Equitable's Uninterested in Home Capital or Loan Book, CEO Says

  • CEO uncomfortable by regulator’s allegations on Home Capital
  • Doesn’t see trouble spreading across Canada’s financial system

Canadian alternative lender Equitable Group Inc. wouldn’t buy embattled rival Home Capital Group Inc. or its mortgages if they were up for sale, said Chief Executive Officer Andrew Moor.

"The bottom line is no," Moor, 56, said in an interview at Bloomberg’s Toronto office on Monday. “We have some concerns based on what we’ve read about how they underwrote their loans and their internal controls."

Moor’s uncomfortable given allegations by Ontario’s securities regulator on April 19 that Home Capital misled investors about false documentation by some mortgage brokers a couple years ago. Failure to stem a run on deposits or find a buyer opens the risk of contagion spreading across the industry, which both regulators and lenders are keen to stanch.

Equitable isn’t the only lender that’s cool to the idea of acquiring Home Capital. Canadian Western Bank CEO Chris Fowler said in an emailed statement Monday that he has no interest in buying all of Home Capital. Laurentian Bank of Canada spokeswoman Helene Soulard said “for us to be interested in an acquisition it needs to be financially sound and be a good strategic and cultural fit."

Home Capital’s external spokesman Boyd Erman couldn’t immediately comment when contacted outside of business hours in Toronto.

Ringfencing

Equitable on Monday reported record first-quarter earnings almost two weeks earlier than scheduled and announced a C$2 billion ($1.5 billion) loan pledge to ringfence themselves. Its stock surged by the most since 2004 while Home Capital continued to slide.

The lenders behind the backstop funding include Toronto-Dominion Bank, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and National Bank of Canada, Moor said in a conference call.

“Not many people can go around and borrow C$2 billion off Bay Street in five days," said Moor, who added he had received commitments from five of Canada’s six banks by Sunday night.

‘Complete Incompetence’

The decision was prompted by Home Capital’s move last week to secure a C$2 billion credit line from Healthcare of Ontario Pension Plan. Equitable’s interest rate amounts to between 1.6 percent to 1.7 percent for one-year borrowings, Moor said. Home Capital’s paying an effective 22.5 percent.

“When we saw the HOOPP deal go down, which frankly felt really misconstrued, we looked and felt, what on earth are they doing, it’s complete incompetence in my view," Moor said. “We thought that might cause issues of confidence in the market, frankly, and so immediately we started reaching out to our bankers to make sure that we distinguished ourselves dramatically from that position. I think we’ve achieved that."

Home Capital’s issues appear to be its alone, Moor said, and he doesn’t anticipate it to spread across Canada’s financial system.

“It seems to me the banking system in Canada has great leaders and is run soundly," Moor said. "I don’t think this is going to be a systemic issue. I think this is actually, very clearly, an idiosyncratic, single-institution issue."

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