Home Capital – Financial Treason & Crime

Featured Posts, Investments, 02 April 2021

I am still coming to terms with the collapse in shares of Home Capital. It wasn’t supposed to play out this way. The Canadian alternative mortgage lender saw its shares fall from an all-time high of $54.86 in August of 2014 to a low of $5.85 in May of 2017. At the time, I was working as an analyst at one of Canada’s largest asset managers. I spent 2014 and 2015 following only the Canadian banking sector. I saw the events at Home Capital up close.

The company was in the crosshairs of short sellers for years prior to its 2017 crisis. As an alternative lender in Canada’s frothy housing market, many shorts saw parallels between Home Capital and some of the worst-performing American subprime lenders. Steve Eisman, made famous in Michael Lewis’ The Big Short for his success betting against the US subprime bubble, was one of the first to come out publicly as a bear on Home Capital in 2013. And from there the criticisms continued for years. Continue reading “Article: Who (Almost) Killed Home Capital Group?”

01/17/201803/02/2021

Article: Home Capital Group comments on statement of claim

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Home Capital Group comments on statement of claim

Home Capital Group Inc. , 17 January 2018

Home Capital Group Inc. (“Home Capital” or the “Company”) (TSX:HCG) today announced it has received a statement of claim issued by Marc Cohodes, who opted out of a global settlement of the securities class action in 2017 with Home Capital. The claim is based on allegations of misrepresentations and oppressive conduct and seeks $4 million in damages. Continue reading “Article: Home Capital Group comments on statement of claim”

01/17/201803/02/2021

Article: Short Seller Cohodes Claims Home Capital Group Misled Him, Suit Say

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Short Seller Cohodes Claims Home Capital Group Misled Him, Suit Say

Vipal Monga, 17 January 2018

Short seller Marc Cohodes on Tuesday sued Canadian mortgage lender Home Capital Group Inc. for 4 million Canadian dollars ($3.2 million) for allegedly misrepresenting the state of its business in 2015, leading him to close out short positions at a loss. Continue reading “Article: Short Seller Cohodes Claims Home Capital Group Misled Him, Suit Say”

05/12/201703/02/2021

Article: Meet the man who’s betting Home Capital will fail: Wells

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Meet the man who’s betting Home Capital will fail: Wells

Jennifer Wells, 12 May 2017

“I’ve had Cott up there. I’ve had Clearly Canadian. Made a killing. I go back with Kevin O’Leary — Learning Co. and Softkey before that. I had a double dip with Garth and Cineplex Odeon and Livent. Melnyk with Biovail. Canada is great. Canada has been wonderful.” Continue reading “Article: Meet the man who’s betting Home Capital will fail: Wells”

10/27/201603/01/2021

Article: Cohodes vs Home Capital: Testing the short seller’s claims

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Cohodes vs Home Capital: Testing the short seller’s claims

Amber Kanwar, 27 October 2016

San Francisco-based short seller Marc Cohodes has been shorting Home Capital Group since 2014. He made a number of claims, and raised questions, about Home Capital in an interview with BNN this week. We gave the mortgage lender an opportunity to respond. Below, you’ll find Home Capital’s comments.

Cohodes says Operation Trillium was Home Capital’s response to discovering mortgages that had poor underwriting standards. He believes it was initiated a year before the suspended brokers were announced. “[Operation Trillium] is somewhere between a cover up and a remediation effort,” said Cohodes in an interview with BNN. He believes it was initiated a year before Home Capital disclosed the suspended brokers.

Home Capital did not confirm the existence of Operation Trillium and instead provided this comment: “We refer investors who are interested in the facts to our quarterly disclosure, which includes information on the performance of the mortgages originated by the suspended brokers, the value of loans outstanding that were originated by those brokers, and the progress of our review of those mortgages.”
Continue reading “Article: Cohodes vs Home Capital: Testing the short seller’s claims”

09/29/201603/01/2021

Article: A Family Affair At Home Capital Group: Did Re-Charge Just Open Pandora’s Box?

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A Family Affair At Home Capital Group: Did Re-Charge Just Open Pandora’s Box?

The Friendly Bear, 29 September 2016

We published a report on August 23rd exposing a peculiar relationship between Home Capital Group (OTCPK:HMCBF) (HCG.TO) and a previously undisclosed mortgage company called Re-Charge. In response to our report, Home Capital Group put out a press release making a series of claims that downplayed the significance of Re-Charge. Some of the main claims in the press release were as follows:

That “in the normal course of its business, HCG from time to time sells loans to third parties, when loans require work-outs or restructuring.” That “loans sold to all third parties since 2013 totaled less than $125 million” in the context of a “current on-balance sheet total loans portfolio of $18.1 billion.” That “Home Trust has not sold any loans requiring work-out or restructuring to any third party, including Re-Charge Corporation, since September 2015.”
Continue reading “Article: A Family Affair At Home Capital Group: Did Re-Charge Just Open Pandora’s Box?”

08/25/201603/01/2021

Article: Are Short Sellers Right About Home Capital Group Inc.?

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Are Short Sellers Right About Home Capital Group Inc.?

Nelson Smith, 25 August 2016

Tuesday was not a good day for Home Capital Group Inc. (TSX:HCG) shares. An anonymous author identifying as “The Friendly Bear” wrote a scathing piece about the company on the investing website “Seeking Alpha.” The article investigated the company’s relationship with a mortgage brokerage called Re-Charge Corp.

Essentially, the dirt goes something like this.

Home Capital sold mortgages to Re-Charge in the autumn of 2015 on at least 14 different occasions. Many of these mortgages were on real estate in Brampton, Ontario, which insiders view as a place where mortgage fraud is common. Thus, the author of the article hinted that the reason why many of these loans were sold is because borrowers were either behind or in default.

Additionally, one of the principals of Re-Charge Corp is William J. Walker, a lawyer who was named to Home Capital’s board of directors in November 2015. This relationship between Walker and Re-Charge was never disclosed to shareholders. In fact, the relationship with Re-Charge was never disclosed.
Continue reading “Article: Are Short Sellers Right About Home Capital Group Inc.?”

08/24/201603/01/2021

Article: Home Capital stock in turmoil after anonymous short seller’s post

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Home Capital stock in turmoil after anonymous short seller’s post

TAMSIN MCMAHON, 24 August 2016

Shares of Home Capital Group Inc. were on a roller coaster this week after a popular investor website accused the company of hiding losses by selling bad mortgages to a firm run by one of its board members.

A report posted by someone identifying as a Home Capital short seller called “The Friendly Bear” on the website Seeking Alpha on Tuesday highlighted more than a dozen mortgages that Home Capital transferred last year to a mortgage brokerage called Re-Charge Corp, based in Ancaster, Ont. One of Re-Charge’s directors is William J. Walker, a partner in the Hamilton office of law firm Gowling WLG. Home Capital appointed Mr. Walker to its board as an independent director last November.
Continue reading “Article: Home Capital stock in turmoil after anonymous short seller’s post”

08/23/201603/01/2021

Article: Home Capital Group: Time To ‘Re-Charge’ Your Loan Loss Provisions

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Home Capital Group: Time To ‘Re-Charge’ Your Loan Loss Provisions

The Friendly Bear, 23 August 2016

In today’s report, The Friendly Bear goes “global”. We recently found out the hard way that making it through a TSA screen as a Bear is quite challenging, but particularly for a Bear that seeks to raise questions about a publicly traded Canadian company. Today’s report focuses on Home Capital Group (OTCPK:HMCBF)- a company that has been on the radar of numerous celebrity US short sellers (including Steve Eisman of “Big Short” fame). Some view the company as one of the best ways to play the Canadian ‘Housing Bubble’. More recently, we have watched from afar and admired the work and insight that has come out of firms such as PAA Research on the name. Given our experience in forensic due diligence into suspect US financial institutions, we thought we may be able to bring something to the table on the topic of Home Capital Group. The stock fits squarely inside the screens that we look for – commodity financial service products with too good to be true stories and alarmingly low reserves.

It also fits within our absolute favorite bucket of shorts – companies that publicly blame short sellers for their woes.

On a May 5, 2015 earnings call, Gerry Soloway, the Chairman and CEO of Home Capital Group, gave his final parting words to the investment community before riding off into retirement. After founding HCG over 30 years prior, he had grown the company into Canada’s largest “alternative lender”. He had a lot to be proud of as his accomplishments are undeniable as evidenced by the tremendous shareholder value created under his watch. We can imagine that in such circumstances, it would be hard to find just the right last words to say to stakeholders. One could reasonably expect a heartfelt speech thanking shareholders, colleagues, and family for their support over the years. Instead, Mr. Soloway provided the following quip:
Continue reading “Article: Home Capital Group: Time To ‘Re-Charge’ Your Loan Loss Provisions”

07/05/201603/01/2021

Article: Short seller Cohodes targets yet another Canadian firm: Exchange Income

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Short seller Cohodes targets yet another Canadian firm: Exchange Income

Jennifer Ablan, 05 July 2016

Short seller Marc Cohodes, who has famously bet against the shares of six Canadian-based companies including Valeant Pharmaceuticals International Inc and Home Capital Group Inc, said on Wednesday that he is targeting yet another Canadian firm – Exchange Income Corp.

Cohodes told Reuters that Exchange Income – a Winnipeg-based company focused on opportunities in aerospace and aviation services and equipment, and manufacturing – does not generate enough cash to pay the juicy dividend it provides investors. At about C$33 per share, Exchange Income commands a market capitalization of $1 billion.

Cohodes, who worked at a short-selling hedge fund but now raises chickens in California and invests his own money, has targeted Valeant, Intertain Group Ltd, Concordia International Corp, Home Capital, Equitable Group Inc and Badger Daylighting Ltd. Cohodes told Reuters last month that he is keeping his short position on the Canadian lender Home Capital despite a capital infusion from Warren Buffett’s Berkshire Hathaway Inc .

Continue reading “Article: Short seller Cohodes targets yet another Canadian firm: Exchange Income”