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HCG.T - Home capital Group

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  • Sep 12th, 2017 2:43 pm
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Deal Addict
Sep 5, 2010
1951 posts
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Toronto
Just the other day, I was thinking that all HCG has to do to get some deposits back was to start offering better rates on their GIC and regular saving accounts.

Well I was on FB now and noticed an ad for Oaken where they are offering 2% on a 1 year GIC. I could be wrong but I don't remember seeing this offer before. I also think this is the best rate for a GIC out there.
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Newbie
Apr 12, 2015
76 posts
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Shady side of Narnia
Considering there's absolutely zero risk to parking, say, 95k with HCG, yeah, it's a great deal at 2%.
popbottle wrote:
Apr 19th, 2015 1:41 am
I hereby and solemnly declare, with a touch of formality, and bits of pomp & circumstance, with a red wax seal, +1
Jr. Member
Nov 28, 2011
117 posts
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SCARBOROUGH
tesomd wrote:
May 12th, 2017 9:07 pm
Considering there's absolutely zero risk to parking, say, 95k with HCG, yeah, it's a great deal at 2%.
It's not likely to last very long either.
Newbie
Apr 12, 2015
76 posts
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Shady side of Narnia
peregrine01 wrote:
May 12th, 2017 11:24 pm
It's not likely to last very long either.
It'll last as long as people believe it will. Literally.
popbottle wrote:
Apr 19th, 2015 1:41 am
I hereby and solemnly declare, with a touch of formality, and bits of pomp & circumstance, with a red wax seal, +1
Deal Addict
Aug 21, 2007
4765 posts
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Markham
why get a 5 yr gic when u can get 2.3% at eq bank - unless you have more thna 100k
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Nov 28, 2007
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Woodbridge905 wrote:
May 12th, 2017 9:00 pm
Just the other day, I was thinking that all HCG has to do to get some deposits back was to start offering better rates on their GIC and regular saving accounts.
Why won't increased interest rates work to save HCG? If they offer the highest, we know money talks to savers. As funding starts to climb, sentiment changes, stock price rises and confidence returns. The downside is that it hits profitability. But that's OK if it gets the company past this crisis.
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Aug 2, 2015
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Marzipan wrote:
May 14th, 2017 11:35 am
Why won't increased interest rates work to save HCG? If they offer the highest, we know money talks to savers. As funding starts to climb, sentiment changes, stock price rises and confidence returns. The downside is that it hits profitability. But that's OK if it gets the company past this crisis.
I think that's exactly what he's saying?
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wussok wrote:
May 14th, 2017 12:47 pm
I think that's exactly what he's saying?
Indeed. I am strengthening his position but still wondering if both of us are missing something. So far, no counter argument yet the market price seems to suggest there is something that could kill a recovery.
Newbie
Apr 11, 2017
50 posts
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They need to do the higher rate for depositors. I wiukdnt be surprised if in the next week or two or see balances start to stabilize. CDIC guarantee is rock solid for 100k - absolutely bulletproof nobody should question if they will get their funds back.
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May 11, 2014
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Iqaluit, NT
Marzipan wrote:
May 14th, 2017 2:28 pm
Indeed. I am strengthening his position but still wondering if both of us are missing something. So far, no counter argument yet the market price seems to suggest there is something that could kill a recovery.
There is still the problem of returning to profitability. As of right now, the liquidity exercise is going well, but the cost of the HOOPP loan and now pretty much non-existent mortgage origination has killed profits for the time being. Once the market sees some return to profitability, will HCG go up again. Right now, this is not possible. If/When deposits recover, then the price should recover. With proper deposit funding, we will see a return to mortgage originations and perhaps changes to the company. I can see them pushing into personal banking as a stability thing. Chequing accounts pay no interest and yet provide stable deposits. A VISA product where rewards pay toward mortgage principal was once discussed in an annual meeting years back with the launch of Oaken.

Of course this is assuming housing market stays somewhat stable. A slow decrease or lull in the RE market will still be OK as long as mortgages do not become delinquent. A rapid price crash though may still kill off HCG.

HCG is still in a precarious position but I think the major blow to them is over. Aside a Real Estate crash, I think it is a long road to recovery.
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Jr. Member
Nov 28, 2011
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SCARBOROUGH
xgbsSS wrote:
May 14th, 2017 10:04 pm
There is still the problem of returning to profitability. As of right now, the liquidity exercise is going well, but the cost of the HOOPP loan and now pretty much non-existent mortgage origination has killed profits for the time being. Once the market sees some return to profitability, will HCG go up again. Right now, this is not possible. If/When deposits recover, then the price should recover. With proper deposit funding, we will see a return to mortgage originations and perhaps changes to the company. I can see them pushing into personal banking as a stability thing. Chequing accounts pay no interest and yet provide stable deposits. A VISA product where rewards pay toward mortgage principal was once discussed in an annual meeting years back with the launch of Oaken.

Of course this is assuming housing market stays somewhat stable. A slow decrease or lull in the RE market will still be OK as long as mortgages do not become delinquent. A rapid price crash though may still kill off HCG.

HCG is still in a precarious position but I think the major blow to them is over. Aside a Real Estate crash, I think it is a long road to recovery.
Their uninsured mortgages have average LTVs of 60%. So you'll need a massive housing crash until borrowers are underwater. Also, the fact that mortgages are full recourse in Ontario prohibits borrowers from simply walking away from their homes if the home value falls below the mortgage. Still, it's ultimately unemployment that determines default rates as people tend to want to stay in the homes they live in - even if the value of their home has fallen.
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May 11, 2014
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peregrine01 wrote:
May 14th, 2017 10:43 pm
Their uninsured mortgages have average LTVs of 60%. So you'll need a massive housing crash until borrowers are underwater. Also, the fact that mortgages are full recourse in Ontario prohibits borrowers from simply walking away from their homes if the home value falls below the mortgage. Still, it's ultimately unemployment that determines default rates as people tend to want to stay in the homes they live in - even if the value of their home has fallen.
I am not arguing about the safety of their mortgage assets. What I am saying is that for Home Capital to recover their equity pricing is that they require new originations to occur again. As of right now, with liquidity issues, they are not issuing many, if at all, any new mortgages. Profits are hurt because of it. When the deposits recover, they can start lending again, but they also have to recover the considerations from other mortgage brokers. Then for originations to continue, we need to ensure that the RE market stays somewhat stable enough. Even if prices drop, there will always be buyers. However, if the market gets crazy volatile or crashes, Home Capital may have a problem with recovering equity and originations.

All in all, I believe Home Capital will survive, but the equity price will take a while to recover. We need the market confidence to come back, deposits to recover and no other shocks to occur.

Besides, even with good assets, we have just witnessed a company that almost went bankrupt not because anything was wrong in their books, but because fear that something was wrong in their books took over.
The sale of the mortgages to MCAN proves these loans are worthwhile.
The fact that cheaper lending was made available (although not in time for the deposit run) shows banks didn't have problems with their numbers either.

It goes to show how much people's fears control the market more than fundamentals ;/
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Sr. Member
Oct 6, 2015
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peregrine01 wrote:
May 14th, 2017 10:43 pm
Their uninsured mortgages have average LTVs of 60%. So you'll need a massive housing crash until borrowers are underwater. Also, the fact that mortgages are full recourse in Ontario prohibits borrowers from simply walking away from their homes if the home value falls below the mortgage. Still, it's ultimately unemployment that determines default rates as people tend to want to stay in the homes they live in - even if the value of their home has fallen.
Just because borrowers are 'prohibited' from walking away from homes doesn't mean that they won't. Toronto is full of families who own dozens of homes, heavily on credit, as they serially refinanced them to buy even more real estate. These families, as the RE cycle turns, will almost certainly default. And since RE makes up nearly all of their assets, it logically follows that there won't be much blood to be gotten from them.

I personally believe HCG was a significant participant in this kind of lending.

As for the uninsured mortgages having a LTV of 60% (I've heard 67%), that's HCG's claim, but it depends on whether they're using credible "values" for the LTVs. Its not unheard of for certain appraisers to appraise rather generously. Quoted real estate values may be inflated by factors such as the sales mix. The fact that HCG had to severely over-collateralize their borrowings with HOOPP indicates a lack of market credibility for claimed LTVs.
The sale of the mortgages to MCAN proves these loans are worthwhile.
Are we even sure that the mortgages were sold without off-balance-sheet guarantees to MCAN? I'd like to see the paperwork. If HCG "sold" the mortgages, but remained a guarantor...
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May 11, 2014
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burnt69 wrote:
May 14th, 2017 11:25 pm
Are we even sure that the mortgages were sold without off-balance-sheet guarantees to MCAN? I'd like to see the paperwork. If HCG "sold" the mortgages, but remained a guarantor...
If Home Capital would have to guarantee these loans, then they would have had to announce this term and condition in their press release. They wouldn't want another OSC disclosure investigation now would they ? :)

http://www.newswire.ca/news-releases/ho ... 24843.html

There is further interest to buy more mortgages from Home Capital too. Home Capital will try to retain them I as assuming because in the end, they still need to earn money.
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