Two Years After Buffett’s Exit, Home Capital Posts Record EPS

(Bloomberg) -- Home Capital Group Inc., the Canadian mortgage lender bailed out by Warren Buffett’s Berkshire Hathaway Inc. in 2017, posted record earnings as people looking for more living space drove a frenzy of home buying across Canada.

The company reported C$1.12 ($0.86) in earnings per share for the third quarter, the most in any quarter going as far back as 1999, according to data compiled by Bloomberg. Profit of C$58.5 million was the highest in a quarter since 2016, the year before Home Capital nearly collapsed when investors pulled deposits following a regulator’s charge that the firm misled shareholders about mortgage fraud.

Home Capital recovered after Berkshire purchased an equity stake and provided it with a C$2 billion credit line, and its share price continued to climb even after Berkshire “substantially exited” its stake in late 2018.

Though the stock plunged with the onset of the pandemic earlier this year, it has nearly doubled since a March low as the combination of low interest rates and the rise of work-from-home policies spur a wave of home buying.

“People have changed what the definition of a home is,” Yousry Bissada, Home Capital’s chief executive officer, said on a conference call with analysts Wednesday. “Many have decided they want a backyard and they don’t mind living further because working from home doesn’t affect that. Those advantages I expect to see continue.”

Aside from the frenetic pace of home buying, Home Capital’s record profit was helped by a widening of the spread between the rates it pays on deposits and borrowings and what it charges customers on mortgages. Home Capital’s funding costs essentially fell faster than its mortgage income, though Bissada said he doesn’t expect that to last much past the next quarter.

Earnings were also helped by an improvement in the company’s outlook for Canada’s economy. That, along with some repayments, prompted Home Capital to release C$7 million it had reserved against potential loan losses when the country was in the midst of its spring lockdowns.

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