Canada’s largest mortgage non-bank mortgage lender appears to be going under, via Bloomberg:
Home Capital Group Inc.’s shares plunged more than 60 percent after the mortgage lender disclosed a costly new loan to tide it over as its deposits dwindle, intensifying a spiral of bad news for the company.
The C$2 billion ($1.5 billion) loan is coming from an institutional investor that Home Capital did not identify, and the lender’s agreement is non-binding. With a 10 percent interest rate plus other fees and charges, the company is effectively paying 22.5 percent on the first C$1 billion it borrows, which falls to 15 percent if it uses the full C$2 billion available to it, according to Jaeme Gloyn, an analyst at National Bank of Canada.
“They did what appears to be to us a very expensive deal,” said David Baskin, president and founder of Baskin Wealth Management in Toronto, a former investor in Home Capital stock. “Basically they blew up the income statement in order to save the balance sheet, which I guess if you’re facing an existential crisis is what you have to do.”
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
