Street Capital Sees Openings as Home Capital Deposits Fall

  • Street Cap posts 1Q loss; HCG due to report earnings Thursday
  • HCG liquid assets C$1.01 billion May 9 vs C$1.1 billion May 8

Street Capital Group Inc. said it’s treating recent turbulence in the Canadian mortgage lending market as an opportunity, while embattled rival Home Capital Group Inc. continues to see deposits dwindle.

“The issues faced by our mortgage lending peers are not representative of the risk we face today at Street Capital," Chief Executive Officer Ed Gettings said Wednesday in a conference call. He didn’t elaborate on the opportunities he sees, but separately said the firm plans to expand into uninsured mortgages starting this month and is evaluating non-government sponsored residential mortgage-backed securities.

Home Capital’s high interest savings deposits slid to about C$134 million on May 10 and guaranteed investment certificate deposits were C$12.58 billion as of May 8, the Toronto-based lender said in a statement Wednesday. Street Capital said it didn’t see any negative impact on deposits.

Read more on Home Capital’s woes

A run on deposits at Home Capital intensified after Ontario’s securities regulator on April 19 accused the firm of misleading investors about an internal probe into falsified mortgage applications two years ago. Home Capital has since taken a costly rescue loan and on Tuesday agreed to sell as much as C$1.5 billion worth of mortgage renewals to an unidentified buyer to help shore up its balance sheet.

Street Capital slipped to a first-quarter net loss of C$2.57 million ($1.9 million) from profit of C$3 million a year earlier, citing in its earnings statement a C$2.65 million "executive retiring allowance" and challenges including "sustained margin pressure on new insured volumes" amid regulatory changes. Gettings said new mortgage originations could drop between 20 percent and 30 percent in 2017 from last year.

Its shares closed unchanged at C$1.20 after falling as much as 8.3 percent in Toronto on Wednesday. Home Capital closed 1.1 percent lower at C$8.76, paring a loss of as much as 8.9 percent.

Street Capital said it’s “confident" it will achieve sufficient deposit flows to support C$150 million to C$200 million in uninsured mortgage funding in 2017. Street Capital Bank began taking its first guaranteed investment certificate deposits in February after getting a banking licence in December.

Street Capital Bank’s deposit balance was C$28.4 million as of May 4, the company said. Total assets at the end of March were C$490.4 million.

Home Capital Earnings

Home Capital’s available liquidity and credit capacity totaled C$1.61 billion, including an undrawn C$600 million of a C$2 billion line of credit led by Healthcare of Ontario Pension Plan. Liquid assets stood at C$1.01 billion on May 9 versus C$1.1 billion the previous day.

Home Capital is scheduled to report first-quarter earnings after regular trading ends on Thursday, after pushing back the date from May 3. Analysts including Stephen Boland at GMP Securities are awaiting details on Home Capital’s new business strategy, which includes a focus on mortgages it can sell rather than keep on its balance sheet.

    Before it's here, it's on the Bloomberg Terminal.