Home Capital Struggles to Regain Customers as New Loans Drop

(Bloomberg) -- Home Capital Group Inc., the Canadian mortgage lender that almost prompted a crisis in the country’s housing market this year, is having trouble wooing back borrowers.

Mortgage originations dropped 85 percent to C$385 million ($302 million) in the third quarter from a year earlier, the Toronto-based company said in a statement Tuesday. The lender expects its balance of non-securitized single-family home loans to be C$10 billion at the end of the year, down from C$10.4 billion at the end of the third quarter.

“New loan originations were well below historical levels and are not adequate to replace loan assets reduced through sales," Home Capital said in the statement. “Although the company successfully stabilized its liquidity position and quickly restored deposit funding, the process of restoring loan growth has been slower than planned and is management’s top priority."

Home Capital is seeking to regain investor and customer confidence after almost collapsing this year and taking Canada’s housing market down with it. The provincial regulator accused the company of not disclosing fraud properly amid a slew of reports by investors short-selling the stock, driving shares to a record low and casting doubt on lending peers. The company has settled with the regulator and clients behind a class-action lawsuit.

The lender reported profit that beat estimates, with adjusted earnings per share of 37 cents above the average 25-cent forecast of nine analysts surveyed by Bloomberg. Net income of C$30 million was below the C$66.2 million reported in the year-ago period.

Analysts said there’s still no clear plan for how the company will win back clients. Laurentian Bank downgraded the lender to a hold rating from buy, one of nine analysts who rate the stock a hold. Home Capital also has one sell and one buy rating. Chief Executive Officer Yousry Bissada, who replaced founder Gerald Soloway this year, said on the third quarter conference call that details of strategy will be announced by the second quarter.

The lender also is grappling with a real estate market that’s been subject to new rules for lenders, insurers and borrowers in the last 12 months. Those have cooled demand and may deter some buyers because of higher qualifications for home loans.

Home Capital declined 0.5 percent to C$14.30 at 10:16 a.m. in Toronto Wednesday and is down 54 percent this year. They have more than doubled from a low in May, fueled in part by an investment from Warren Buffett.

To contact the reporter on this story: Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net.

To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net, Kara Wetzel, Jacqueline Thorpe

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