One Massive Mistake

Did HOOPP save the day or toss cash into a black hole?

Posted by Peter Cresswell on April 27, 2017

Home Capital Group has been in the news lately, mostly due to its stock crashing over 60% in one day. I guess that sort of thing will get you in the news. The cause of the crash? HCG announced that it had secured a $2 billion loan with terms that would make the most predatory loan shark blush.

Home Capital said the credit line is intended to “mitigate” a sharp drop in Home Trust’s high-interest savings account balances, which sank by $591 million from March 28 to April 24, at which point the total balance was $1.4 billion. Home Capital warned on Wednesday that further outflows are anticipated.

Zerohedge

It’s long been suspected that HCG has been dealing in shady behavior in the liar loans sort of way. Two years ago it suspended relationships with a large group of mortgage brokers who were believed to be conducting themselves inappropriately. At the time, it was hoped by a few but doubted by many that this would contain rumors of illegal or improper lending.

Given the flight of capital out of the company, it would appear that investors have a different opinion on the matter.

So, the big question on everyone’s minds is, “Who lent HCG the money?”

Today, we found out that it was not, as some believed, a hedge fund but rather the HOOPP, a massive Canadian pension fund.

Immediately, some unfortunate information came to light.

The report of HOOPP’s involvement initially raised questions about how potential conflicts of interest would be managed. The pension plan’s chief executive officer Jim Keohane became a director of Home Capital about one year ago and sat on Home Capital’s risk and capital committee. And Home Capital’s board chair Kevin Smith, who also works as CEO of St. Joseph’s Health System and Niagara Health System, held a position on HOOPP’s board.

But a source familiar with the matter said Thursday night that both men had elected to give up their respective board seats as a result of the financing agreement and the new relationship forged between the pension plan and the mortgage lender.

Globe and Mail

“Raised questions” indeed. Lending $2 billion dollars to a near bankrupt mortgage lender with a mouthful of legal troubles? That sounds bad. Add in a bunch of conflict of interest with board members cross pollinating on both sides and you’ve got yourself enough to launch a serious investigation.

But now that the deals is done, the board seats will be given up? How nice of them to fein concern here for optics.

It’s likely that we will find out, once HCG has finally succumbed to it’s own wounds, how many bodies are buried in that company. It’s impossible to be on the board of HCG and not know how bad the situation is.

This looks terrible. Questions should be raised. And before any more pension money is thrown down the drain.