Not sure if you’ve heard of Home Capital Group, a fairly large mortgage lender up here in Canada. They’ve recently had a run on deposits and required emergency funding in order to stay a going concern. Would be interesting to hear your comments on it. Article on it below. To me it signals that finally the Canadian housing market may be ready to roll over. This reminds me of some of the news prior to the US housing crash and the financial crisis. An early warning sign.
I am expecting HCG to receieve a large bail out from the Canadian taxpayers very soon.
I base that on this:
In a stunning development involving Canada’s largest alternative lender which as recently as a month ago was facing virtually certain insolvency after a furious depositor run drained it of liquidity, overnight Home Capital Group announced that billionaire Warren Buffett’s Berkshire Hathaway will indirectly acquire C$400 million ($300 million) of the firm’s shares in a private placement through its Columbia Insurance unit, for about a 38.4% stake, and will also provide a new C$2 billion ($1.50 billion) line of credit to its unit Home Trust Co, ending the Canadian lender’s strategic review process.
“Home Capital’s strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment,” said Warren Buffett, Berkshire chairman and CEO, failing to comment on the lender’s numerous regulatory problems.
(Source – ZH)
We can all think of Warren as a genius investor, and he is in some respects, but he’s got a couple of models that he runs.
One of those models involves stepping in at key moments with some emergency liquidity which is followed shortly thereafter by public bail out money. That’s what he did with Goldman Sachs back in 2009.
So one of two things is possible here. His team poured through the books very carefully and determined that HCG was a good investment OR good old Warren had some back room discussions with Canadian bankers/officials and they cut a deal.
HCG is on the ropes. Or was. And for good reason; they had been issuing the very same sort of liar loans that blew up in the US back in 2008 and 2009.
The Toronto housing markets seems to have fully rolled so I would imagine that even the ‘better’ loans made by HCG are going to experience difficulty. Just how far up the quality ladder the losses go remains to be seen.
But the chances of the Canadian housing bubble just quietly dissipating seem to be very, very low.