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Recently, there are domestic and foreign media reports, “last Wednesday (April 26), Canada’s largest non-bank mortgage supplier Home Capital Group Inc. (HCG) suffered a liquidity crisis, the share price plummeted 60%”, some domestic media said, “this is suspected to have triggered a ‘Canadian version of the subprime mortgage crisis’.” However, after interviewing many people and collecting relevant information, China Business reporter found that this may only be a local and case-by-case impact, despite the high housing prices in some Canadian cities. but this has nothing to do with another “subprime crisis”.
“HCG shares plunged into crisis last week mainly because the Ontario Securities Commission (OSC) accused HCG of failing to fully disclose important information about its loan business, publishing misleading information and perjury in its annual report.” Xian Jingtang, a global real estate analyst, told China Business News.
As a result, some depositors have already started a withdrawal run, and in addition to time deposits, their high-interest savings accounts (HISA) have also become the object of withdrawals. “this once caused a liquidity crisis for HCG and may have ‘spillover effects’ on other companies, but this is an independent incident and the ‘subprime crisis’ is exaggerated.” Xian Jingtang told reporters.
On April 26th, many people on the Toronto Stock Exchange witnessed a cliff fall in HCG’s shares, which fell C $11.1, or 64.95%, to C $5.99.
HCG is the largest non-bank mortgage supplier in Canada and the eighth largest deposit-taking institution in Canada. It had about C $18 billion in paper loans in 2016, of which 84 per cent came from Ontario.
It is reported that HCG owns several financial institutions regulated by the Canadian federal government, including HomeTrust,HomeBank and OakenFinancial.HCG, which compete with large banks, credit unions and other related companies in six Canadian provinces, targeting “financial services markets that major Canadian financial institutions do not pay much attention to,” according to the HCG website.
HCG, which provides services such as credit cards, GIC (certificates of Investment Deposit) and savings accounts, mainly makes money by providing unsecured home mortgages to customers, who often do not have access to large bank loans, mainly because of flawed credit history or freelance.
HCG’s problems officially broke out last week. OSC claimed that the management of several companies violated securities laws and misled shareholders by falsifying loan documents from two years ago. HCG is understood to have been accused of falsifying the earning capacity of potential borrowers when applying for loans. HCG said at the time that none of the borrowers had solvency problems.
Chen Weichun, a visiting lecturer in economics at the University of Toronto, said in an interview with China Business that some loan brokers at HCG violated the rules by not really verifying their clients’ income certificates. The company itself conducted a six-month survey that confirmed the situation. However, the company did not disclose the results of the investigation to shareholders. So the OSC investigated it and recently sued the top executives of the company, including CEO and CFO at that time, all had to explain at the hearing. ”
It is reported that more than 810 million Canadian dollars continued to flow out of the company’s high-interest savings account from March 28 to April 24. In response to the run, HCG urgently applied for C $2 billion in loan support from the Ontario Medical Institution Pension Plan (HOOPP), a Toronto pension fund, and announced it on April 26th. As a result, the share price immediately plummeted, and 36% of the money fled the company on the same day.
On Monday, HCG said it had only C $391 million left in its high-interest savings account, down from C $521 million on Friday and C $1.4 billion a week ago. Some analysts said that in addition to some ordinary deposit accounts, HCG’s C $12.86 billion GIC deposit is also the foundation to support its home loan business, and when these short-term deposits mature, the speed of run may further accelerate.
GIC is one of the investments in Canada, it has the characteristics of income guarantee within a certain period of time, and the interest rate is usually higher than that of time deposits. Customers can invest in GIC in registered pension savings plans or GIC.GIC in unregistered investment accounts. Generally speaking, there are two kinds of investments: Canadian dollars and US dollars, with periods ranging from 1 to 5 years. GIC can continue to do it when it expires. The minimum investment amount for GIC is C $1000.