Home Capital Group (HCG.TO)

Feels all the news we have been getting lately is an attempt at ultra-transparency, and is not sure this is the perfect strategy. If you get a “run on the bank” type of situation, which we are seeing with this one, people lose confidence and the depositors cash in. Feels that they are attempting to restore confidence. A very difficult situation.

A company that is rapidly unravelling. They are effectively operating without an executive management team. It’s not normal for a bank or a trust company to press release their deposit book every single day. They are doing that to try and shore up confidence in the business.

He tries to buy things that are good and are getting better. When you have things like a CEO being fired, and an OSC investigation, these are open ended issues. You get credit downgraded and potential for further downgrades. Unless you are a died in the wool value investor, this company would be a tough thing to be a purchaser of.

Wouldn’t be a buyer of this. It is down a lot, but that doesn’t mean it is cheap. Visibility is very poor. What happens when they finally draw on that full credit facility? That credit facility is very expensive, so they are losing money every time they have to draw on it.

Alan Greenspan, Ben Bernarchi, Janet Yellin have all said things are contained, and housing isn’t an issue. They all say this, because they have to say that. The difference between Canada and the US’s housing bubble years ago, was the tie-in of massive amounts of derivatives to the broad housing sector. Canada doesn’t have that degree of systemic risk, by a long shot. However, if this goes under, it could have ripple effects. There are issues here, and it is probably not over yet. It is a funding story, not a mortgage default story.

He never owned this, because he could never understand how their loan-loss percentages on their mortgage book could be lower than those on Canadian banks’. This is more of a liability problem than an asset problem, in that it appears that it is just funding. They will fix that over time and it will blow over. Wouldn’t be a buyer until he could be convinced that the fraud and the OSC investigation is all over with.

It is totally speculative at this stage. He is not following it except in the news paper. There is an effort to make sure there is no perception of a potential contagion going through to other sub-prime lenders.

This has been beaten to death by the media. Doesn’t know if she can add much more to the story. When you have very short term deposits funding longer-term liabilities and confidence leaves the market, that is huge. She thinks it is a good enough business that they are selling some of the assets, so there may be opportunities to get some of the value back for the company. At this point, it is a confidence game with a high degree of speculation.

It is for speculative money. It is not a stupid speculation however. It is at about 20% of its book value. What is wrong with the company is a loss of confidence, not quality of assets. The news of bad mortgages are from about two years ago. Those mortgages are now so far out of water due to real estate appreciation. Hedged fund managers have been hammering on Canadian banks and our real estate market. (Analysts’ target: $14.00).

People are thinking there is not another shoe to drop. Canadians are not heading this concern. They should be looking it as a risk. Canadian financials have a massive exposure to real estate and yet policy makers want to drive the prices down. This is a cycle and it WILL pop.

Had been Short this company. Whether or not they find a purchaser at an appropriate price, he would recommend you sell your stock. It is just as likely that the stock could go to zero. The whole space is a little too noisy for him right now.

Caller has a bond – wait for maturity to sell? If it is a going concern and the stock is heading lower, analyze their debt or ask your advisor to do it. This is the toughest question he has ever had on Berman’s Call.

There is nothing wrong with the day to day operations. This has all had to do with disclosure by the company or quality of its mortgages. He was not a buyer before all of this. He has been worried about the housing market and a bubble.

When people look at this, they always go on about the mortgages and how good they are, default rates, etc., and that is not relevant at all. What is relevant, is their deposits. If you look at the 4^th quarter balance sheets, they have about $9 billion that can do at any time within a year. The reality is, it is a liquidity issue. They are losing deposits, which is the biggest crux of the problem. Even the $2 billion they have is probably not enough. It may give them some time to try and sell themselves, but whether it provides the liquidity they need if someone continues to take money out, it could be very, very hard. The mortgages are fine. He would not own the stock here.

This has almost become a speculation rather than an investment. He thinks it is a crime what has happened to them. Operationally they were doing just fine. It was well-managed. He wonders if things couldn’t have been handled differently in terms of how they dealt with the failure to disclose in a timely basis, the fact that they had fired a bunch of the mortgage brokers. Whoever buys this company is going to get a bargain, if they can lower that cost of capital again, and get out from under the thumb of a $2 billion 10% line of credit. Feels the argument is going to be that if someone does attempt to buy them, how cheap will they be able to buy them.