about "EV" (expected value). When prizes get large enough it's often +EV to buy the lottery tickets ($1000 worth of tickets would return $1003 in winnings)...this concept is how us poker players make money. I remember buying Powerball in the US....expected EV was up to +1.1.


----------



## Eclectic12

ian said:


> How does this downgrade occur, ie what is it based on?


My guess would be market sentiment as well as factoring in the challenges of a large volume of withdrawals, former groups that used to steer deposits their way limiting or cutting off future deposits as well as high interest rates on the liquidity arrangement (or at least the first one announced).

I am not sure that a downgrade needs proof of mortgages in distress (though that would be a strong factor).




ian said:


> I recognize that the OSC had highlighted irregularities but have these actually negatively impacted the business to the extent that the value of their entire business is in question?


Actually, OSC did not ... or at least, not when it happened in 2014. 

The 2015 articles I can find are HCG indicating they had cut ties due to an investigation after a tip. The one source I saw that commented on the affected mortgages said they were being paid on schedule and that the overall portfolio impaired was steady (i.e. no spike or change).

The negative impact that was reported was a slow down in mortgage applications as there dropped brokers hadn't been replaced.


Cheers


----------



## ian

Based on the news reports from a large mortgage residential mortgage fraud in Calgary, it was apparent that several of the 'big banks' were clearly not very diligent in proving verifying mortgage applications or mortgages. How is this any different than Home?

I have no interest in Home but it seems to me than there were some issues that have been addressed. But at the end of the day their security seems sound and their non performing loan stats are well below those of some of the largest banks.


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## twa2w

Comparing impaired loans at HCG and the banks is an apples oranges comparison.
Different types of lending books and different standard of reporting. 

Also default rates tend to be lower in a strong real estate market as rather than default on a mortgage. People sell and move on. The real test is when the real estate is harder to sell,prices not rising.


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## AltaRed

Additionally, even if HCG's loan book looks solid going forward, it is the loss of all that liquidity, the potentially vanishing nature of its deposits over time, and the punitive terms of the rescue LOC that may eliminate HCG's ability to create positive cash flow/earnings. HCG's ability to make money decreases as they are forced to call in some of those mortgages to offset the loss of mauring GICs. IOW, there is no indication this could be anything more than death by a thousand knives. Confidence is hard to re-gain.


----------



## gibor365

> Confidence is hard to re-gain.


 IMHO,if they would increase HISA/GIC to 3%, money would go in...


----------



## AltaRed

gibor365 said:


> IMHO,if they would increase HISA/GIC to 3%, money would go in...


Can't do that if there is not enough margin overall to cover the bills and run the operation. Besides, like high yield stocks, at some point out-of-character yields have the opposite effect.....red flags. I have been around long enough to know when to pass on outsized offerings.


----------



## Userkare

gibor365 said:


> IMHO,if they would increase HISA/GIC to 3%, money would go in...


Well, now with EQ HISA at 2.3% why should I leave money @1.75% in a F.I. with a shaky future? Even if they simply matched EQ, they might have lessened the withdrawals.


----------



## Beaver101

Userkare said:


> Well, now with EQ HISA at 2.3% *why should I leave money @1.75% in a F.I. with a shaky future*? Even if they simply matched EQ, they might have lessened the withdrawals.


 ... either gibor likes to play Russian roulette (no pun intended) or keep these CDIC-theme-related threads busy.


----------



## sags

It looks like HC has slowed down their mortgage approvals and brokers are lining up alternatives.

http://business.financialpost.com/p...s-with-home-capital-as-it-fights-for-its-life

This comment was interesting.........

_“When you can’t place a file, you send it to Home Trust — and we don’t even know if they’ll be able to do deals going forward,” Brookes said by phone from her office in northeast Toronto, referring to Home Capital’s operating unit. “I’m concerned. If I can’t close deals I don’t get paid. And if you can’t send it to Home Capital, the consumer may need a second mortgage, or to pay a higher interest rate.”_

That doesn't speak highly of their mortgage quality.


----------



## Jaberwock

Having dumped some of the more dubious mortgage brokers three years ago, Home Capital is probably the company that is getting the fewest fraudulent loan applications.


----------



## AltaRed

Except HCG's non-performing loans are lower than that of the big banks. Seems to me facts would normally speak louder than interview musings by potentially biased brokers. So there is a disconnect that doesn't reconcile itself and we may never know otherwise. Still, there are a lot of alternative lenders out there, e.g. even the likes of Laurentian Bank I read somewhere is into it, and I suppose a number of other banks/trusts in that space.


----------



## andrewf

Apparently, CMHC-insured mortgages have to be delinquent for over a year to count as nonperforming. Yikes. What happens when those in this situation can't bail with their positive equity?


----------



## AltaRed

I am not sure where you are headed with this. It seems pretty straightforward to me that with a performing loan, both sides continue their obligation until the term of the mortgage is up and then go to another lender (mortgagor) or call the loan to meet GIC withdrawals (mortgagee). Who is actually going to blink first remains unknown.


----------



## mark0f0

andrewf said:


> Apparently, CMHC-insured mortgages have to be delinquent for over a year to count as nonperforming. Yikes. What happens when those in this situation can't bail with their positive equity?


Why would a CMHC insured subprime mortgage ever be considered non-performing? Worse comes to worse, the holder of the mortgage just calls the CMHC and makes an insurance claim.


----------



## andrewf

The point is that delinquency stats are not very revealing.


----------



## NorthernRaven

andrewf said:


> Apparently, CMHC-insured mortgages have to be delinquent for over a year to count as nonperforming. Yikes. What happens when those in this situation can't bail with their positive equity?


Unless some documentation can be provided, I'd highly doubt this claim. Common sense, if nothing else, would suggest that accounting regulations aren't going to let a mortgage go bad for a year before being reflected on the books in some way. Most mortgages would be into foreclosure proceedings at that length of time?

For CMHC-guaranteed mortgages that are sold securitized into housing bonds, the originator is still on the hook for ensuring payments flow into the pool, even if the homeowner isn't making them. And if it happens in the first months, they have to replace the mortgage with another one.

I suspect that OSFI or the financial reports of various banks would have details on the actual definition of delinquent or whatever.


----------



## Potato

NorthernRaven said:


> Unless some documentation can be provided, I'd highly doubt this claim. Common sense, if nothing else, would suggest that accounting regulations aren't going to let a mortgage go bad for a year before being reflected on the books in some way. Most mortgages would be into foreclosure proceedings at that length of time?
> 
> I suspect that OSFI or the financial reports of various banks would have details on the actual definition of delinquent or whatever.


It's from the financial reports of various banks, making the rounds on Twitter so it was easy to find. Here's Scotia's as an example, http://www.scotiabank.com/ca/en/files/16/11/BNS_Annual_Report_-_2016.pdf page 144:



> If a payment on a loan is contractually 90 days in arrears, the loan will be classified as impaired, if not already classified as such, unless the loan is fully
> secured, the collection of the debt is in process, and the collection efforts are reasonably expected to result in repayment of the loan or in restoring it
> to a current status within 180 days from the date a payment has become contractually in arrears. Finally, a loan that is contractually 180 days in
> arrears is classified as impaired in all situations, *except when it is guaranteed or insured by the Canadian government, the provinces or a Canadian
> government agency; such loans are classified as impaired if the loan is contractually in arrears for 365 days.*


----------



## mark0f0

^^^ So basically a CMHC-insured subprime loan is only classified in arrears if CMHC is delayed in paying the insurance claim for whatever reason. Which really doesn't happen as CMHC wants to maintain market confidence in their subprime mortgage insurance.


----------



## NorthernRaven

Potato said:


> It's from the financial reports of various banks, making the rounds on Twitter so it was easy to find. Here's Scotia's as an example, http://www.scotiabank.com/ca/en/files/16/11/BNS_Annual_Report_-_2016.pdf page 144:


That's somewhat surprising, but I guess that is distinguishing between late cash-flow (late payments) and an actual impairment for asset purposes (which the CMHC guarantee is preventing). I believe OSFI requires reporting of actual delinquency rates, even if they are not made public in the financials. And as mentioned, the CMHC-backed mortgage bonds require them to replace and/or backstop payments into the bond pool in case of payment arrears, even though the securitized mortgages are off-balance-sheet once sold for securitization. Maintaining ongoing access to quota in the securitization programs requires <1% of their mortgages in securitization pools being in arrears > 3 months.

For subprime lenders their uninsured mortgages would presumably have much tighter delinquency reporting definitions. I'd have to check back and see if Home's financials report delinquency rates separately for insured and uninsured, but the bulk of their stuff is uninsured in any case.


----------



## lonewolf :)

On Howestreet yesterday there is an audio recording of interview regarding HCG. HCG is being charged 22% interest on 1 billion dollars of the 2 billion line of credit it obtained. HCG is trading @ 25% of book value though creative accounting might have been used to come up with the book value numbers was the thoughts of the interview.


----------



## andrewf

redundant


----------



## Mortgage u/w

Collection delinquency is measured by the lenders. Usually, its measured by 30 day intervals, so 1-30, 31-60, 61-90, 91-120, 121+, etc. Severely delinquent is anywhere between 120+ or 180+. Some banks also measure a percentage of each category to predict the next level of delinquency. Unless the banks make this information public (which they don't), you can never really get an accurate overall measure. Only CMHC can provide stats and their stats are based on claims. And just to clarify, CMHC does not insure subprime loans so no one can really tell you how good or bad the subprime market is doing.

A lender will only charge off a loan once they know there is no chance for repayment. So a loss of job, bankruptcy, death or separation are all indicators of an automatic foreclosure. Poor debt management or sloppiness is recoverable. Also, LTV exposure will affect the decision. Higher LTV exposure will try to keep the clients in the home. Lower LTV will force them out sooner since there is less chances of incurring a loss.

So if we take HT who offers low LTV exposure on high risk clients, they are more than happy to foreclose on these properties - as long as the market remains hot. If the economy tanks, then all loans are at risk, including prime loans.


----------



## Eclectic12

AltaRed said:


> ... Still, there are a lot of alternative lenders out there, e.g. even the likes of Laurentian Bank I read somewhere is into it, and I suppose a number of other banks/trusts in that space.


Question is ... are some of the more traditional lenders picking up what has been abandoned by some alternative lenders?

After the mortgage rule changes in 2016, some alternative lenders stopped lending for whole sections of the business. 

As an example, First National Financial, Canada's biggest non-bank mortgage lender stopped lending for rental properties as well as where the mortgage is to a contractors or self-employed workers. Merix Financial, after Nov 15th, 2016 - stopped mortgages for rental properties or refinancing. 


Cheers


----------



## Mortgage u/w

Eclectic12 said:


> As an example, First National Financial, Canada's biggest non-bank mortgage lender stopped lending for rental properties as well as where the mortgage is to a contractors or self-employed workers.


That is completely false!


----------



## NorthernRaven

Mortgage u/w said:


> Collection delinquency is measured by the lenders. Usually, its measured by 30 day intervals, so 1-30, 31-60, 61-90, 91-120, 121+, etc. Severely delinquent is anywhere between 120+ or 180+. Some banks also measure a percentage of each category to predict the next level of delinquency. Unless the banks make this information public (which they don't), you can never really get an accurate overall measure. Only CMHC can provide stats and their stats are based on claims. And just to clarify, CMHC does not insure subprime loans so no one can really tell you how good or bad the subprime market is doing.


Home does break out the delinquency as "(B) Past Due Loans That Are Not Impaired" in their quarterly reports, for instance the most recent 2016Q4. It has 1-30 days, 31-60, 61-90 and 90+, for various types of loans, and some percentage breakdowns of the mortgage book in "Table 36: Credit Risk Portfolio Metrics".


----------



## Eclectic12

Mortgage u/w said:


> That is completely false!


So Huffington Post got it wrong?
http://www.huffingtonpost.ca/2016/10/11/canada-mortgage-rules-alternative-lenders_n_12443064.html

I am not able to get to the G&M article that says similar ... but the Google summary has ...


> www.theglobeandmail.com › Real Estate
> Oct 10, 2016 - Canada's non-bank lenders are reeling from Ottawa's latest moves to cool ... *First National Financial*, the country's largest non-bank mortgage lender, sent a note to ... announcing that it had temporarily *suspended mortgages for rental properties.*



Now maybe FNN has switched gears recently ... but the references so far say they have changed what they will or won't accept.


Cheers


----------



## Mortgage u/w

Eclectic12 said:


> So Huffington Post got it wrong?
> http://www.huffingtonpost.ca/2016/10/11/canada-mortgage-rules-alternative-lenders_n_12443064.html
> 
> I am not able to get to the G&M article that says similar ... but the Google summary has ...
> 
> 
> 
> Now maybe FNN has switched gears recently ... but the references so far say they have changed what they will or won't accept.
> 
> 
> Cheers


There was a temporary halt that was very short lived. The media was quick to put all non-bank lenders in the same basket. 

All products have resumed fairly quickly at First National and I'd be surprised if brokers are not currently aware.

The only limitation that ALL lenders have is what can no longer be insured (or bulk insured), hence, single unit rentals and all refinances. On the conventional side, its business as usual.


----------



## andrewf

Mortgage u/w said:


> Collection delinquency is measured by the lenders. Usually, its measured by 30 day intervals, so 1-30, 31-60, 61-90, 91-120, 121+, etc. Severely delinquent is anywhere between 120+ or 180+. Some banks also measure a percentage of each category to predict the next level of delinquency. Unless the banks make this information public (which they don't), you can never really get an accurate overall measure. Only CMHC can provide stats and their stats are based on claims. And just to clarify, CMHC does not insure subprime loans so no one can really tell you how good or bad the subprime market is doing.
> 
> A lender will only charge off a loan once they know there is no chance for repayment. So a loss of job, bankruptcy, death or separation are all indicators of an automatic foreclosure. Poor debt management or sloppiness is recoverable. Also, LTV exposure will affect the decision. Higher LTV exposure will try to keep the clients in the home. Lower LTV will force them out sooner since there is less chances of incurring a loss.
> 
> So if we take HT who offers low LTV exposure on high risk clients, they are more than happy to foreclose on these properties - as long as the market remains hot. If the economy tanks, then all loans are at risk, including prime loans.


CMHC does insure subprime loans (via rampant document fraud). Of course, CMHC may at a later date deny claims on fraudulently originated mortgages.


----------



## mark0f0

Mortgage u/w said:


> . And just to clarify, CMHC does not insure subprime loans so no one can really tell you how good or bad the subprime market is doing.


Couldn't be anything further from the truth actually. Nice try though. Nearly all of CMHC's guarantees, at the time of origination, are against subprime mortgages. Although in a strong enough bull market, even total trash can look pristine.


----------



## Mortgage u/w

mark0f0 said:


> Couldn't be anything further from the truth actually. Nice try though. Nearly all of CMHC's guarantees, at the time of origination, are against subprime mortgages. Although in a strong enough bull market, even total trash can look pristine.


Really. Would you care to provide some proof that CMHC insures these loans?

Edit:
https://www.cmhc-schl.gc.ca/en/corp/nero/jufa/jufa_018.cfm

"CMHC does not insure or guarantee MBS backed by subprime mortgages, nor does it purchase and hold a significant portfolio of mortgages (including subprime) for investment".


----------



## mordko

Mortgage u/w said:


> Really. Would you care to provide some proof that CMHC insures these loans?


He can't do that but will you consider it a proof if Mark posts the same claim 4985490584908 times?


----------



## Mortgage u/w

mordko said:


> He can't do that but will you consider it a proof if Mark posts the same claim 4985490584908 times?


No. 
But I'm curious to know where his affirmation comes from?


----------



## mordko

Let me guess... Same source which suggested that house prices in GTA and Vancouver haven't changed since 2013? 

What's interesting is how he: 

1. is predicting a housing crash (possible), 
2. a massive banking failure (highly unlikely) while
3. borrowing on the margin and investing exclusively in the Canadian stock-market. 

Then again, beyond the looking glass 1 and 2 will probably cause a surge in TSX.


----------



## Eclectic12

Mortgage u/w said:


> There was a temporary halt that was very short lived. The media was quick to put all non-bank lenders in the same basket.
> All products have resumed fairly quickly at First National and I'd be surprised if brokers are not currently aware ...


In other words, not so much false as out dated info.




Mortgage u/w said:


> ... The only limitation that ALL lenders have is what can no longer be insured (or bulk insured), hence, single unit rentals and all refinances. On the conventional side, its business as usual.


The changes are listed as including:
a) all insured mortgages instead of some insured mortgages having a stress test applied.
b) new restriction on low ratio mortgages (i.e. new criteria introduced).

You'll have to explain how throwing in new stuff is "business as usual" as I am not following.


Cheers


----------



## Mortgage u/w

Eclectic12 said:


> The changes are listed as including:
> a) all insured mortgages instead of some insured mortgages having a stress test applied.
> b) new restriction on low ratio mortgages (i.e. new criteria introduced).
> 
> You'll have to explain how throwing in new stuff is "business as usual" as I am not following.
> 
> 
> Cheers


Sure. 

So the thing with the stress test is that it was already in place for all terms less than 5 years. Most of the lenders applied this to conventional loans too. The change simply includes 5 year fixed rates as well. And we're strictly talking about insured business here.

Then there is refinance business. They can no longer be insured. Although the LTV restriction was already 80% (qualifying for a conventional loan), some lenders used to insure them anyways for different reasons (location, risk, profile, etc). 

Rental properties: single unit rentals (such as condos) can no longer be insured as a rental property. Must be 2 units or more. Most are conventional anyways since limited to 80% LTV but same applies as above.

Conventional loans have not been affected by the recent changes, which is why I mentioned 'business as usual'.
Where it is not 'business as usual' is with the lenders who bulk insured their loans (even though they were conventional). CMHC no longer allows this so those lenders need to find alternate ways to fund that business. Most have overcome this obstacle but resulted in higher interest rates for conventional business. The banks have not been affected at all (conventional-wise). 

Hope its clearer.


----------



## yyz

Dividend eliminated

http://www.reuters.com/article/home-cap-grp-stocks-idUSL4N1IA416


----------



## doctrine

http://www.stockhouse.com/news/pres...n-liquidity-and-deposit-withdrawals-announces

Home Capital has lost $650M in deposits in the last week. They are up to $1.4B on their $2.0B lifeline. Their lifeline will be fully utilized within a week, and they will be down to zero liquidity within 2 weeks. 

The dividend is the least of this company's concerns. The regulators will almost certainly enforce further action by the end of the week to shore up liquidity. That could include a capital injection that virtually wipes out shareholders.


----------



## leeder

yyz said:


> Dividend eliminated
> 
> http://www.reuters.com/article/home-cap-grp-stocks-idUSL4N1IA416


A shame... there goes another dividend achiever.


----------



## NorthernRaven

doctrine said:


> http://www.stockhouse.com/news/pres...n-liquidity-and-deposit-withdrawals-announces
> 
> Home Capital has lost $650M in deposits in the last week. They are up to $1.4B on their $2.0B lifeline. Their lifeline will be fully utilized within a week, and they will be down to zero liquidity within 2 weeks.
> 
> The dividend is the least of this company's concerns. The regulators will almost certainly enforce further action by the end of the week to shore up liquidity. That could include a capital injection that virtually wipes out shareholders.


It is early in BC and perhaps a shot of coffee is needed to avoid terrible conflation of terms and concepts... 

To the extent that $1 of liquid HOOPP money is replacing of $1 of fled deposits, their existing liquidity does not change at all (although they are paying a pretty penny for it). They are replacing a liability to Joe DepositHolder with one to Tony Soprano, er, the HOOPP credit line. They were running at something like $2.5B or more of demand deposits, so the HOOPP facility could in theory replace that. Of course, they'd still have the slower-moving fire of the gradually maturing GICs, where their new sales are presumably anemic and rollovers will be similarly hard to obtain.

Home doesn't need a capital injection, it wouldn't seem, but will need some source of funding to replace those existing GICs (their major funding source) on the balance sheet.

Purely on numbers, I'd assume Home can keep turning over for some time yet, although in the real world something or other is probably going to happen in the next few days/weeks - takeover, sale of assets, wind-down, whatever.


----------



## AltaRed

I agree with NR that liquidity doesn't change if the loan is dollar for dollar (albeit costly). As long as HCG can call mortgage balances (as terms expire) at the same rate as GIC deposit loss, HCG is a going concern. 

The bigger issue may be whether HCG can actually get timely receipt of assets (mortgage balances in cash) that they call. If a homeowner cannot replace that mortgage, (and it is not insured?), then the cash does not flow back to HCG on a timely basis....Foreclosure takes time and costs money. HCG may have had a very low delinquency rate on its loans, but that may be only because they are operating mortgages. Recalls (non-renewals) may open up a new house of cards.


----------



## Beaver101

^ Why does HCG needs to keep adding new directors? http://www.theglobeandmail.com/report-on-business/home-capital-bleeding-deposits-sink-below-200-million/article34916621/. Are they going to save the company?


----------



## gardner

AltaRed said:


> if the loan is dollar for dollar (albeit costly)


It is not merely costly but extravagantly usurious. They cannot pay 12+% for this cash and stay in business for more than a few months.


----------



## AltaRed

gardner said:


> It is not merely costly but extravagantly usurious. They cannot pay 12+% for this cash and stay in business for more than a few months.


They may well arrange for better terms as time goes on IF their business is better than what the loan suggeests. We can speculate all we want on why they went the route they ddid...and it may eventually come out as to why.


----------



## NorthernRaven

gardner said:


> It is not merely costly but extravagantly usurious. They cannot pay 12+% for this cash and stay in business for more than a few months.


Well, _if_ the GIC funding were stable (not likely), the full HOOPP facility would cost them under $300 million, and they would save a bit of that by not paying HISA interest. That's more on the order of "wiping out the year's profits" (~$250M), not shutting down in a few months.


----------



## doctrine

It looks to me like they'll be in the same liquidity position by the end of the week that they were two weeks ago when they went to market for the $2B lifeline. It isn't zero yet of course, but they will be forced by the regulators to find additional liquidity from somewhere. I can't see why their next source of liquidity would be less expensive, they are hardly in a better position to negotiate.


----------



## NorthernRaven

doctrine said:


> It looks to me like they'll be in the same liquidity position by the end of the week that they were two weeks ago when they went to market for the $2B lifeline. It isn't zero yet of course, but they will be forced by the regulators to find additional liquidity from somewhere. I can't see why their next source of liquidity would be less expensive, they are hardly in a better position to negotiate.


But they've redeemed most of demand deposits, so a lot of the immediate pressure is off. There's the rest of the demand deposits (~$400M ?) that may run, but they've got $600 million left on the credit facility. And they've got $1.1B of their own actual liquidity to handle slow-rolling GIC redemptions, that $325M of maturing deposit notes this month (?), and normal liquidity requirements. And I wouldn't be surprised if they can't get some sort of day-to-day liquidity funding from the Bank of Canada window, although I don't know how that is handled in a case like this.


----------



## blin10

logically speaking, 2bill credit line providers will do whatever it takes to get their money back, there's no way they will let hcg default on it ... i believe more funds will be provided to hcg as needed (probably at a lower interest rate too)... why would they provide 2bill if they weren't 100% sure hcg can hold up? it is hard to evaluate hcg right now, hopefully hcg can hold up with all of this negative/short tsunami and slowly get back to making money


----------



## hboy54

Beaver101 said:


> ^ Why does HCG needs to keep adding new directors? http://www.theglobeandmail.com/report-on-business/home-capital-bleeding-deposits-sink-below-200-million/article34916621/. Are they going to save the company?


Well, it would be the intention to at least appear to save the company, even if the end result is a sale or liquidation. Might keep a few deposits around and subsequently make the difference in shareholders getting 2/3 book value instead of 1/3 book value. This entirely a game of perception now. The truth of the situation does not matter anymore.

hboy54


----------



## Beaver101

hboy54 said:


> Well, it would be the intention to at least appear to save the company, even if the end result is a sale or liquidation. Might keep a few deposits around and subsequently make the difference in shareholders getting 2/3 book value instead of 1/3 book value. *This entirely a game of perception now. * The truth of the situation does not matter anymore.
> 
> hboy54


 ... well the perception I get (even as a non HCG shareholder) is the company is going to be sucked dry even quicker ... unless these new "directors" are volunteering their services.


----------



## fplan

AltaRed said:


> I agree with NR that liquidity doesn't change if the loan is dollar for dollar (albeit costly). As long as HCG can call mortgage balances (as terms expire) at the same rate as GIC deposit loss, HCG is a going concern.


What will chmc do?? Don’t they protect lender in foreclosures ?? As long as RE prices rise in GTA , HCG may not go bankrupt. If you have more equity in your home , if not HCG some other alternate lender will provide mortgage. What is missing here??


----------



## AltaRed

I am no expert on what CMHC does (in terms of insured mortgages) if the lender inadvertently triggers the default in event of a recall of the mortgage and the mortgagor defaults because s/he cannot find an alternate lender. 

I imagine finding an alternate lender is partly the creditworthiness of the homeowner and partly the LTV of each individual mortgage. Homeowners presumbably landed on HCG's doorstep in the first instance because at least some other lenders turned them down. Without those details we are simply speculating.


----------



## Eclectic12

fplan said:


> What will chmc do?? Don’t they protect lender in foreclosures ??
> What is missing here??


What is missing is the mortgage foreclosures?

Why would CMHC get involved when HCG's issues are not mortgages but other parts of the business?
At best, I would expect they might facilitate discussions with competitors for a sale of the mortgage portfolio.


Until there are reports of mortgages defaulting, CMHC involvement would be minimal.


Cheers


----------



## Eclectic12

AltaRed said:


> I am no expert on what CMHC does (in terms of insured mortgages) if the lender inadvertently triggers the default in event of a recall of the mortgage and the mortgagor defaults because s/he cannot find an alternate lender ...


HCG has competitors so the current troubles for HCG on the deposit/GIC side should mean the business flows to the competitors, with almost no involvement by CMHC. 

Several brokers have said they would like to do business with HCG but until things look better - the business is being sent to the competitors. Without mortgage holders walking away from mortgages - I am not sure why a competitor wouldn't want to take over the mortgage that is being paid and has been paid for a while.


Cheers


----------



## AltaRed

Eclectic12 said:


> Until there are reports of mortgages defaulting, CMHC involvement would be minimal.


I agree... or there are foreclosures resulting from a necessary callback of mortgages to match GIC withdrawals. Seems the latest though is a potential sale of $1.5B in mortgages to another institution. That may be the 'safest' way for HCG to raise cash to fund GIC deposit redemptions (to the extent they are actually occuring) and/or pay back that obscene loan.

The sharks are hovering though with the so called offer of an early purchase of circa $100M of the bond debt due later this month for 92.5 cents on the dollar. HCG would be stupid to do that since they still have liquidity on hand. At some point, HCG just needs to hold tight.


----------



## gardner

Home Capital to sell $1.5B worth of mortgages to mystery buyer

http://www.cbc.ca/news/business/home-capital-tuesday-1.4106037



> Home Capital has struck a deal to sell $1.5 billion worth of mortgage commitments and renewals to an unnamed buyer.


----------



## Eclectic12

AltaRed said:


> I agree... or there are foreclosures resulting from a necessary callback of mortgages to match GIC withdrawals.


With the liquidity arranged, foreclosures seem unlikely versus selling blocks of mortgages, as they seem to be doing.


Cheers


----------



## AltaRed

Eclectic12 said:


> With the liquidity arranged, foreclosures seem unlikely versus selling blocks of mortgages, as they seem to be doing.


Indeed. Probably the smart way to remove uncertainty (or more likely vulnerability) in the balance sheet. It also will send the vultures home (like the turkey offering to buy $100 million of May maturing debt at 92.5 cents on the dollar). This is a good reason to have new Directors on the Board. They will make dispassionate decisions based on facts and statistics, rather than emotional ones tied to the business that was and no longer is.


----------



## OptsyEagle

It's funny how no one cared to ask "what price" those mortgages were sold at. I doubt it is $1 for $1. Anyway, better then bankruptcy I suppose.


----------



## Eclectic12

Probably not ... but the flip side, I would expect it would be a lot closer to $1 for $1 than the liquidity arrangements.

The buyer can use the liquidity issues to look for a discount while HCG can use that there is no underwriting required as well as mortgages with a history of payment to push back. Add in that there may have been other callers looking to buy.


The price is a valid question but I am doubting a fire sale to the extent that seems to be assumed by the "bankrupcy" comment.


Cheers


----------



## gardner

In 2015/2016 HCG reported a leverage ratio of about 7%. Flogging 1.5B in mortgage assets compensates for about 105M of lost deposits. To get back in balance after losing 1.4B in deposits they will have to unload 20B in mortgages. There will be more deals of this type.


----------



## NorthernRaven

gardner said:


> In 2015/2016 HCG reported a leverage ratio of about 7%. Flogging 1.5B in mortgage assets compensates for about 105M of lost deposits. To get back in balance after losing 1.4B in deposits they will have to unload 20B in mortgages. There will be more deals of this type.


I need coffee, but I don't think this is right? Leverage would refer to the multiplier on their _capital_ to the balance sheet, not liabilities to assets. Assuming unchanged capital levels, their leverage only changes if they reduce the balance sheet. Selling mortgages just converts assets from one form (mortgages) to another (cash).


----------



## sags

A "non binding" deal with an unnamed buyer who "may" buy this and "might" buy that, sounds a little sketchy.


----------



## ian

I do not understand why they would foreclose on a performing mortgage...unless of course the current realizable value of the underlying security was diminished.

My guess if that there has, and will be, a great deal of money made from this situation. Firstly...the folks who shorted the stock. Then the ones who are picking up the mortgage portfolio and what is probably a good price and most likely has a clause to protect them over and above a negotiated percentage of non performs.

Plus the group that apparently got 20 points on the interim loan to backstop withdrawals.

And who knows, maybe they are even shelling out retention bonus' to some of the senior execs!

The poor shareholders are left holding the bag.


----------



## AltaRed

ian said:


> The poor shareholders are left holding the bag.


That is the price for being a common equity shareholder. They are always the sacrificial lambs in any implosion. The equity risk premium that we all seek....so to speak.


----------



## OptsyEagle

sags said:


> A "non binding" deal with an unnamed buyer who "may" buy this and "might" buy that, sounds a little sketchy.


Yes. For a company desperately trying to build confidence in their business, they are not going about it very well. We already have the uncertainty so maybe some transparency might help.


----------



## NorthernRaven

OptsyEagle said:


> Yes. For a company desperately trying to build confidence in their business, they are not going about it very well. We already have the uncertainty so maybe some transparency might help.


"non-binding" in this case is probably a term of art where the paperwork isn't finished yet, and the counterparty doesn't want to be disclosed, but they have agreement in principal. It isn't as if this is just an informal chat over coffee. It might fall through, but there would have to be an expectation that there is a goodly amount of agreement for this to get announced, especially with their previous experience about disclosures courtesy of the OSC...


----------



## blin10

CIBC triples Home Capital stake to become one of embattled mortgage lender’s largest holders @ http://business.financialpost.com/n...of-embattled-mortgage-lenders-largest-holders

I'm sure cibc knows more than we do


----------



## ian

I think that it is a good buy.


----------



## Eclectic12

blin10 said:


> CIBC triples Home Capital stake to become one of embattled mortgage lender’s largest holders @ http://business.financialpost.com/n...of-embattled-mortgage-lenders-largest-holders
> 
> I'm sure cibc knows more than we do


From the details, it is not CIBC per se (i.e. not the main bank) but the MF arm, CIBC Asset Management. It sounds like a few of it's funds are doing the buying (the manager for the the Monthly Income Fund as well as the CIBC Canadian Equity Value Fund is quoted).

CIBC used to be in the mortgage brokerage business via First Line Mortgages but could not find a buyer when they were trying to sell in 2012.
http://business.financialpost.com/news/fp-street/cibc-fails-to-sell-firstline-mortgages-unit


Cheers


----------



## blin10

damn what to do now, sell and lock in good profit or let it ride... hboy what are you doing?


----------



## hboy54

blin10 said:


> damn what to do now, sell and lock in good profit or let it ride... hboy what are you doing?


Watching the chart with a big grin on my face. Holding for now as I don't in general trade for the short term. It won't hit 5% of portfolio until $14 something, so in the absence of new information I'd probably start selling around $18 to $20. Might just turn into a long term hold, as my financials are under TSX weighting.

I would think at some point somebody is going to offer something around $15 given there are two larger owners at 19% and 15%. Recent new shareholders make a killing, new owners get a nice discount to book, and old shareholders are happy to escape with a non zero amount.

hboy54


----------



## blin10

hboy54 said:


> Watching the chart with a big grin on my face. Holding for now as I don't in general trade for the short term. It won't hit 5% of portfolio until $14 something, so in the absence of new information I'd probably start selling around $18 to $20. Might just turn into a long term hold, as my financials are under TSX weighting.
> 
> I would think at some point somebody is going to offer something around $15 given there are two larger owners at 19% and 15%. Recent new shareholders make a killing, new owners get a nice discount to book, and old shareholders are happy to escape with a non zero amount.
> 
> hboy54


I unloaded 50% just in case... will hold rest for a while too, but I think it'll take a long time to get back to 18 or anywhere close (i'm hoping for a quick take over as well)


----------



## humble_pie

hboy u sure do like to ride the waves!

is it once a yacht owner always a yacht owner?

.


----------



## Mortgage u/w

I heard through the grapevines the mystery buyer is MCAP.


----------



## Beaver101

^ Why do you need to hear this thru the grapevines when it was published a couple of days ago (G&M IRCC) already the "mystery" buyer is MCAP.


----------



## Beaver101

^ To add: MCAP must have a lot of confidence in HCG's mortgage block of business - better be.


----------



## Mortgage u/w

Beaver101 said:


> ^ To add: MCAP must have a lot of confidence in HCG's mortgage block of business - better be.


Personally, I don't believe they have a bad book of business and highly doubt the subprime business was bought by them. The fraud allegation is one thing. the business performance is entirely separate.


----------



## sags

I still think it looks sketchy.

MCAP doesn't have $1.5 billion dollars. They tried to IPO their company for $275 million and withdrew it in 2016.

It looks like the plan is to originate mortgages, package them up into MBS and sell them to investors.

Some of the major banks want into that game now.

The unknown is if there is a market for uninsured subprime derivatives.


----------



## Mortgage u/w

^ well I know they are trying for IPO a third time and this may be their way in.


----------



## hboy54

humble_pie said:


> hboy u sure do like to ride the waves!
> 
> is it once a yacht owner always a yacht owner?
> 
> .


Riding the financial waves provides much of the discretionary income to ride the water waves.

Will I hit a peak or a trough today? Will the bow slam and send spray flying into the cockpit leaving the captain drenched? Will I find becalmed conditions? Tune in at 9:30.

Hboy54


----------



## blin10

i'm done with this one, sold it all and bought cwb instead... will take a long time for hcg to get back and I hate holding stocks that don't pay dividend


----------



## james4beach

HCG looks exactly like the crashing lenders and banks I used to trade in 2007. What I remember from those days is that a crashing bank can easily rally +100% or +200% before it continues its journey to $0. It will whipsaw and make both bulls and bears cry for a while. Odds are, eventually it will become worthless and delist.

Some people will buy it all the way down (catching a falling knife).

Instead of HCG, it might be more worthwhile looking at *FC and MIC* where the story is just beginning.


----------



## NorthernRaven

james4beach said:


> HCG looks exactly like the crashing lenders and banks I used to trade in 2007. What I remember from those days is that a crashing bank can easily rally +100% or +200% before it continues its journey to $0. It will whipsaw and make both bulls and bears cry for a while. Odds are, eventually it will become worthless and delist.
> 
> Some people will buy it all the way down (catching a falling knife).
> 
> Instead of HCG, it might be more worthwhile looking at *FC and MIC* where the story is just beginning.


So what were the underlying problems of some of those "crashing lenders and banks...in 2007"? I would assume they are in the US, with toxic sludge on the books and truly insolvent? In that case $0 may have been the correct price. That doesn't seem to be the case with HCG, where there would seem to be _some_ sort of shareholder value remaining in just about any scenario likely to occur?


----------



## james4beach

Sorry, by "looks exactly like" I meant that the chart and price action looks like them. I didn't mean the internals of the bank.

Those crashing US lenders all had high loan losses. I don't know the details of what's going on with HCG's books.


----------



## gardner

BTW, Oaken (part of HCG) just announced a 10bps increase in their GIC rates across the board.



> effective Monday, May 15, 2017, we'll be increasing our interest rates for the following terms
> [...]
> 5 Year GIC – 2.60% (currently 2.50%)


----------



## Userkare

gardner said:


> BTW, Oaken (part of HCG) just announced a 10bps increase in their GIC rates across the board.


Just in a nick of too late?


----------



## james4beach

gardner said:


> BTW, Oaken (part of HCG) just announced a 10bps increase in their GIC rates across the board.


It's interesting that the GICs that I see through TDDI don't reflect that. The highest yielding 5 year GICs at TDDI are:

2.15% Equitable Bank
2.05% Home Equity Bank
2.01% Canadian Western Bank


----------



## yyz

Look at Canadian Tire Bank rates

https://www.myctfs.com/Rates/GICRates/

BMO Investorline matches every rate for them except the 5 year rate.They have it a 1.95% when I asked them why that's how it is can't get the 2.5% rate through BMO IL

It appears they don't want to offer such a rogue offer from a different institution that would compete with them.


----------



## gardner

james4beach said:


> the GICs that I see through TDDI don't reflect that


The new rate is for Monday, so maybe not advertised to brokers yet, but since the old rate is better than anything TDDI shows, it likely means either that TDDI is weeding out the really good rates, or taking 25bps off the top like they do for TDB8150, or maybe they weed out the institutions that don't pay the 25bps to TDDI. I've watched TDDI off and on for many years and they have never had GICs that were truly competitive with going to the general market.


----------



## AltaRed

gardner said:


> The new rate is for Monday, so maybe not advertised to brokers yet, but since the old rate is better than anything TDDI shows, it likely means either that TDDI is weeding out the really good rates, or taking 25bps off the top like they do for TDB8150, or maybe they weed out the institutions that don't pay the 25bps to TDDI. I've watched TDDI off and on for many years and they have never had GICs that were truly competitive with going to the general market.


I agree brokerages won't list the new rates until they are in effect. Brokerages charge GIC issuers 25+ bp for the privilege of being a broker for them so rates at brokerages will almost always be less than the online bank variety. This is true of Home Trust (brokered GICs) vs Oaken (retail online bank offering). 

Brokerages do NOT turn away business that could earn them more commission - hence the CT comment by YYZ is a red herring. All the years I've had RBC DI or Scotia iTRade, or BMO IL accounts, GIC rates have almost always been higher than their own mother banks, e.g. BMO GIC rates at BMO IL being less than those of Home Trust or Equitable Bank for example. There is no conspiracy. Many of us just don't want to have multiple accounts at online banks.


----------



## james4beach

I agree that best rates are not always found through discount brokerages. For example Scotiabank still has 5 year GICs at 2.0% -- which I got directly from Scotia -- yet both TDDI _and Scotia iTrade_ show a lower rate!


----------



## AltaRed

james4beach said:


> I agree that best rates are not always found through discount brokerages. For example Scotiabank still has 5 year GICs at 2.0% -- which I got directly from Scotia -- yet both TDDI _and Scotia iTrade_ show a lower rate!


It's unusual for any of the big 5-6 to offer GICs in their retail banking arm for equal or more than is offered at the discount brokerages. They are looking to sucker in the brick and mortar customer. The Scotia offer must be a promo or something.....like their Momentum Savings Account rate currently at 2%.


----------



## james4beach

The Scotia promo GICs pop up quite often, at least once a year. I hold nearly all my GICs at discount brokerages, but also keep a Scotia "investment" GIC container account open, so that I can buy the Scotia promos when they pop up. The rates are surprisingly competitive. Currently at Scotia, I hold a 2.0% GIC that I bought this year and a 3.0% GIC that I bought in 2013. At the time, that rate was almost as high as Outlook Financial!

I think Scotia's racket is introducing savings accounts and then dropping the rate later. First they had Money Master, then within a few years the rate dropped to zero. Then they introduced Power Savings and the same thing... initially competitive, then the rate dropped to zero. Now they added Momentum and it's probably the same idea.

I closed my Power Savings account and no longer keep savings at Scotia, other than GICs. I just get tired of tracking and opening new accounts. Instead I use PC savings account, Outlook Financial, and brokerage ISAs -- sure I could get higher rates by jumping around everywhere, but I don't think it's worth the effort.


----------



## AltaRed

Indeed, I did the Power Savings thing and it's had a zero balance for at least a few years now. I didn't bite on the Momentum offering thinking the same thing (promo from 1.2--->2% ends June 30 anyway). But now having drifted off-topic, back to regular programming..... I would consider buying Home Trust GICs in my brokerage accounts again if they bumped more than just 10 bp. 2.5% on a 5 year compound would be enough to grab my attention above and beyond the next best circa 2.1%.


----------



## like_to_retire

AltaRed said:


> ..... I would consider buying Home Trust GICs in my brokerage accounts again if they bumped more than just 10 bp. 2.5% on a 5 year compound would be enough to grab my attention above and beyond the next best circa 2.1%.


Oh vey Alta, I don't know about that! 

10 beep? That's 0.1%. You would move to Home Trust products for 0.1%? Yikes. That's $10 on $10,000. Really?

ltr


----------



## AltaRed

like_to_retire said:


> Oh vey Alta, I don't know about that!
> 
> 10 beep? That's 0.1%. You would move to Home Trust products for 0.1%? Yikes. That's $10 on $10,000. Really?
> 
> ltr


Nooooooo! If they went to 2.5%, I would consider. Has to be more than 10bp.


----------



## Beaver101

^ 2.5% on a "5" year compound would be considered? Are interest rates going to stay perpetually low or go lower even? With the prices of food (and everything else in between) skyrocketing, I get the feeling inflation are creeping up faster, with interest rates to follow same trend.


----------



## AltaRed

Beaver101 said:


> ^ 2.5% on a "5" year compound would be considered? Are interest rates going to stay perpetually low or go lower even? With the prices of food (and everything else in between) skyrocketing, I get the feeling inflation are creeping up faster, with interest rates to follow same trend.


A lot has been said for several years now about climbing interest rates. Nothing much has happened. I wouldn't buy a 5 yr GIC @ 2.5% in isolation. But as part of a 5 year GIC ladder, one gets 5 yr rates for a 2.5 year duration. Rising interest rates won't mean much for a 5 yr GIC ladder because when they do, that 5 yr GIC that matures this year gets the higher rate. Just like buying a short term bond ETF....only better (lack of liquidity aside).


----------



## namelessone

Not the quality of mortgage portfolio, the negativity of the media, short sellers, and stock price affecting depositors will kill HCG. If HCG survives, it will take a long time to recover to previous level.. I moved on and sold all HCG at 60% loss from ACB after couple years of holding.. Real loss including opportunity cost is almost close to 80%. Luckily, before the crash, it's only 2% of my total portfolio. It helps to diversify.

How am I affected not as an investor? I won't get a mortgage from a small/alternative company in the future. Because if it happens this time, it'll happen again to other similar companies! and pay off the mortgage as soon as I can while keep investing. Currently, holding the mortgage @ 2.2% only save me 2 years of waiting financially meaning 2 years of net worth increase will replace current mortgage. It's not worth it holding the mortgage. So the small companies will get less business. Banks get less mortgage business as well. BUT this is good for Canadian economy because I am less leveraged and more stable financially. Is this OSC's real intend? To cool off real estate market? I am sure I am not the only one. This is one side effect of OSC teaching HCG a lesson.


----------



## james4beach

Beaver101 said:


> Are interest rates going to stay perpetually low or go lower even? With the prices of food (and everything else in between) skyrocketing, I get the feeling inflation are creeping up faster, with interest rates to follow same trend.


Ha, people have been saying this since at least 2010.

You can't time the bond market. Prices and yields move to anticipate anything that might be coming up. For example if the bond market thinks inflation is coming, then bond yields rise in anticipation -- you can't front-run this.

The best strategy, as with passive stock index investing, is to just hold a bond fund and/or GIC ladder and not think too much about it. In the case of GICs, you're just about always best off always buying 5 years on a routine.

I still don't understand why everyone acknowledges you can't time the stock market, but everyone thinks they can time the bond market.


----------



## doctrine

james4beach said:


> Ha, people have been saying this since at least 2010.
> 
> You can't time the bond market. Prices and yields move to anticipate anything that might be coming up. For example if the bond market thinks inflation is coming, then bond yields rise in anticipation -- you can't front-run this.
> 
> The best strategy, as with passive stock index investing, is to just hold a bond fund and/or GIC ladder and not think too much about it. In the case of GICs, you're just about always best off always buying 5 years on a routine.
> 
> I still don't understand why everyone acknowledges you can't time the stock market, but everyone thinks they can time the bond market.


I agree that you can't time either market, but people in one hand will say to hold cash or short term bonds while sell stocks because they're overvalued. Risk premium takes all of this into account. If cash is a good investment, then stocks are going to be priced accordingly in line with the risk premium concept.


----------



## gardner

gardner said:


> BTW, Oaken (part of HCG) just announced a 10bps increase in their GIC rates across the board.


Another 15bps today



> 5 Year GIC – 2.85% (previously 2.60%)


My ladders are all April and October so nothing really set to renew this time of year, otherwise I would be pretty tempted. I may yet pull back some cash from EQBank to get in on this.


----------



## fatcat

i just got a rate-blast from oaken and they have raised gic's 25points on most and 15points and a couple ... they need cash clearly ... whether these rates will override the daily news cycle remains to be seen


----------



## gibor365

gardner said:


> Another 15bps today
> 
> 
> 
> My ladders are all April and October so nothing really set to renew this time of year, otherwise I would be pretty tempted. I may yet pull back some cash from EQBank to get in on this.


Invested fully up to CDIC limits (even a bit above considering interest)


----------



## kcowan

Some mention of this and Equitable

Notoriety eh?


----------



## mordko

^ Heh. That's very broad brush and short on detail. Housing market overvalued and at risk? Sure; no argument there. Foreign money driving the bubble? Perhaps. Everything except big 5 going bakrupt? Now, that's a big leap. Surely depends on whether the market will crash or stagnate, loan to value, the quality of mortgages and if Canadians will walk away like the Yanks did. 

On the side note - he is talking as if he is 100% certain in the future. That's usually a bad sign.


----------



## gardner

Another rate hike at Oaken. I think I will move some EQBank money into a new tranche of GIC ladder at Oaken.



> effective Tuesday, May 23, 2017, we will be increasing our interest rates
> 
> [ ... ]
> 
> 1 Year GIC – 2.60% (currently 2.35%)
> 18 Month GIC – 2.70% (currently 2.45%)
> 2 Year GIC – 2.80% (currently 2.55%)
> 3 Year GIC – 2.90% (currently 2.65%)
> 4 Year GIC – 3.00% (currently 2.75%)
> 5 Year GIC – 3.10% (currently 2.85%)


----------



## AltaRed

And Home Trust is running about 35-45 bp lower... 5 year = 2.65% should be showing up in discount brokerage lists today or Tuesday.


----------



## james4beach

GIC rates through my brokerage (iTrade) have finally gone up. For the 5 year GICs, I now see

*Home Trust @ 2.70%*
Equitable Bank @ 2.30%
Concentra Bank @ 2.27%
Canadian Western @ 2.20%

This seems like a more sensible spread at the discount brokerages.


----------



## Ponderling

hcg's woes have pushed down cwb and lb stock prices. 

So we plunked some cash into LB as a lowish risk move for dividend and the hope that LB will float clear of the hcg smell with time.


----------



## fplan

http://www.ctvnews.ca/business/b-c-investor-fears-1-million-at-risk-in-gic-1.3437415


----------



## fatcat

rob carrick has an interesting column about home and oaken: https://beta.theglobeandmail.com/gl...5114128/?ref=https://www.theglobeandmail.com&


----------



## james4beach

fplan said:


> http://www.ctvnews.ca/business/b-c-investor-fears-1-million-at-risk-in-gic-1.3437415


Wow, Investors Group let him invest $1 million in a GIC and did not spell out that only 100K is insured.


----------



## fplan

james4beach said:


> Wow, Investors Group let him invest $1 million in a GIC and did not spell out that only 100K is insured.


First: CDIC insurance needs to be increased to 250K like in US
Second: They should remove guaranteed name from GIC and specify the restrictions
Third: financial illiteracy of the investor
Fourth: bad adviser


----------



## Eclectic12

james4beach said:


> Wow, Investors Group let him invest $1 million in a GIC and did not spell out that only 100K is insured.


No one cares for your money like you do ... where a bit of knowledge/asking questions can save a ton of grief.


Cheers


----------



## kcowan

I think the regulators should outlaw the word "guarantee" and also change the use of investment. Calling it something like a Saving Deposit Certificate would put the onus on advisors to explain what the heck they are doing with your money.


----------



## james4beach

Well the GIC is guaranteed in so far as a bank _can_ guarantee anything. But I see your point... in the US they are called Certificates of Deposit (CD) which might be a better name, so that 'guarantee' is not misleading.

A deposit is just a loan to the bank. Whether or not you can get your money back depends entirely on the solvency of the bank. If someone hasn't learned this basic fact, then they will have the wrong idea about many things.


----------



## AltaRed

james4beach said:


> Wow, Investors Group let him invest $1 million in a GIC and did not spell out that only 100K is insured.


Just as importantly, where was the investor's head at? How can anyone put $1M into anything without 64 question?


----------



## Mortgage u/w

I'm not buying this story. I am sure the client was aware or at least informed of the risks. If he wasn't, who would hand over $1 million dollars without asking questions? Knowing Investor's Group, their conformity dept would not allow such a transaction if the client did not sign a disclosure. So if anyone screwed up, the advisor would not be the only one to blame.
I could see the reason for the panic is that the client now needs the money and can't touch it until it expires. Couldn't get his way so he made a big stink. I am sure if he had the GIC with anybody other that HT, no one would have said anything - and I am sure there are many million-dollar GICs out there yet no one is complaining. He sure didn't complain about the interest rate when he took it......


----------



## james4beach

I thought there is a secondary market for GICs and they can be traded (perhaps not at optimal prices) by some brokers? Not that I've ever found this market, but you'd think it should exist.

If Home Trust GICs are such a screaming good buy, surely many people would want to buy the GIC from this guy at say 3.0% yield -- with a slight hit to him?


----------



## golfdude

What kind of commission are advisors getting on these? How can anyone who is low-risk enough to be 100% in a GIC be advised to keep it all with a secondary tier institution? Too bad the recent push to require advisors to adopt a 'best interests' standard failed. 

This is one case where the CDIC guarantees could actually hurt the investor. In the event HCG goes belly up, instead of everyone getting 98c on the dollar, 98% of the people will get 100c on the dollar and the few who are over the threshold might get 10c on the dollar, after their first $100k.


----------



## james4beach

Depositors with uninsured deposits should be thankful if they get anything back in a bank failure. I don't believe in socializing corporate losses. These are corporations engaging in borrowing & lending, and there's risk.

For people who want riskless 'depositing', they should simply buy t-bills and government bonds. If you are really treating this as "zero risk fixed income" then cut out the middle man and lend straight to the government, who will always be solvent due to their ability to print CAD.

To take that further, if we as a society decide that we don't want ANYBODY to lose anything in bank deposits, then the federal government should simply cut out the banks as the middle man and do retail banking directly.


----------



## gibor365

fplan said:


> First: CDIC insurance needs to be increased to 250K like in US


Yes, it should, but Canada is too "poor"


----------



## Eder

james4beach said:


> For people who want riskless 'depositing', they should simply buy t-bills and government bonds.


There is great risk with this strategy.


----------



## mark0f0

kcowan said:


> I think the regulators should outlaw the word "guarantee" and also change the use of investment. Calling it something like a Saving Deposit Certificate would put the onus on advisors to explain what the heck they are doing with your money.


I'd go as far as to outlaw the word "deposit" being used. When someone "puts" money in a bank, they are making a loan to the bank. They are an unsecured creditor of the bank. They have no recourse to anything other than the bank's unencumbered assets in a bankruptcy. "Deposit" conjures up old-fashioned images of a bank having a vault in the back in which money is 'deposited' for safekeeping. Which is anything but the truth for modern/contemporary banking.


----------



## yyz

If you are smart enough to fall under CIDC rules you should be fine. I wouldn't call that an unsecured creditor.


----------



## AltaRed

yyz said:


> If you are smart enough to fall under CIDC rules you should be fine. I wouldn't call that an unsecured creditor.


It is still unsecured (by the corporate entity - HCG), but it is insured (by a third party - CDIC). I agree with previous posters the language is ridiculous BUT has been around so long, it's considered as motherhood as apple pie.


----------



## yyz

Sure but to say 
"They have no recourse to anything other than the bank's unencumbered assets in a bankruptcy. " is wrong if you are under CIDC rules


----------



## gardner

FWIW, I went for another 15K of GICs -- 5y, 4y, 3y -- last week. I have to shift some EQBank cash to round out the ladder next week. Altogether, I'll be in for 50K split evenly between the two CDIC issuers -- Home Bank and Home Trust. It does not feel risky to me.


----------



## james4beach

james4beach said:


> GIC rates through my brokerage (iTrade) have finally gone up. For the 5 year GICs, I now see
> 
> *Home Trust @ 2.70%*


Wow and just a few days later now it's 2.95%


----------



## fatcat

oaken annual pay 5-yr at 3.10

i have issues with oaken's customer service and their web banking which i think are subpar otherwise i would be tempted though i don't need to place any money

it's like a game of chicken, will home raise enough or go under ?

rob carrick has said in a column that cdic told him they would endeavor to pay within 3 days if home or any cdic insured goes under, it makes these rates look very good

when was the last time a 5 year broke 3% ?!


----------



## james4beach

fatcat said:


> when was the last time a 5 year broke 3% ?!


The last one in my records was Bank of Nova Scotia 5yr at 3.0% that I purchased in Oct 2013


----------



## gardner

Around the same time Oaken had 3.05% or so for 5Y. That's how I got stuck in with HCG in the first place.


----------



## gibor365

james4beach said:


> The last one in my records was Bank of Nova Scotia 5yr at 3.0% that I purchased in Oct 2013


They increased again!
1 Year GIC – 2.75% (previously 2.60%)
18 Month GIC – 2.85% (previously 2.70%)
2 Year GIC – 2.95% (previously 2.80%)
3 Year GIC – 3.05% (previously 2.90%)
4 Year GIC – 3.15% (previously 3.00%)
5 Year GIC – 3.25% (previously 3.10%)

Too bad I don't have any CDIC insured room


----------



## fatcat

15bps on the whole lineup in such a short time, i don't think it's a good sign

deposit brokers are probably advising clients to stay away still


----------



## gardner

Yeah. I moved too soon, I guess. I got the new rates for the 1y and 2y part of my ladder that I set up this afternoon though.


----------



## NorthernRaven

gardner said:


> Yeah. I moved too soon, I guess. I got the new rates for the 1y and 2y part of my ladder that I set up this afternoon though.


The new rates from today will be applied to all GICs booked back to Monday, May 29, if that helps you.


----------



## gardner

NorthernRaven said:


> The new rates from today will be applied to all GICs booked back to Monday, May 29.


Wow. Nice. Yeah, it would catch the ones I set up on the 2nd alright.

EDIT: You are right! I checked the ladder I set up last week and they have me down for the new rate.


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## blin10

damn, should of stick to my gut....


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## My Own Advisor

Here comes the knight on a horse!
https://www.theglobeandmail.com/report-on-business/berkshire-hathaway-home-capital/article35418133/


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## FrugalTrader

Quite the deal Buffett is getting, 40% of the company for $10/share. I'm interested to see what the market thinks today!


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## OptsyEagle

Well, it appears the company is not a gonner after all. I guess you can call this a reputation whipsaw. I haven't done the math, but I suspect that today you will have a few things to deal with. The first will be the shorts covering. The second will be the people who do not do math, buying the stock. The last and most important will be the fundamental investors getting their pencils out. I can't remember my last calculations but I think I had an EPS number of around $2 at best, after the high cost of funding was accounted for. Now we have a 40% dilution and not very much material change in their cost of funding, so I am going to say that EPS will factor out at around $1.60 plus or minus a bunch. With the risk of bankruptcy gone (the previous risk was all "run on the bank", reputational risk), I suspect the price will hover in and around where it is...but I will probably be wrong. So far I have been. Glad I don't invest in these things anymore. I would probably have been short.


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## Eclectic12

FrugalTrader said:


> Quite the deal Buffett is getting, 40% of the company for $10/share.


That's why I question the idea of "doing it the Buffett way". Applying the principles is fine but unless one is a lot of pull/is in the business - I don't see have retail investor can get anything similar.




FrugalTrader said:


> ... I'm interested to see what the market thinks today!


My guess is that they will like it ... except for those who were shorting the stock.

Time will tell.


Cheers


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## FrugalTrader

Looks like the market really likes this deal (up 12% as I type this). Maybe it's the Warren Buffett touch?


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## gardner

OptsyEagle said:


> not very much material change in their cost of funding


I did not see any detail on the LOC that BRK is giving them beyond the $2B figure. Do we know that the terms suck? I thought that they had already replaced the crappy deal from HOOPP with more conventional financing. I picture their cost of borrowing getting better, not staying the same.


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## Jaberwock

Buffet has made out like a bandit. He gets 40% of the company for $10/share (versus a book value of $24), and he lends them money on terms that are only slightly better than the crappy deal they got from HOOPP.

The market seemed to like the deal, but I have taken my profits this morning.


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## like_to_retire

gardner said:


> I did not see any detail on the LOC that BRK is giving them beyond the $2B figure. Do we know that the terms suck? I thought that they had already replaced the crappy deal from HOOPP with more conventional financing. I picture their cost of borrowing getting better, not staying the same.


The News Release spells it out.

------------------------------------------------------

_Replacement of Existing Credit Agreement

The Company has caused Home Trust Company, as borrower, to agree to enter into a new C$2 billion loan facility (the "New Credit Agreement") with a wholly-owned subsidiary of Berkshire, as the agent and initial lender, to be secured against a portfolio of mortgages originated by Home Trust Company. The New Credit Agreement will replace the C$2 billion loan facility made as of May 1, 2017 between Home Trust Company, as borrower, and a major institutional investor (the "Existing Credit Agreement"), and is expected to be effective on June 29, 2017.

The New Credit Agreement is on substantially the same terms as the Existing Credit Agreement, except as follows:

the interest rate on outstanding balances will be decreased to 9.5% (from the current 10%) until completion of the Initial Investment, at which time it will be further decreased to 9%

the standby fee on undrawn funds will be decreased to 1.75% (from the current 2.5%) until completion of the Initial Investment, at which time it will be further decreased to 1%

there will be no upfront commitment fee

funds drawn on the facility will continue to be pre-payable at any time

the facility will mature in one year from the initial funding and may not be terminated for one year

all other terms of the New Credit Agreement are substantially similar or identical to the Existing Credit Agreement 

The Company will draw on the New Credit Agreement to repay all amounts outstanding under the Existing Credit Agreement and the Existing Credit Agreement will be terminated.

The Company does not currently intend to draw further on the New Credit Agreement, except to the extent that alternative sources of liquidity on better terms are unavailable to the Company. The Company expects to have sufficient liquidity over the coming months to repay all amounts outstanding under the New Credit Agreement through other sources of liquidity currently under consideration. However, there can be no assurance that such other sources of liquidity will materialize or when, and therefore the Company may be required to draw on the New Credit Agreement in greater amounts and for longer periods than currently anticipated._

-----------------------------------------
ltr


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## Eclectic12

FrugalTrader said:


> Looks like the market really likes this deal (up 12% as I type this). Maybe it's the Warren Buffett touch?


Based on his as well as his company's reputation for making money ... I would think the default assumption would be that it will all work out profitably. :biggrin:


Cheers


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## NorthernRaven

gardner said:


> I did not see any detail on the LOC that BRK is giving them beyond the $2B figure. Do we know that the terms suck? I thought that they had already replaced the crappy deal from HOOPP with more conventional financing. I picture their cost of borrowing getting better, not staying the same.





Jaberwock said:


> Buffet has made out like a bandit. He gets 40% of the company for $10/share (versus a book value of $24), and he lends them money on terms that are only slightly better than the crappy deal they got from HOOPP.
> 
> The market seemed to like the deal, but I have taken my profits this morning.


While they only get a 1% point relief on the drawn balances, their intent is to pay that down with funds from the asset sale etc. If they can do that, there's much more relief on the "undrawn" rate - it goes from 2.5% to 1%. That's much less costly for a lifeline facility that hopefully won't be used, although Equitable's standby rate is only 0.5% on their new facility from the Canadian banks, and their rate on drawn funds is actually feasible for funding, not poisonous like the HOOPP/Berkshire rates.


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## OptsyEagle

gardner said:


> I did not see any detail on the LOC that BRK is giving them beyond the $2B figure. Do we know that the terms suck? I thought that they had already replaced the crappy deal from HOOPP with more conventional financing. I picture their cost of borrowing getting better, not staying the same.


This was all about shoring up their reputation...which was there only problem. That problem, however, created a cost of funding problem when their HISA's disappeared and they needed to refund with incredibly high cost money. This Berkshire deal does not change the cost of funding in any material way but does fix their reputation issue. Given time they will be able to start acquiring new deposits but I suspect it will take a little more time...or at least a higher interest rate then their competitors. Again, just for a while.

This will settle down. I would think that it is fairly valued for now but it is still a fluid situation. If Berkshire pulls out quickly, which I suspect they will want to do, if the LOC gets paid back, the problems may last a little longer. That being said, selling 40% of a company is not easy, so who knows. Maybe they will want to buy the rest. One never knows.

These are investments I watch from the sidelines since my ETFs do not provide nearly the same level of excitement. Good luck to the HCG holders.


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## blin10

hboy I hope you didn't sell before!


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## Userkare

E-mail notice from Oaken...

_Thursday, June 22, 2017

You’ve likely already heard this morning’s announcement that Berkshire Hathaway Inc. has agreed to acquire C$400 million of Home Capital’s common shares as part of a private placement arrangement. In addition, Berkshire will also provide an additional C$2 billion line of credit facility to Home Trust.

“Home Capital’s strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment,” explained Warren E. Buffett, Berkshire Chairman and Chief Executive Officer.

This is a resounding endorsement of Home Capital by one of the industry’s most legendary and revered investors. You can read more about this important arrangement in the official press release.
_

This feels to me like the road-kill thanking the crow for helping it off the road. I have to wonder if they'll get "Heinzed" ( a la Leamington ) if they don't make enough profit for Buffett & Co.


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## AltaRed

Warren will just sell at a profit later on when the storm clouds have long gone over the horizon. Just like his opportunistic lifelines in the USA in 2008/2009. There is money to be made off the desparate. HCG is ultimately just too small for him


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## sags

Alternative lenders have no business model in a weak housing market, and the reports show housing has started to decline.


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## hboy54

blin10 said:


> hboy I hope you didn't sell before!


Thank you for your concern.



hboy54 said:


> Holding for now as I don't in general trade for the short term. It won't hit 5% of portfolio until $14 something, so in the absence of new information I'd probably start selling around $18 to $20. Might just turn into a long term hold, as my financials are under TSX weighting.


As discussed on May 11, I did indeed trim today in the above mentioned $18 to $20 range, $18.61 late in the afternoon to be precise. The new information, that is WB taking for himself the long term potential for another ~$10/share with the massive dilution, made the sale easier. HCG now 4.8% of portfolio, and financials 30% of portfolio. So as of today, I think this is removed from speculation status in my mind and is just a regular holding in the portfolio like anything else.



james4beach said:


> HCG looks exactly like the crashing lenders and banks I used to trade in 2007. What I remember from those days is that a crashing bank can easily rally +100% or +200% before it continues its journey to $0. It will whipsaw and make both bulls and bears cry for a while. Odds are, eventually it will become worthless and delist.


I am near the top of General James' range above before HCG continues his expected journey to zero. In fairness to James about a half dozen others were calling bankruptcy here too. 

I was going to comment further, but I think I'll let my thoughts up thread stand. Pride goeth before the fall, and I might be tripping over BTE one day.

hboy54


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## Eder

Nice job hboy...takes big ones to hold this long while the herd is telling us the sky is falling.


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## james4beach

hboy54 said:


> I am near the top of General James' range above before HCG continues his expected journey to zero. In fairness to James about a half dozen others were calling bankruptcy here too.


Well, I'm described odds. Some troubled lenders recover... others do not. If it was so obviously clear that Home Capital would be ok, then the price wouldn't have fallen so low.

Congrats on the profits!


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## james4beach

AltaRed said:


> Warren will just sell at a profit later on when the storm clouds have long gone over the horizon. Just like his opportunistic lifelines in the USA in 2008/2009. There is money to be made off the desparate. HCG is ultimately just too small for him


Right. The big headlines don't appear when the reverse happens -- either they dump the shares, or use derivatives to hedge the exposure/exit.


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## gibor365

Up 27% today and 300%+ in month and half! CIBC did a good move buying HCG at all times low .... I was too scared


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## james4beach

NorthernRaven said:


> While they only get a 1% point relief on the drawn balances, their intent is to pay that down with funds from the asset sale etc. If they can do that, there's much more relief on the "undrawn" rate - it goes from 2.5% to 1%. That's much less costly for a lifeline facility that hopefully won't be used, although Equitable's standby rate is only 0.5% on their new facility from the Canadian banks, and their rate on drawn funds is actually feasible for funding, not poisonous like the HOOPP/Berkshire rates.


Yeah, a credit line at 9% interest is pretty deadly. It's still better than no credit, but offering them a 9% credit line is hardly a vote of confidence in their solvency.

Also, do we know what other trades Berkshire is making around HCG ? Maybe they have CDS contracts on Home Capital to protect against bankruptcy. I'm just saying, it's really hard to know exactly how they're positioned and I would not assume it's as simple as "long equity + LoC".


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## OptsyEagle

james4beach said:


> Yeah, a credit line at 9% interest is pretty deadly. It's still better than no credit, but offering them a 9% credit line is hardly a vote of confidence in their solvency.
> 
> Also, do we know what other trades Berkshire is making around HCG ? Maybe they have CDS contracts on Home Capital to protect against bankruptcy. I'm just saying, it's really hard to know exactly how they're positioned and I would not assume it's as simple as "long equity + LoC".


I doubt they have all this hedging. HCG's only real problem was it's reputation and of course the bad managers that caused it. They have dealt with most of the managers and Berkshire knew that once they signed on the reputation issue would go away, very quickly, as well. It was their reputation causing a run on the bank that had me worried about bankruptcy. For an online bank this could have been very deadly. It was definitely expensive. This reputation worry is now gone and I now stand corrected. I will add this one to the hundreds of other times I have been wrong in the past and hopefully gain some learning experience from it. I didn't make any money so at least I got something out of it.

As for a housing crash and everything else that goes with that. That is not something that anyone can be sure about, since there are really no big signs of it right now, and I know I am not going to start placing bets on it happening or not happening. Even if it does happen, there are many scenarios that can play out. With Berkshire as a significant partner, a housing crash, and the ability to pick up the babies thrown out with bath water, that comes from that, may make it a benefit to HCG, going forward. Who knows.

Great move Hboy.


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## MARKJONES330

OptsyEagle said:


> I doubt they have all this hedging. HCG's only real problem was it's reputation and of course the bad managers that caused it. They have dealt with most of the managers and Berkshire knew that once they signed on the reputation issue would go away, very quickly, as well. It was their reputation causing a run on the bank that had me worried about bankruptcy. For an online bank this could have been very deadly. It was definitely expensive. This reputation worry is now gone and I now stand corrected. I will add this one to the hundreds of other times I have been wrong in the past and hopefully gain some learning experience from it. I didn't make any money so at least I got something out of it.
> 
> As for a housing crash and everything else that goes with that. That is not something that anyone can be sure about, since there are really no big signs of it right now, and I know I am not going to start placing bets on it happening or not happening. Even if it does happen, there are many scenarios that can play out. With Berkshire as a significant partner, a housing crash, and the ability to pick up the babies thrown out with bath water, that comes from that, may make it a benefit to HCG, going forward. Who knows.
> 
> Great move Hboy.


Good summary by blogger called "besmartrich" He sold his home capital shares at more than 200% gain


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## AMABILE

*HOME CAPITAL GROUP*

Shall i vote yes or no to warren's berkshire hathawy
second tranche of shares ?
i'm inclined to vote NO


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## james4beach

I moved this post into the existing thread for HCG.

I guess that as a BRK.B shareholder, I have some stake in HCG now!


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## sags

Garth Turner mentions Home Capital on his blog tonight amid some announced changes to mortgage rules by OFSI that could affect their business.


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## hboy54

AMABILE said:


> Shall i vote yes or no to warren's berkshire hathawy
> second tranche of shares ?
> i'm inclined to vote NO


No will be voted here.


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## jargey3000

...i'm beginning to like their runway......


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## hboy54

hboy54 said:


> No will be voted here.


Done!


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## AMABILE

I voted AGAINST


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## AlwaysLearning

Buffett’s Berkshire Hathaway to substantially exit stake in Home Capital..

Stock is tumbling. 

Any thoughts from those of you still holding?


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## hboy54

Last tranche of shares donated today. Hopefully the SP holds in the next few days as the banks do their thing and my disposal price is determined.

This is about the only good news in the portfolio these days, and even here I sold recently around $23 and $25.


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## doctrine

hboy54 said:


> Last tranche of shares donated today. Hopefully the SP holds in the next few days as the banks do their thing and my disposal price is determined.
> 
> This is about the only good news in the portfolio these days, and even here I sold recently around $23 and $25.


//hboy54 said:
//2017-04-26 10:29 AM
//Panic is my playground. In for 5000 @ $6.79. Also left a day limit order for 10,000 @ $3.50.

I would just like to quote hboy54 from his post at the peak of volatility. Nice job.

And now that we're here, what in the heck is the point of all this saga? Down 80% and 30 months later it has recovered completely. HCG literally did nothing wrong; a very small percentage of brokers filed misleading paperwork. The result? No collapse. Those suspicious borrowers? Their loans *outperformed* the entire portfolio as well as the entire portfolio of the entire big 6 Canadian banks. So that justified a 80% collapse in share price - nothing? Just goes to show you how irrational markets can be. HCG's underlying business never stopped performing and has been rock solid for the last 3 years. Every short report out was simply dead wrong, but because of panic, they made it work. It didn't affect me, but I feel bad for anyone chased out of this for literally no justifiable reason. And naturally, no one will be punished. Stick to index investing, I suppose, is the conclusion.


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## AltaRed

The issue, of course, was liquidity.... literally a run on the bank. Fear of the unknown on their mortgage book triggered the run on liquid HISA deposits. ISTM that HCG's risk management policy wasn't robust enough. HCG had too many of their liabilities in liquid cash rather than matching liability terms (deposits) with lending terms.


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## james4beach

I'm glad it worked out for hboy. But also remember the backdrop: the economy has been strengthening this whole time. Canadian RE did not slow down. Credit continued to expand.

There was a danger at the time that the entire market (housing, lending) was weakening. That broad economic theme can change the way everything goes. The market was not being "irrational" at the time.

If the exact same situation occurred at a time when housing was weakening and credit was deteriorating broadly, the result could have be very different. Personally I don't dabble in distressed, leveraged lenders. Or distressed banks.

The time will come when the Canadian RE market weakens, and credit starts deteriorating broadly. "Distressed bank speculation" during such a time may not work out so well. At the moment, it will look like a repeat of mid 2017.

Each time such a thing happens, what makes it so dangerous is that you have no way of knowing if (a) it's a temporary/acute problem within an otherwise healthy economy, or (b) lending and credit has turned bad, with fundamental deterioration.

You can probably flip a coin. Nobody really knows at the time.

Be careful to not read too much into the lucky outcomes of coin flips.


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## AltaRed

I give hboy more credit than that. IIRC from more of his history in stock picking, he seldom, if ever, makes wild speculative bets. It was a calculated bet on survival, more than a speculative bet, because of the business environment which was at least flat, and was treating Equitable Group, a similar alternative lender, well. It was only HCG's sloppy underwriting (and Laurentien as well) that came into question. And as I suggested above, HCG's risk management procedures were not robust enough (mismatched terms on liabilities vs assets). That double whammy was more lack of discipline by management than anything else.


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## james4beach

Ah, interesting. A well calculated bet on survival then - nicely done.


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## OptsyEagle

I would love to have seen the result if Berkshire Hathaway did not sell them their good name. I mean, their only real problem was their bad reputation (at the time). The result I saw was more and more deposit redemptions, resulting in higher and higher cost of capital, resulting in larger and larger losses, eventually resulting in the Superintendent of Financial Institutions stepping in and shutting it all down to protect the depositors... which almost always wipes out common shareholders.

That scenario was fairly likely but once HCGs bad reputation got combined with BH good reputation, that problem disintegrated quite quickly. Obviously it was costly to HCG but certainly cheaper then the highly possible result I outlined above. I imagine that is how BH explained their offer to HCG as well.


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## AltaRed

I imagine so. Didn't check to see whether hboy made his buy before or after Berkshire injected liquidity.

Added: Don't think it would necessarily apply in the case of HCG, but the Bank of Canada's new proposal for a "liquidity facility to provide loans to financial institutions suffering through temporary shocks" could have provided liquitity too. Behind paywall https://www.theglobeandmail.com/bus...1-14_7&cu_id=Q8RvGKY792WRonw7uy+iXlsO6IS7G1+u


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## OptsyEagle

AltaRed said:


> I imagine so. Didn't check to see whether hboy made his buy before or after Berkshire injected liquidity.



He did it before BRK came knocking. Quite ballsy. 

Anyway, almost none of my own, reasonably brilliant investments. would not have been nearly so successful without a little bit of luck added to the results. Since I get enough of the bad kind of luck, I will take the good kind anytime it is offered. lol


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## Eclectic12

james4beach said:


> Ah, interesting. A well calculated bet on survival then - nicely done.


Keep in mind that the Ontario Securities Commission (OSC) charges were laid pretty much two years after the HCG announcement/cutting ties with the mortgage brokers in question. The feared situation where too much mortgage money was tied up with those who couldn't pay wasn't showing up in over due mortgages. IIRC, that was at 0.3% for 2016.

Part of the withdrawals seemed to be driven by those who had missed the original announcement, didn't trust the CDIC coverage or just plain didn't want to take the risk.

This was a multi year process with OSC complaining at the end of the process instead of something that came out yesterday or today.




OptsyEagle said:


> I would love to have seen the result if Berkshire Hathaway did not sell them their good name. I mean, their only real problem was their bad reputation (at the time). The result I saw was more and more deposit redemptions, resulting in higher and higher cost of capital, resulting in larger and larger losses ...


A good chunk seemed to be that people missed the original announcement from two years prior and assumed that everything started when OSC announced the charges.

Or just not wanting to take a risk with their deposits despite the history showing that those with the suspect numbers were paying their mortgages on schedule. For the year prior to the OSC's charges, the delinquent mortgages are 0.3 percent. At least one article pointed out that should HCG not work out something to stop the outflow, lots of other companies would happily buy the mortgages.




OptsyEagle said:


> ... eventually resulting in the Superintendent of Financial Institutions stepping in and shutting it all down to protect the depositors ...


Is there some reference to an OSFI shutdown?
All I can recall as well as find references for was that OSFI was in close contact with HCG, monitoring and refusing to comment on specific institutions.




OptsyEagle said:


> ... That scenario was fairly likely but once HCGs bad reputation got combined with BH good reputation, that problem disintegrated quite quickly. Obviously *it was costly to HCG but certainly cheaper then the highly possible result I outlined above*. I imagine that is how BH explained their offer to HCG as well.


Who would argue the BH line of credit wasn't cheaper than the Healthcare of Ontario Pension Plan (HOOP) line of credit that it replaced?

Both were for $2 billion but the HOOP one was 1 percent higher on drawn amounts and 1.5 percent higher on amounts that weren't touched. 
HOOP also required at least $1 billion was drawn no matter what plus a $100 million commitment fee.

BH also bought equity and then was turned down by HCG shareholders when they tried to buy more.


It probably didn't help the optics to have the HOOP president and CEO resign from the HCG board plus two of it's subsidiaries while the HCG chairman resigned as director at HOOP.


I agree that BH's reputation helped but IMO, the HOOP line of credit looks like an old boys club expensive deal that would help sell the HCG board on going with BH simply based on the math. Reputation seems more of icing on the cake.


Cheers


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## OptsyEagle

In the HCG case, OFSI did not get involved. My point was that if things continued to go south for HCG, eventually it would have been OFSI that comes in and renders the death blow to shareholders. They do this by taking over their investment and basically selling it for virtually nothing, to some other financial institution, that has more capital to meet its promises and commitments. 

In the morning before markets open, the shareholders get to read the news release of what has been done to them the night before but by then it is already over. 100% loss.


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## Eclectic12

Fair enough ... I misread you post to say it had happened to HCG.


Cheers


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## hboy54

Thank you for the congratulatory messages, though not really warranted. Just another day at the office.

The shares left my account today at yesterday's close of $34.90, almost $2 over Monday's close when I delivered the paperwork to the bank. Good chance the receiving charity will imminently realise over $35.

Donating shares with multiple hundreds of percent gain is the way to go from a tax viewpoint. My actual out of pocket on $1 donated here is around $0.40 to $0.45.

I have had these shares reserved for donation since mid September, having sold out the balance of the position around $23 and $25 as already noted. I had been hoping to maybe get high 20s before year end, so am delighted with the SP move this week.


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## james4beach

That's nice of you to donate, hboy54.

Curious how you are doing this. I am currently working on a similar transfer, using a Letter of Direction to the brokerage instructing them to move assets to someone else's account. Is that how you do this as well?

Example: https://kwsymphony.ca/wp-content/uploads/2017/12/Transfer-of-Shares-Fillable-Form-2017-18.pdf


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## hboy54

james4beach said:


> That's nice of you to donate, hboy54.
> 
> Curious how you are doing this. I am currently working on a similar transfer, using a Letter of Direction to the brokerage instructing them to move assets to someone else's account. Is that how you do this as well?
> 
> Example: https://kwsymphony.ca/wp-content/uploads/2017/12/Transfer-of-Shares-Fillable-Form-2017-18.pdf


I use the generic TDDI donation form 524386.pdf. I imagine your specific KW Symphony form will work too. The receiving charity filled out their fields and gave me the paper to fill out my part. I dropped the completed form off at my local branch, and they FAX it to TDDI.


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## james4beach

The charts of EQB, HCG, FC look increasingly bullish to me... will be interesting to see how long the rally continues


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## hboy54

Doesn't half the TSX look like this: MX, RUS, OSB, many oil and gas?


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