Weekend Reading: Home Capital Meltdown Edition

Home Capital Group is teetering on bankruptcy after a wild week that saw its shares plunge 65 percent Wednesday. The former dividend darling and sub-prime lender sought out $2 billion in funding just to stay afloat after a run on its bank deposits could leave the company with just over $500 million in cash – down from $1.4 billion as recently as Monday.

The parent company of Home Trust, Home Bank, and Oaken Financial, Home Capital offers high-interest savings accounts and GICs to secure deposits, which are then lent out in the form of mortgages and other loans. As Canada’s real estate market soared, shares in Home Capital climbed right along with it – routinely posting double-digit annual gains and increasing its dividend for 17 consecutive years.

But the party is over. Home Capital is hooped. The $2 billion lifeline provided by Healthcare of Ontario Pension Plan comes with an effective interest rate of more than 22 percent on the first billion. Investor confidence is close to zero and the run on bank deposits will continue throughout the year as another $13 billion in locked-in GICs come up for renewal.

Home Bank and Home Trust Company are both CDIC members and eligible deposits of up to $100,000 per category are protected. Oaken Financial deposits are held with either Home Bank or Home Trust Company.

Home Capital Group teetering on bankruptcy

This Week’s Recap:

On Monday I asked what are you doing with that tax refund?

On Wednesday Marie shared a financial success plan for new graduates.

And on Friday I took a look at short-term vs. long-term mortgages.

I offered some tips in this Huffington Post article on why even low earners, teens, and students should file a tax return.

Weekend Reading:

A consumer insolvency expert offers this sobering take on why drowning in debt is the new normal in Canada:

“A growing number of the clients we see have all the trappings of a middle class lifestyle—they’re gainfully employed, own a home and from the outside seem fiscally responsible—but it’s built on a foundation of debt and bad financial decisions.”

It’s tax refund season and CBC’s Sophia Harris reveals a CRA email rebate scam that’s on the rise this year.

Dan Bortolotti explains why investors trapped in high-fee mutual funds may be better off paying the penalty to move to a lower cost solution sooner.

The province of Ontario unveiled its 2017 budget and MoneySense has listed 18 ways the budget might affect you.

Housing bear Garth Tuner gleefully weighs-in on the collapse of Home Capital and what it might mean for the real estate market.

Ontario is launching a basic income pilot in select cities with up to 4,000 people receiving payments starting this summer.

Norm Rothery had some strong words for the Ontario government regarding the means-tested clawback in its basic income pilot:

“Utterly moronic. I have no words to express my disgust at the cruelty of those who would even consider slapping the poor with a 50%+ tax rate – or perhaps it is their cynical machinations to ensure the failure of the pilot programme that disgusts me.”

Politicians meddle with real estate — but would Canadians tolerate intervention in other markets?

Speaking of meddling, Rewards Canada’s Patrick Sojka wonders what will happen to loyalty rewards in Canada if Quebec passes Bill 791 and programs have to retain point/mile value?

Bumped from a flight? Frugal Trader explains how much compensation you get.

Michael James has some criticism for the authors of Victory Lap Retirement.

Preet Banerjee fires up the podcast for an interview with investing legend Stephen Jarislowsky.

Finally, Jason Heath explains the best time for business owners to take CPP and OAS.

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  1. Cy Bulkis on April 30, 2017 at 8:09 am

    I can appreciate that free drugs are going to end provided to people under age 25, but with no income level on family incomes. Most average working people have a drug benefit plan with their employer so now what we have done is improve the profitability of the insurance industry as they nolonger have to pay out for these drugs.should have had a employment level of earning attacked to this program. In addition no copay! Seniors living on fixed incomes with little or no insurance have to pay update to $6.11 per prescription. This no copay for under 25 is just no fare in today’s times

  2. Jordan Vandervelde on April 30, 2017 at 8:29 am

    Politicians meddling with Real Estate. Possibly the worst article I’ve been linked to through Boomer. A bunch of false equivalencies (Gold is not the same as real estate or housing – you don’t live in it) topped off with other scenarios where the government would step in if required.

    Not to be too critical though Rob – solid collection of articles as usual. Just not that one.

  3. Tony on May 1, 2017 at 5:26 am

    If the government doesnt want to meddle in the housing market they shoukd shut down CMHC and let the lenders find capital to lend in the open and free markets. Right now taxpayers are on the hook for mortgages which destorts the true cost of risk. Shut down CMHC and then we would have a free and open market. Im sure mortgages brokers and realtors would scream like wild anamals .

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