The chief executive of the Healthcare of Ontario Pension Plan (HOOPP) has resigned as a director of Home Capital Group and its subsidiaries, citing a potential conflict of interest following the pension fund’s decision to provide $2 billion of credit to the mortgage company.
The HOOPP manages more than $70 billion of retirement funds and will receive a $100 million non-refundable fee plus 10 per cent interest on money provided to Home Trust through the agreement.
HOOPP chief executive Jim Keohane had been a director of Home Capital since last year, and had been nominated to be re-elected at the mortgage lender’s annual meeting, scheduled for May 11.
But Home Capital announced late Thursday that Keohane had advised it that he would no longer be a director for Home Trust, Home Bank or the parent company, due to potential conflicts of interest.
It also said that the chairman of Home Capital’s board, Kevin Smith, would no longer be a director of HOOPP. Besides his position at Home Capital, Smith is chief executive of St. Joseph’s Health System.
The resignations come as Home Capital grapples with a series of problems, including a collapse of Home Capital’s stock price and a sudden withdrawal of hundreds of millions of dollars from Home Trust high-interest savings accounts.
The company announced Friday morning that it expected the amount deposited into the savings accounts would be $521 million by the end of the day, down from about $1.4 billion that was announced on Monday.
On Wednesday, Home Capital’s share prices plunged 65% on news that it was negotiating a $2 billion line of credit from an unidentified lender. The stock regained about half its losses on Thursday, after the deal was finalized.
A brief statement from HOOPP on Thursday confirmed media reports that it was the leading source of the line of credit. “Like any investment, this decision was made in the best interest of our members’ financial needs,” HOOPP said. “We have a long history of providing these types of investments as appropriate, risk-balanced vehicles to meet our overall return targets. This investment followed all the appropriate due diligence.”
In a release on Wednesday, DBRS Limited announced it had downgraded Home Capital Group’s senior debt rating to BB from BBB (low). Home Capital’s short-term instruments rating also dropped to R-4 from R-2 (low).
Additionally, DBRS has downgraded the ratings of Home Trust Company, HCG’s primary operating subsidiary, including the issuer rating. Concurrently, DBRS has placed all ratings under review with negative implications.
The Support Assessment for HTC remains SA3, which implies no expected support for the Trust Company; subsequently, DBRS has lowered HTC’s intrinsic assessment to BB (high) from BBB.
Overall, the rating actions reflect DBRS’s concern over the heightened pressure on HTC’s funding and liquidity profile, and the potential impact of this pressure on the trust company’s earnings generation and franchise.
Since the announcement of various senior management changes and the OSC’s filing of a statement of allegations against three former members of senior management, HTC has faced accelerated withdrawals of on-demand high interest savings account (HISA) deposits.
Specifically, HISA balances–which stood at $2 billion as at December 31, 2016–had fallen to $1.4 billion as of April 24, 2017. At the same time, HTC’s GIC deposits (which mostly comprise confidence-sensitive broker-sourced deposits) had decreased to $13 billion as of April 24, 2017, from $13.4 billion on December 31, 2016.
The vast majority of these outflows occurred in recent weeks.