Conflicted

By now I’m sure all dogs know our primo Alt mortgage lender, purveyor of liar loans and featuring executives being fitted for leg irons – Home Capital – was saved from destruction by a fat loan from a pension fund. Not just any fund. HOOP – the Heathcare of Ontario Pension Plan, representing all the grunts who look after you. The loan is worth $2 billion, secured by mortgages, and speculative enough the interest on it slides between 15% and 22.5%.

This deal is so out of the box for a pension plan, whose solitary and legislated purpose is funding the retirements of its members, that HOOP was moved Thursday afternoon (after the markets closed) to issue a statement admitting what it had done:

TORONTO, April 27, 2017 – The Healthcare of Ontario Pension Plan (HOOPP) today confirmed that it has agreed along with a syndicate of lenders to provide a secured line of credit in the amount of $2-billion dollars to Home Trust Company.  Normally HOOPP’s policy is not to disclose information on our investments, however, given the amount of media speculation, we have decided to disclose this information today. Like any investment, this decision was made in the best interest of our members’ financial needs. 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.

But was this bold bail-out of a subprime lender in flames really in the best interests of thousands of nurses and medical workers? Or was it a favour?

James Keohane is president and CEO of HOOP, and as such carries this mandate: “responsible for the overall leadership and management of the organization, as well as for developing, implementing and overseeing – in consultation with HOOPP’s Board of Trustees – performance measurement programs, long-term strategies and annual work plans to ensure the organization meets the needs of Plan beneficiaries.” As you’d expect.

But Jimmy is also a key director of Home Capital Group, and as such has intimate knowledge of the company’s troubled finances (it was cut to junk status today by rating agency S&P). Union members may wonder about lending $2 billion to a company which lost 65% of its capitalization in a single day.

Mr. Keohane is bound by Home Capital’s guidelines, which mandate: “The Director avoids potential or actual conflicts of interest that are incompatible with services as a director…” And as CEO of the pension plan, he has a personal fiduciary responsibility to the beneficiaries – which means he must (by law) put their interests ahead of his own. Given his role as a Home Capital executive, and his ownership position in the mortgage lender, this must be tough tightrope to walk.

Well, I don’t know JK. He may have honestly believed risking so much of his members’ money on a company blowing up under his own tutelage was smart. Good business. Maybe with a big payoff. But it would have been a nice gesture for him to resign the board seat first and sell his shares. Then the chattering classes would go and worry about something else. (He resigned earlier today.)

Like taxes.

The Trumpian plan to reform the US tax code didn’t receive a lot of ink in Canadian media yesterday. No wonder. We are so embarrassed. While Canadians are fed into the CRA meat grinder and the deplorables on this blog clamour for even higher levies, American taxpayers seem destined to pay less. Lots less. (And they already fork out just a fraction of what high-income beavers do.)

The plan proposes taking the existing seven tax brackets, consolidating them to three and slicing the top tax rate from almost 40% down to 35%. An extra investment tax on people making over $200,000 would be punted along with estate taxes and the alternative minimum tax. No more writing off local/state taxes, and the only deductions allowed would be for home mortgage interest and charitable giving.

Meanwhile, our top tax personal rate is now well over 50%, T2 brought in a special bracket to Hoover people earning $225,000+, the TFSA contribution limit was halved and it’s a safe bet capital gains and small business corporations won’t survive the next budget unbloodied. Effective tax planning, and aggressive avoidance have never been more essential for people who created wealth and want to keep it.

But the biggest deal? That’s corporate tax. Trump’s plan hacks it from 35% to 15%. Add in state taxes, and the average US-based company will pay a 20% rate. That compares with 27% in Canada – where wages are higher, benefits a greater burden, power more costly, and all your employees are stressed out trying to buy $1.5 million houses.

At least we dominate hockey. Oh, wait…

188 comments ↓

#1 Frank on 04.27.17 at 7:01 pm

Don’t worry about Home Capital. Bill Morneau is “monitoring the situation” and enacting half baked toothless measures that won’t move the needle, like a 15% tax foreigners, many of whom can pay cash to buy a home. If he had any guts or integrity, he would double the tax and put more efforts into blocking purchases buy numbered companies.

#2 Frank on 04.27.17 at 7:02 pm

Heck, don’t worry about Home Capital. Bill Morneau is “monitoring the situation” and enacting half baked toothless measures that won’t move the needle, like a 15% tax foreigners, many of whom can pay cash to buy a home. If he had any guts or integrity, he would double the tax and put more efforts into blocking purchases buy numbered companies.

#3 For those about to flop... on 04.27.17 at 7:03 pm

This article might be a welcome distraction for a few people on the blog after the events of the last couple of days and is the latest offering from the guys at howmuch.

Either that or someone on the blog is going to threaten me by way of pelting rotten tomatoes at me for getting in the way of the big boy discussions.

It is an article detailing the reliance on the tourism industry to boost the GDP of each country.

The two things that stuck out to me was that Canada had one of the lowest dependency rates and NoName’s homeland of Croatia had one of the highest…

M42BC

Mapped: The World’s Dependency on the Travel Industry

“Globalization and the growing trend of traveling have increased the number of people traveling to foreign countries each year. This growing trend has brought with it increased GDP growth due to tourism spending. While some countries receive more visitors than others, not all countries rely on their tourism industries to the same extent.”

https://howmuch.net

#4 TRUMP on 04.27.17 at 7:05 pm

TRUDEAU……..WHAT A LOVELY IDEA?

GEEZ HOW DO WE CREATE MORE JOBS???

TAX THE CRAP OUT OF THE PEOPLE WHO CREATE THEM.

WHAT A SMUCK.

#5 common sense on 04.27.17 at 7:06 pm

Trump’s tax plan ambitious but likely D.O.A. like his other ideas…

Got to love him though…great initial salesman but doesn’t have the support to deliver….

Still hard to believe he became POTUS, then again the US elected W.

What are the odds the pension GIFT will ever turn a profit?

#6 Happy Housing Crash Everyone! on 04.27.17 at 7:06 pm

This housing bubble is finished. Happy Housing Crash Everyone Everyone! :-) ps homes not sell since NO offers on offer day. Ouch!

#7 Tuxedo on 04.27.17 at 7:10 pm

How does this happen? Keohane should be canned immediately.

Nevermind… None of the greedy brainwashed short-termism pensioners care because housing goes up forever.

Didn’t US pensions lose billions betting on shitty mortgages?

#8 mitzerboy aka queencitykidd on 04.27.17 at 7:11 pm

go oilers

#9 Paul on 04.27.17 at 7:11 pm

“While Canadians are fed into the CRA meat grinder”

People wonder why so many workers make cash deals.
More underground economy.

#10 suburban coyote and pup on 04.27.17 at 7:11 pm

wow…. I have been a Hoop member for 21 years and have no recollection of their investment decisions showing such a blatant conflict of interest. I wonder if this will end up like a quebec pension fund that got mixed up with us subprime mortgage ?abcp a few years back.

onf52

#11 Yeah on 04.27.17 at 7:11 pm

Nice pic..

#12 Bytor the Snow Dog on 04.27.17 at 7:14 pm

This guy needs to go to jail. Go directly to jail. Do not pass Go.

Direct conflict of interest.

#13 crowdedelevatorfartz on 04.27.17 at 7:16 pm

Holy Conflict of Interest Batman!

The irony of HCG avoiding being “hooped” by a questionable infusion of cash from HOOP is just too good to ignore…

Could Canada one day see a similar “flat tax” like our ‘Merican cousins?
Lets hope so….

#14 Leo Kolivakis on 04.27.17 at 7:16 pm

Garth,

As an expert on Canada’s large pensions and as someone who knows and admires Jim Keohane and HOOPP, I think you’re contributing to the misinformation being spread out there. Read my latest, I wouldn’t touch Home Capital shares but HOOPP made a great deal here for its members and it’s clear Jim Keohane puts his members best interests first:

http://pensionpulse.blogspot.ca/2017/04/canadas-subprime-mortgage-crisis.html?m=1

You don’t know all the details, stop speculating!

#15 paulo on 04.27.17 at 7:22 pm

Well the Ontario budget was underwhelming in focus and
overwhelming in new debt 320billion or about 22,000$
per citizen smoking man may have to find a new habit
i would have like to see some attempt to pay off the debt
given the win-fall revenue the province is receiving from
fools buying houses they cant afford. hmm business as usual.
on the HCG loan i wounder if we will ever know whom the other players are that brought the cheque book
i suspect hoop is primarily the front window dressing
it seems that MR Keohane has learned a trick or two from the real estate sales trade, talk about a double ended deal! im with you garth on this on,add another bus load of lawyers if it goes south in the end
mark must be having a fit

#16 joblo on 04.27.17 at 7:24 pm

We dominate in the Carbon Tax arena!

#17 Russ on 04.27.17 at 7:24 pm

Oh, wait…
at least most of the good hockey players are Canadian.

Cheers, R

#18 Short the TSX on 04.27.17 at 7:26 pm

Been posting this for awhile

Financials got killed today . And no oil to save the day

It’s just starting

#19 The Limited Sage on 04.27.17 at 7:27 pm

http://business.financialpost.com/news/fp-street/home-capital-group-director-keohane-resigns-after-fund-backs-2-billion-loan

“The head of an Ontario pension plan has stepped down as a director of Home Capital Group Inc. after his fund agreed to provide a $2 billion loan to help offset a run on deposits at the struggling Canadian mortgage lender.”

How is any of this sh*t legal?

#20 Karma on 04.27.17 at 7:28 pm

Where there’s smoke, there’s fire: Anbang Chairman may have been detained in China…

http://www.businessinsider.com/anbang-chairman-wu-detention-rumor-in-china-2017-4

#21 People Gone Mad! on 04.27.17 at 7:31 pm

Man oh man, when will the housing market blow up? I just don’t understand people any longer. Having no debt or mortgage myself, I still feel this bubble needs to pop. I cannot understand the amount of money people are borrowing. I remember when my first mortagages was 167,000 and I was terrified, thinking – how will I ever pay this back? Now, in my neck of the woods of Toronto, million dollar mortgages are the norm. Yet people are still out buying luxuary cars, trips, new furniture, chef inspired appliances and on and on. I cannot figure out where the money is coming from? And for those who want to argue with me, I am a middle class worker, owe no one anything, sitting on just under a million in a portfolio and some cash and own my own home and in my mid 40’s. But I think people are crazy now, buying at these prices, it just doesn’t make economic sense.

#22 pathcontrolmonk on 04.27.17 at 7:32 pm

A joke in there somewhere about getting “hooped”.

#23 Brian on 04.27.17 at 7:33 pm

Well that didn’t take long. No shortage of cash willing to kick the can further down the road. Business as usual. No housing correction. Beer me.

#24 Mike in Airdrie on 04.27.17 at 7:36 pm

Did Trump also say something about a 20% capital gains rate?

At least we have the weather…oh wait…

#25 c keys on 04.27.17 at 7:38 pm

Would appreciate not being referred to as a grunt. Not necessary to be disrespectful of the healthcare profession.

#26 Debtslavecreator on 04.27.17 at 7:40 pm

Of all pensions HOOP is considered the shrewdest so although at first glance this loan seems crazy let’s wait for the final chapter to be written before coming to a conclusion.

The new budget is pathetic and I say this being a major beneficiary
It’s horrible
Be very scared when the word fair comes from a politician’s mouth. These idiots are headed straight to a sovereign debt crisis by mid 2020 at the latest
Oh Canadstan
OntariOWE

#27 Linda on 04.27.17 at 7:41 pm

One would think the scenario above would be illegal & that the conflict of interest would lead to an investigation & fines at the very least. At best this was a questionable investment & if I were a member of HOOPP I’d be asking why this ‘investment’ was permitted by the people who are supposed to ensure the fund is managed in the members best interests.

#28 Onwards and Upwards on 04.27.17 at 7:41 pm

It looks like the Home Capital story was just another head fake in the unstoppable Canadian real estate market….

Home Capital shares jumped 33% up today alone, and this will likely continue given the $2 billion bailout. This scare might even make the management better and strengthen their services.

Oh well, one of many head fakes in the market since 2010. Onwards and upwards for RE….

#29 mark on 04.27.17 at 7:42 pm

I believe the HAs give offer terms than that. Though they don’t have the skills on hand render assistance after they kneecap you.

#30 SimplyPut7 on 04.27.17 at 7:43 pm

No one talked about the Trump tax plan because until it passes, it’s just talk, not the law of the land.

I didn’t like how the media buried the Home Capital Group story, by end of day yesterday, most media outlets had stopped mentioning it.

#31 Rentier's Revenge! on 04.27.17 at 7:43 pm

So James Keohane is basically bailing himself out.

#32 Hairhead on 04.27.17 at 7:45 pm

Hey hey, there! Let’s just add a bit more information to the mix:

Garth notes: American taxpayers seem destined to pay less. Lots less.

Well. ‘Tis true American taxpayers pay less federal income tax than Canadians. But many American taxpayers pay state income taxes, too, and some even pay municipal income taxes. Not only that, but the exorbitant costs of decent medical insurance for American high-earners should be put into this equation — and the monthly payments for a family can be in the thousands of dollars (again, for good plans).

Note too, that many individual states in the next few years are gong to have to follow the California example and raise tax rates substantially to keep their infrastructure and education institutions going.

I realize, Garth, that the qualifiers above mean that you can’t put all this information into a 600-word column, and I don’t blame you for that — but readers should be aware of the TOTAL costs of being an American, before they make invidious comparisons to Canada.

Remember too, that with all those tax cuts, Trump is upping the military’s budget(s). And that means the tax cuts can only be temporary.

#33 Freedom First on 04.27.17 at 7:45 pm

Thank you Garth! It makes me all warm and fuzzy inside when you publicly “out the activities of the people who deserve to be publicly outed” for their shenanigans.

Perhaps someone could list all of the people who have been publicly outed in “The Greater Fools Hall of Shame” membership. Of course, one would have to keep in mind that Garth, in doing so, has received offers of sexual activity for every one of his bodies orifices.

The Truth hurts. But not for me, of course, as it is not part of my Freedom First lifestyle.

Mr. Jimmy Keohane. How could you?

#1
Boss of Me
Master of Freedomonics

#34 Victor V on 04.27.17 at 7:45 pm

Home Capital Group director Keohane resigns after fund backs $2 billion loan

http://www.financialpost.com/m/wp/news/blog.html?b=business.financialpost.com/news/fp-street/home-capital-group-director-keohane-resigns-after-fund-backs-2-billion-loan&pubdate=2017-04-27

#35 Regnurse on 04.27.17 at 7:45 pm

I’m very concerned that the guys holding my pension are acting with questionable morals and ethics. GARTH why are you rustling my jimmies, I was having a fine day before I read your blog.

#36 Frank on 04.27.17 at 7:46 pm

Marc Cahodes on short selling Home Capital:
http://bloombergtv.ca/2017-04-26/news/short-seller-discusses-role-in-home-capitals-woes/

#37 Mark on 04.27.17 at 7:47 pm

“But the biggest deal? That’s corporate tax. Trump’s plan hacks it from 35% to 15%.”

Sure, at the expense of adding trillions to the national debt. National debt is just deferred personal taxation. I know you (Garth) have written about RRSPs being tax bombs due to significant levels of government debt in Canada. You could basically use the same logic, at a national level in the United States, that taxes are so abnormally low that they are insufficient to fully fund government and its obligations. And as such are destined to rise significantly in the future, notwithstanding short term decreases.

it’s a safe bet capital gains and small business corporations won’t survive the next budget unbloodied.

Raise capital gains taxes? Why? With the flat stock market over the past decade, not many people actually have investment capital gains. The “real wealth” in Canada has been vested in the appreciation of principle residences. I just can’t see politicians touching that sort of “third rail” of Canadian society, that of a tax-free principle residence. Especially in the housing downturn.

But that does bring an interesting question to mind. It is well known that the RE marketplaces in the GTA/GVR are significantly dominated by “landlord families” — stereotypically foreign born Canadians who, for lack of quality jobs in Canada, have spent the past 20 years on a housing buying spree with large amounts of credit. Often accumulating 20-30 units per extended family.

If these highly leveraged families are foreclosed upon in a downturn, they may very well not only be significantly “underwater” in terms of LTVs (resulting in a lender loss, ie: what may very well be happening at HCG these days, a significant financier of borrowers fitting that profile!), but also left owing the CRA a significant chunk of taxes as the foreclosure price is likely to be greater than the ACB, but less than the outstanding loan.

The CRA, hence, may have a significant chunk of uncollectable capital gains tax from the “landlord families” as they go through the foreclosure process. The government may be very well advised to implement a RE sale proceeds withholding tax, just like as on RRSP withdrawals, that is only re-claimable once a proper income tax return is filed including a proper accounting of the ACB and payment of applicable taxes is made.

#38 Centre Wing on 04.27.17 at 7:48 pm

My wife is an RN contributing a significant % of her income into this thing. As a PT employee she can opt out… Should we consider that??

#39 Daveyboy on 04.27.17 at 7:50 pm

Garth. When is the premiere for cold property on cp24?

The loons on there crack me up.

#40 Frank on 04.27.17 at 8:00 pm

“Lastly, there is poor old Garth Turner, publisher of the Greater Fool blog, who has been “sounding the alarm” on Canadian real estate over the last decade and has been completely wrong.

I still read his posts once in a while and enjoyed reading his last post on Agony. But Garth still doesn’t get it, he is convinced interest rates are going to skyrocket up and that will spell the death knell for Canada’s housing market.

Let me explain something to Garth and others. Interest rates are not going up. The clear and present danger in the global economy is DEFLATION, not inflation. That’s why the reflation trade is doomed.

#41 acdel on 04.27.17 at 8:02 pm

People in Ontario, ??????? The rest of us hopefully will learn from what is happening in your province; but, if you are under 25 (not referring to those that truly need it) get high for free and vote for the libs, ha,ha!

On another note, I am interested to hear from all of you experts about this story.

http://www.cbc.ca/news/business/zero-income-tax-high-income-canada-1.4087033

Thanks all!

#42 Smoke & Mirrors on 04.27.17 at 8:02 pm

US corps are very good at tax avoidance and while the rate seems high, the effective rate of what they actually pay is very low.

“Though a great deal of hope is being placed on corporate tax reform, the effective tax rate of U.S. corporations (taxes actually paid as a fraction of pre-tax profits) is already lower than at any point in the post-war era prior to the 2008-2009 economic collapse. Even cutting the statutory rate in half from here would result in a likely bump to corporate profits of less than 10%”
Hussman

So, at best adding $10 to S&P earnings to $120, leaving the P/E in nosebleed territory above 20X.

#43 crowdedelevatorfartz on 04.27.17 at 8:04 pm

@#226 Smartalox

I just read this on another blog regarding Christy Clark’s “stand up” performance on last nights election “debate”.
And it describes her perfectly……

“BotoxParalyzedChipmunkFace with the self assured smile……..”

One can only hope she didnt spend the entire $50,000.00 cash infusion to her bank account on plastic surgery

#44 dakkie on 04.27.17 at 8:05 pm

Can US-style Housing Crisis, “Jingle Mail” Hit Canada’s Banks?
http://investmentwatchblog.com/can-us-style-housing-crisis-jingle-mail-hit-canadas-banks/

#45 Stan Fischer on 04.27.17 at 8:05 pm

While everyone is fretting about Home Capital and real estate, nobody is talking about the real story.

Interest rates are not rising, they are falling. Most of my government bonds are up 7.5% to 9.0% in just about 2 months ago in 2017.

Since 2000, these guys are up 50% to 65% plus accrued interest or compound interest of 175% to 195%.

Interest rates are going lower and people are going to save billions more in monthly interest and housing prices will double at least over the next 15 to 16 years.

#46 Joseph R. on 04.27.17 at 8:12 pm

“But the biggest deal? That’s corporate tax. Trump’s plan hacks it from 35% to 15%.”

How is Trump going to pay for his stupid wall? Definitely not Mexico, since Trump got publicly humiliated on that issue by Mexican President Nieto.

Deficit spending? That would go against the Deficit Hawks in Congress; I think they still refer themselves as the Tea Party.

If we judge a tree by its fruits:

failure to pass his health care bill;
failure on his promise to get Mexico to pay for the wall; failure to get Muslims banned;
… and many others.

It does not look like his plan will pass the legislative process. It will be interesting to watch on whom he will put the blame, this time, for his failure.

#47 Doghouse Dweller on 04.27.17 at 8:12 pm

John Corsine, Jimmy Hoffa spring to mind . The old pension plan slush fund for my personal profit plan. Lets hope he doesn`t get away with it.

But I digress ! They all get away scot- free these days with a bonus to boot.

#48 Nonplused on 04.27.17 at 8:13 pm

“At least we dominate hockey. Oh, wait…”

We haven’t dominated at hockey since expansion and we probably never will again. Well, I should clarify that we are pretty dominant in World hockey because all the Canadian hockey players have to fly back from LA and Boston and play for Canada. We still generate the most world class hockey players because people in rural Canada are simply nuts about the sport and every small town over 200 people has a government built arena.

However, we will never dominate the NHL again. The NHL is not some sort of “sports organization” like a minor hockey association, they are an “entertainment corporation”. Their purpose is revenue. This is why only US team have won the cup since 1993, statistically implausible but we by it. The game is rigged to enhance TV ratings, which mostly come from the US.

“It’s not rigged!”, you say. Well it is. But not in a criminal way like putting in a fix. Instead, the best players all end up on US teams. Ever wonder why Crosby never played for a Canadian team? Wonder why Gretzky was sold to LA immediately after expansion?

Toronto, of any Canadian team, should be able to field a winning team. They are one of the most valuable sports franchises in the world, are constantly sold out, and have a fairly big TV audience, the largest in Canada. But even they can’t do it. Why? It’s not in their interest. They cannot increase revenue by winning. The only way for them to increase profits from here is to increase US TV ratings which means they don’t have to bother trying to win the cup, because it won’t help. If anything it will hurt the revenue sharing.

If it’s on TV, it isn’t real. It’s about the money.

FIFA is probably the closest thing the world has to a legitimate professional sports organization, and we all know how corrupt they are.

#49 akashic records on 04.27.17 at 8:14 pm

There are only two things I will say. Jim Keohane is one of the nicest, most honest pension fund managers I’ve ever come across. There is no way he didn’t inform HOOPP’s board of directors of his role prior to entering this transaction and I wouldn’t be surprised if he vacated Home Capital’s board after entering this deal (I’ll put it to you this way, if it wasn’t kosher, he would have been fired on the spot).

====

You may not be surprised – but can you report that it happened or not? The latest press release is screamingly quiet about the issue that rightly caught the attention of the international business media.

If it did not happen – then it’s not kosher, at all.

Whether JK in your opinion “is one of the nicest, most honest pension fund managers” is immaterial.

Corporate governance is not run on personal opinion.

#50 Marius on 04.27.17 at 8:14 pm

Trump tax cuts:

1) Wholesale transfer of wealth from the poor to the rich.
2) Destroy the federal govt by adding trillions in unrepayable debt.

Mission accomplished if this budget eve becomes law.

#51 crowdedelevatorfartz on 04.27.17 at 8:15 pm

@#12 Leo with the Moon in Denial
“……and it’s clear Jim Keohane puts his members best interests first……”
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

ahahahahahahahahahahahahahaha.
Gee. YOU wouldnt invest in HCG but Keohane invests 2 BILLION dollars of OTHER PEOPLES PENSION MONEY into HIS junk status company…..and you actually….truly….believe …. “he puts his members best interests first”
Which members would THAT be?
The HCG shareholders hanging on by their fingernails?

Jesus H Christ

#52 not a fan on 04.27.17 at 8:16 pm

>>>#3 common sense on 04.27.17 at 7:06 pm
Trump’s tax plan ambitious but likely D.O.A. like his other ideas…

Got to love him though…great initial salesman but doesn’t have the support to deliver….

Still hard to believe he became POTUS, then again the US elected W.

What are the odds the pension GIFT will ever turn a profit?
====================

Well us Canadians (39.6% at least), voted in a former substitute drama teacher in Trudeau. So you/we shouldn’t be so smug.

#53 Tuxedo on 04.27.17 at 8:19 pm

#35 Centre Wing

I wouldn’t, especially if she gets matching contributions. Even if HOOPP goes broke because of this I’m sure the plan will get bailed out. Public plans in Canada always do. Look keep Teacher’s pension in Alberta. And that was under a CON government.

Turns out seniors and pensioners are good voters so the poli’s don’t want to get them too upset.

#54 Rifles on 04.27.17 at 8:20 pm

Funny. Every time i read about lower taxes in the US the comments section in the G&M etc is filled with comments about the rich benefiting, the importance of our medicare system, CBC, Canadians’ collective moral superiority and the virtues showered upon us by our benevolent leaders courtesy of what we send them every year. Meanwhile the NDP looks set to be elected in BC and the federal Conservatives are likely to select a leader who can’t win. We are going to go further in to the hole and T2 is only going to keep digging over a second term.

#55 common sense on 04.27.17 at 8:20 pm

#41 Stan

Well said….

No way rates can raise, No country can afford it as there are no other alternatives unless “they” want a historic crash.

#56 Ret on 04.27.17 at 8:23 pm

James Keohane is president and CEO of HOOP. If Home Capital was going under, he would not have basically put his job and reputation on the line at HOOP with a fast and loose financial deal with HC.

Being on the inside as a board member at Home Capital, he would know exactly what the HC financial situation was and what would be needed.

Maybe some of the HOOP auditors etc. looked over the inner workings of HC before the deal was offered and determined that there was value for their members in brokering a deal with HC.

Knowledge is power. Gambling is for suckers. James Keohane probably knew everyone’s cards before he sat down at the table or he would have left the room.

#57 Smartalox on 04.27.17 at 8:23 pm

I’d bet that JK WAS acting in his pension plan members’ best interests:

No telling how many plan members are also clients of HCG, but I’m willing to bet there are more than a few. JK might have been presented with a thick pile of computer printouts, and a post-it saying “these are the first loans we call”.

Or, as is more likely, HOOPP has substantial holding of HCG ‘products’ and is only trying to keep their own house of Cards from collapsing.

#58 Chris on 04.27.17 at 8:23 pm

Is this pension fund backed by taxpayers? God I hope not…

#59 Snowboid on 04.27.17 at 8:24 pm

Counterpoint on US Tax plan:

http://www.newsweek.com/trump-tax-cuts-ignore-history-arithmetic-590903

#60 Self Directed on 04.27.17 at 8:24 pm

#19 People Gone Mad! on 04.27.17 at 7:31 pm

Thanks #19, but you didn’t present any argumentative topics. Are you comparing yourself to the rest of the world? Or was it an attempt to brag? So you’re a small time disciplined investor… who cares!

#61 TurnerNation on 04.27.17 at 8:28 pm

A BSD @ Hooop. Caught the run around noon, holding overnight.

@tony notice TECK? I always call it a leading indicator. Not looking good.

M41ON

#62 Keith on 04.27.17 at 8:35 pm

A quick google search shows that this pension fund has 70 billion in assets. So if this loan goes completely wrong and no money is recovered, which would be an unlikely scenario, it’s about a 3% loss of assets. Not exactly the end of the world.

#63 Johnny D on 04.27.17 at 8:39 pm

#37 acdel

About that CBC story… typical CBC garbage. The story has a title that implies that higher income earners are increasingly paying zero taxes. One would assume that they are avoiding taxes illegally. Read the story and two paragraphs in it mentions how more high income earners are using LEGAL means such as business writeoffs and RRSP contributions to bring their tax bill to zero. Tell me what’s wrong with that?

#64 bigtowne on 04.27.17 at 8:40 pm

It is not shocking HOOP is trying to get a decent return for now and the future for all those civil servants and medical staff but what is the real and unexamined question is how any pension fund in Canada can manage with our close to zero interest rates.

It would be a crime if HOOP did not make an exceptional effort to plan for the future of these workers in this non-stop unending decade of no return for any fund anywhere.

It is reassuring to know out there in the world of the civil service someone is doing the right thing for their people whom they represent. This is good news and shows real effort in a very unfriendly investment landscape.

#65 Leo Kolivakis on 04.27.17 at 8:41 pm

#35 Centre Wing asks:

“My wife is an RN contributing a significant % of her income into this thing. As a PT employee she can opt out… Should we consider that??”

My answer: Your wife and any other member of HOOPP should most definitely NOT opt out. Along with Ontario Teachers’ Pension Plan, HOOPP is the best pension plan in Canada and enjoys super funded status (close to 120%). Only an idiot would opt out of HOOPP or any of Canada’s great large, well-governed DB plans.

Jim Keohane did the right thing by recusing himself and then resigning from Home Capital’s board after the deal was made. He did nothing remotely shady here and always puts the plan members’ best interests first.

#66 Seven Stars and Orion on 04.27.17 at 8:41 pm

HOOPP member here and the pension if not gold-plated is certainly the foundation of my retirement planning. At first blush this stinks like rotten bologna, but HOOPP is about as well-managed as a DB plan can be. I stayed out of the RE game in the face of significant social and personal grief. Looks like I’m elbows deep in it regardless.

#67 Smoking Man on 04.27.17 at 8:41 pm

Can you beilive I’m at Seneca again.

No Job. Investments went south, bidding wars over for now and through some for of magic I win for the second week in a row. 9,999.99

@SmokingMan for the pic.. Just so the dogs know what I look like at the first annual blog dog meet up at the forks of the credit river come may 13 2017

#68 Mark on 04.27.17 at 8:47 pm

“Interest rates are not rising, they are falling. Most of my government bonds are up 7.5% to 9.0% in just about 2 months ago in 2017.”

Yes. However, spreads as applicable to a specific kind of debt, mortgage debt, appear to be rising. The result of falling prices and a reduction in lender confidence in the value of the mortgages and underlying assets.

This is the way that the ‘market’ moves to remove capital from assets which are not performing very well and are depreciating. Spreads widen. GoC debt is viewed as ‘risk-free’, and responds to expectations for future BoC policy. With the amount of housing deflation likely in Canada, the BoC is very likely need to run ZIRP/NIRP and engage in QE until the economy can re-organize around something other than RE as a demand and employment driver. Risk-free bond yields are increasingly reflecting that reality.

Interest rates are going lower and people are going to save billions more in monthly interest and housing prices will double at least over the next 15 to 16 years.

Not a chance as lower interest rates will not filter through to loans against an asset class which is depreciating, in which significant over-capacity exists. Given the magnitude of the bubble, and the inability for long-term interest rates to fall significantly further, it seems quite unlikely that the RE market will be much better than flat over that interval.

There are many sectors of Canada’s economy which have faced unduly high costs of borrowing and of capital over the past few decades which are likely to benefit significantly from a rotation away from abnormally easy RE lending. The chances of a doubling or more is dramatically higher in such sectors and asset classes.

#69 NoName on 04.27.17 at 8:53 pm

#35 Centre Wing on 04.27.17 at 7:48 pm

They are clamping down on hours and not filling wholes with pt stuff, there is no sense to give up 30-40 of income to get back in lieu (for my wife was 350 when she worked pt. )

Do this
Cancel your cable, home phone, and start buying NoName products, that should get you close to in lieu every month, and one more thing get that grocery store point card and pay with cash back visa. Some cards are 4% cash back on food dining gas and meds. And 1% on all other stuff

Just for the record I don’t buy NoName products, but probably after today I should.

#70 WUL on 04.27.17 at 8:53 pm

Yes, an egregious conflict of interest here but a savvy deal by the pension fund. It will pay off nicely. And if it falters, and I don’t expect it will, low cost housing for health practitioners in foreclosed homes in the 905 and 416. An employment perk.

#71 kam on 04.27.17 at 8:56 pm

Employees should be allowed an option to self-direct/invest their retirement funds.Why do employers force employees to invest with the big pension funds when employees know that their administrative cost is too high, and they may not get the good return on their investments.Is there a law in place which can allow public servants to self-direct/invest their retirement funds?

Most of the pension funds are managed by over expensive VPs and CEOs …check ministry of finance website for the salary disclosures even though pension fund companies hire Investment Management Companies to manage their investments, lots of VPs and directors work in pension fund offices.

#72 acdel on 04.27.17 at 8:57 pm

#56 Johnny D

Tell me what’s wrong with that?

————————————————-

I personally do not see anything wrong with that, this is why I was asking, it sounded to one sided, business’s are deferring; thanks for your reply.

#73 John on 04.27.17 at 8:58 pm

Garth,
I also made a complaint today to the FSCO about Mr. Keohane’s egregious conflict of interest.

#74 cecilhenry on 04.27.17 at 9:02 pm

Its tax time: Where you find out that all your sacrifices, sweat and effort go to pay someone else.

‘You’re richer than you think’???

Hardly. It means ‘They’re richer than YOU think.’

As for you:

‘You’re poorer than you think.’

What you think you’ve already earned can be taxed away more. What you’ve invested can be stolen yet again.

And they can steal it all. Call it sharing, or ‘caring’.

They have to wait for you to produce first of course. Like any parasite.

And then they pretend its not theft. But it is.

What is your fair share of what someone else has earned??? It has to be EARNED before it can be taxed and stolen.

Ethics are done. Its just theft by government. But what comes around, will go around.

#75 Unhinged Trader on 04.27.17 at 9:08 pm

Boy, this thing is looming isn’t it?

What’s a great way to short the Canadian economy in general?

#76 For those about to flop... on 04.27.17 at 9:09 pm

I wasn’t that familiar with HOOP and so I googled it and this 4 minute video explained it pretty well.

HOOP ,there it is…

M42BC

https://m.youtube.com/watch?v=Z-FPimCmbX8

#77 BS on 04.27.17 at 9:12 pm

Leo Kolivakis on 04.27.17 at 7:16 pm
Garth,

As an expert on Canada’s large pensions and as someone who knows and admires Jim Keohane and HOOPP, I think you’re contributing to the misinformation being spread out there. Read my latest, I wouldn’t touch Home Capital shares but HOOPP made a great deal here for its members and it’s clear Jim Keohane puts his members best interests first:

http://pensionpulse.blogspot.ca/2017/04/canadas-subprime-mortgage-crisis.html?m=1

You don’t know all the details, stop speculating!

Here is the problem. Jim Keohane represented both the pension fund and HCG. One of the two got burned on this deal. If it was such a smoking deal for the pension fund as you state, then Jim ripped off HCG who he was also representing. As a representative of HCG he should have been able to find funding cheaper than 27% if this was such a sure thing for the pension fund. The only way this could have been fair is for him to resign from one and have input on only one side. It is impossible for this not to be a conflict of interest regardless of what the details are.

#78 Ron on 04.27.17 at 9:13 pm

#64 Mark on 04.27.17 at 8:47 pm

There are many sectors of Canada’s economy which have faced unduly high costs of borrowing and of capital over the past few decades which are likely to benefit significantly from a rotation away from abnormally easy RE lending. The chances of a doubling or more is dramatically higher in such sectors and asset classes.

———————–

so what’s next?

#79 Mark on 04.27.17 at 9:14 pm

“what is the real and unexamined question is how any pension fund in Canada can manage with our close to zero interest rates.”

Easy. Low interest rates have created all sorts of asset inflation and generated very healthy returns for the pension funds. The bond market, to which the pension funds are heavily allocated, has been the chief beneficiary of low interest rates. Investment portfolios which were expected to return their coupon rate, with duration held long, have, in the falling rate environment, produced significantly more than the coupon rate. Many kinds of equities, particularly those in consumption and finance-related sectors, have benefitted handsomely as well from the low rates.

Its the high rate environment pension funds and managers should fear. Their actuarial obligations are likely to fall at a rate significantly less than pension fund returns. Further damaging solvency. This is fairly easy to understand intuitively, that pension fund schemes were broken from the outset. For instance, we have teachers in Ontario who retire after 30 years of “service”, and are paid their salaries, indexed to inflation, for another 30-40 years. The real returns required to accomplish this exceed that of what the economy can realistically provide and behemoth pension funds cannot invest for outperformance sustainably. Low interest rates and excess returns in the bond market couldn’t even make the pension funds solvent — when rates go high, the problem will become completely intractable.

Jim Keohane did the right thing by recusing himself and then resigning from Home Capital’s board after the deal was made.

The perception of conflict of interest would have been significantly less if he resigned *before* the deal was made, not after.

I can just see the class action lawyers queuing up to litigate against the Board and the company at this point.

Whether he acted improperly, that is a question which others will judge, but the perception could be extremely bad amongst HCG’s shareholders.

#80 conan on 04.27.17 at 9:17 pm

If I sold a 2 billion dollar investment, even if it is a one year GIC I am looking at islands to buy.

If I bring in a 2 billion dollar investment to my company, even with ridonkulous terms, I am looking at islands to buy with my bonus.

“At least we dominate hockey. Oh, wait…”

Sens or Oilers, or are you too Leafy for that?

So he recluses himself, but did he double end on this dealio? I don’t think this deal passes the smell test at all.

Moving money around always pays something to someone.

#81 Pete from St. Cesaire on 04.27.17 at 9:25 pm

But was this bold bail-out of a subprime lender in flames really in the best interests of thousands of nurses and medical workers?
—————————————————
No. It stinks of a set-up that goes much deeper, doesn’t it. I wonder how much of a say HOOP really had in the decision. I know, I know, I’m just a tin-foil hat guy.

#82 Little John on 04.27.17 at 9:26 pm

#12, 61 Leo Kalakis

Dude, you’re f-ked up!

#83 Leo Kolivakis on 04.27.17 at 9:28 pm

#70 BS writes:

“Here is the problem. Jim Keohane represented both the pension fund and HCG. One of the two got burned on this deal. If it was such a smoking deal for the pension fund as you state, then Jim ripped off HCG who he was also representing. As a representative of HCG he should have been able to find funding cheaper than 27% if this was such a sure thing for the pension fund. The only way this could have been fair is for him to resign from one and have input on only one side. It is impossible for this not to be a conflict of interest regardless of what the details are.”

Go read the Bloomberg article that came out late today:

http://business.financialpost.com/news/fp-street/home-capital-group-director-keohane-resigns-after-fund-backs-2-billion-loan

Jim Keohane recused himself from Home Capital’s board and then resigned once the deal was signed.

The article states there were other lenders (maybe other pensions) involved and Jim didn’t advise either side:

“We were involved in the deal with a syndicate of other lenders,” Keohane said in a telephone interview. “With the possibility of us getting involved with a deal with Home, clearly that changes the business relationship between HOOPP and Home. It’s obvious a conflict exists there.”

“I was not involved in any decision making on the other side of this at all,” he said.

#84 Walter Safety on 04.27.17 at 9:29 pm

I’m sure the politico’s are looking over the Home Capital deal now to see if there is any political currency up for grabs.
Some would remember the great apartment flip of 25 years ago , problem for Leonard Rosenberg was he had friends in high places but just not high enough places.
JK might do better. But if the world is fair this deal is due lots of scrutiny. Not holding my breath.

#85 ww1 on 04.27.17 at 9:32 pm

#xxx USERNIC on mm.dd.yy at hh:mm PM
“At least we dominate hockey. Oh, wait…”
Sens or Oilers, or are you too Leafy for that?

Both out in five. You heard it here first.

#86 Pete from St. Cesaire on 04.27.17 at 9:38 pm

Forget my earlier comment, I had misread a key aspect of the story.
####################################
NEXT:
Effective tax planning, and aggressive avoidance have never been more essential for people who created wealth and want to keep it.
—————————————————-
Forget the song and dance, they’re coming for all of it in the end. Get out of ‘the West’ as fast as you can. If you’re just starting out in life, get out as soon as you have something to offer the world.

#87 Oh Canada on 04.27.17 at 9:40 pm

#73 BS

Leo Kolivakis on 04.27.17 at 7:16 pm
Garth,

As an expert on Canada’s large pensions and as someone who knows and admires Jim Keohane and HOOPP, I think you’re contributing to the misinformation being spread out there. Read my latest, I wouldn’t touch Home Capital shares but HOOPP made a great deal here for its members and it’s clear Jim Keohane puts his members best interests first:

http://pensionpulse.blogspot.ca/2017/04/canadas-subprime-mortgage-crisis.html?m=1

You don’t know all the details, stop speculating!

—–

Here is the problem. Jim Keohane represented both the pension fund and HCG. One of the two got burned on this deal. If it was such a smoking deal for the pension fund as you state, then Jim ripped off HCG who he was also representing. As a representative of HCG he should have been able to find funding cheaper than 27% if this was such a sure thing for the pension fund. The only way this could have been fair is for him to resign from one and have input on only one side. It is impossible for this not to be a conflict of interest regardless of what the details are.

=====

About Leo Kolivakis

I’ve consulted the Treasury Board Secretariat of Canada on pension governance and have been invited to speak at the Standing Committee on Finance and at Senate Standing Committee on Banking, Commerce and Trade to discuss Canada’s pension system.”

Oh, boy…

#88 Hockey on 04.27.17 at 9:41 pm

on the International level, pro level. BEST OB BEST. Canada has not lost in their last 16 matches. That’s unheard of

who’s your daddy hockey world?

#89 OttawaMike on 04.27.17 at 9:48 pm

Millenials:
Trust housing not stocks–
http://www.cnbc.com/2017/04/27/wall-street-to-millennials-dont-fear-the-stock-market.html

#90 NoName on 04.27.17 at 9:48 pm

#79 Leo Kolivakis on 04.27.17 at 9:28 pm

Jim Keohane recused himself from Home Capital’s board and then resigned once the deal was signed.

The article states there were other lenders (maybe other pensions) involved and Jim didn’t advise either side:

“We were involved in the deal with a syndicate of other lenders,” Keohane said in a telephone interview. “With the possibility of us getting involved with a deal with Home, clearly that changes the business relationship between HOOPP and Home. It’s obvious a conflict exists there.”

“I was not involved in any decision making on the other side of this at all,” he said.

—-

I am very naive person and even for me is hard to believe all that.

can you shed a light about Jim Keohane compensations and stake holdings in both places, severance packages and unimportant stuf like that, mr analist.

#91 Leo Trollstoy on 04.27.17 at 9:48 pm

Interest rates are going lower and people are going to save billions more in monthly interest and housing prices will double at least over the next 15 to 16 years

Welcome to Toronto and Vancouver real estate!!

#92 Mean Gene on 04.27.17 at 9:49 pm

Hockey smocky, there are so many Canadians playing on US teams and vice versa including foreigners everywhere, how can you really differentiate and come to any conclusion about who dominates… it’s only entertainment for the masses.

#93 HouseBuster on 04.27.17 at 9:55 pm

So hcg has to pay $100 million + interest

This a horrible horrible deal for home capital. How is this not a conflict of interest? Does he think people are stupid and that he can get away with it?

Maybe Don Corleone was in on the deal too.

#94 Mark on 04.27.17 at 10:02 pm

“so what’s next?”

In the US after their collapse, speculative capital was liberated from the housing sector and went into the sector on which Americans love to speculate, the tech sector. Funding costs were also lowered extremely for all sorts of other credit-worthy businesses. They were able to use the cheap funding to repurchase their stock, thus driving the US indices up to their current dizzying heights.

Hopefully the easy and cheap access to equity capital will ‘reboot’ the Canadian economy enough to drive some much needed wage inflation and bring the hoardes of unemployed/underemployed back into the fold. I’ve theorized, in the past, that Vancouver RE could be even rescued from total decimation on account of the significant local presence of junior and mid-tier mining companies which are certain to sprinkle plenty of stock options and appreciated stock upon local resident participants. Much like Toronto RE in 1999 actually did reasonably well with the Nortel-ites cashing out despite quite significantly rising interest rates and little enthusiasm for housing as an asset class.

#95 WUL on 04.27.17 at 10:08 pm

I cannot return to my home in Calgary from Fort McMurray ever thanks to the Ottawa Senators. Seems the Missus caught a glimpse of Erik Karlsson on the telly and the suitcases are packed for a flight from YYC to the banks of the Rideau. Her heart is all arithmetic. Damn you Hockey!

#96 HouseBuster on 04.27.17 at 10:13 pm

The Garth of old would make these HomeCapital board members pay.

#97 Rich Young on 04.27.17 at 10:16 pm

PULL YOUR MONEY OUT OF YOUR PENSION! … pension funds bailing out bad loans and I believe BMO has packaged up Mortgages to sell off to pension funds just like in the states in 2006/2007… and we know how that ended. CDOs they called them. Or , Poop in a bag!

#98 conan on 04.27.17 at 10:18 pm

RE#81 ww1 on 04.27.17 at 9:32 pm

“Both out in five. You heard it here first.”

Do you have a time machine or something?

Oh, oh, a Habs fan.

#99 Oh Canada on 04.27.17 at 10:19 pm

#79 Leo Kolivakis

Go read the Bloomberg article that came out late today:

http://business.financialpost.com/news/fp-street/home-capital-group-director-keohane-resigns-after-fund-backs-2-billion-loan

“Healthcare of Ontario Pension Plan President and Chief Executive Officer Jim Keohane said he recused himself from the lending talks and stepped away from Home Capital’s board last Tuesday before formally resigning on Thursday. He also said that Kevin Smith, Home Capital’s chairman, has stepped down from HOOPP’s board.”

Can a CEO and a chairman truly recuse themselves from a 2 billion dollar deal?

Does “recuse” even have a real meaning in such an established, close business relationship, where both parties represent executive power?

Even if it is legally tight, the optics of the situation is tricky, not to mention the secrecy and forced “admission” of the recuse and resignation.

One would think that sophisticated organizations would have made all the necessary announcements at the same time when the deal was made public, not leaving these important details open for speculation.

#100 paulo on 04.27.17 at 10:20 pm

betting that keohane scored for HOOP they likely secured the best of the mortgage portfolio that HCG had.
unfortunately he should have inked his resignation in advance of inking the deal. timing is everything
as for the other of investors in HCG one thought comes to mind…. toast

#101 conan on 04.27.17 at 10:38 pm

Sun Tzu, The Art of War and your portfolio

Hate to say this but it is time to set up your portfolio for war.

I am reducing Asia and loading up on USA.

The PTB are moving the war abucus and I think the decision has been made to not wait for kim to get robotics and scram jet missiles.

On another note, Turkey is a mess. Under reported in the news, but they just recently attacked the US supported Kurds in Syria.

http://www.military.com/daily-news/2017/04/26/us-slams-nato-ally-turkey-airstrikes-against-kurds.html

#102 Teulon on 04.27.17 at 10:43 pm

The $2B infusion to Home Capital seems sufficient to replace the demand deposits which have been rapidly eroding. However there’s some $12B in GIC deposits, which as they mature, are in danger of not being renewed. This high rate loan is inadequate to replace these GIC’s as they mature.
Our condo corp’s reserve fund has a $100,000 Home
Capital GIC maturing in 8 months and I know we won’t
renew (if they’re still in business).

#103 Leo Kolivakis on 04.27.17 at 10:58 pm

#83 Oh Canada,

Yup, was invited twice to Ottawa to testify, once at Parliament Hill and once st the Senate. I also did write a report for the Treasury Board on the governance of the Public Service Pension Plan. They didn’t like it because I criticized some aspects of their oversight, but one thing I can tell you is I’d take Canada’s large, well-governed defined-benefit plans over any plans in the US where there’s gross political interference in the operations of public pensions. Our public pension system is far from perfect but it’s the envy of the world. We should be proud of it and our large pensions, especially HOOPP.

#104 Smoking Man on 04.27.17 at 10:59 pm

When you realize you were to slow. Never figured out the grand plan fast enough.

https://youtu.be/1UUYjd2rjsE

#105 AlWho on 04.27.17 at 11:00 pm

Was watching CP24 hot property earlier amd couldnt stop laughing.

Al Sinster still blaming lack of supply the main culprit in high home prices. Then someone called in asking if they should sell now. He jumped and told them no DO NOT list your house yet. People are all listing their properties, they’re vreatimg an oversupply. Prices will drop. Just wait.

When will CP24 decide to get people on the show who dont have a conflict of interest? Oh wait. It must depend on who pays the most.

#106 BS on 04.27.17 at 11:29 pm

Ret on 04.27.17 at 8:23 pm
James Keohane is president and CEO of HOOP.

If Home Capital was going under, he would not have basically put his job and reputation on the line at HOOP with a fast and loose financial deal with HC.

LOL, we have never seen a president and CEO put their own self interest before that of the organizations stake holders? If it was about preserving reputation how did HCG end up in this situation? Do you think the rest of the board was not aware of the shenanigans that led to this? Of coarse they were but they wanted to pump the HCG stock.

And how much of an equity position does Jim have in HCG now? Saving that equity may be worth his reputation, which as a board member of HCG is already in question.

It is always about the money.

#107 Smoking Man on 04.27.17 at 11:30 pm

Millenials

Ask the teacher

https://youtu.be/6Ejga4kJUts

#108 Long-Time Lurker on 04.27.17 at 11:34 pm

Can someone explain to me how this is a good investment? Junk rating (B+) with a market value worth ($515m) of a quarter of the line of credit ($2b)?

http://www.financialpost.com/m/wp/news/blog.html?b=business.financialpost.com/news/fp-street/home-capital-group-director-keohane-resigns-after-fund-backs-2-billion-loan&pubdate=2017-04-27

S&P Global Ratings downgraded Home Capital Thursday to junk with a B+ rating, from BBB-, the lowest level of investment grade. The senior unsecured rating on Home Trust was lowered to BB from BBB. DBRS Ltd. downgraded Home Capital to BB from BBB (low) and placed all ratings under review with negative implications on April 26.

Boland said estimates on a sale price for Home Capital would be speculative, but said commercial banks may be interested. Home Capital’s market value has plunged to C$515 million, from about C$3.5 billion in 2014.

Can someone explain to me how this anything other than a bailout? Let’s see, I provide all the capital and I take all the risk!

Add “subprime” before “mortgages” when you’re reading.

Leo Kolivakis this is from your blog:

http://pensionpulse.blogspot.ca/2017/04/canadas-subprime-mortgage-crisis.html?m=1

Home Capital is Canada’s largest alternative mortgage lender, providing subprime loans to people who don’t qualify for traditional bank mortgages.

Still, Home Capital’s stock is bouncing up today (wouldn’t touch it with a ten-foot pole!) and I was surprised to see the Royal Bank is the latest Canadian firm to explore a sale of bonds backed by uninsured residential mortgages after that bank’s CEO warned of a frothy Canadian housing market.

My advice remains the same as last Friday: don’t touch these shares with a ten-foot pole!

HOOPP confirmed in a separate statement late Thursday that it has agreed, along with a syndicate of lenders, to provide the $2 billion credit line.

The one-year credit line from HOOPP has a 10 per cent interest rate on outstanding balances and a 2.5 per cent rate on undrawn amounts. The finalized agreement follows an announcement early Wednesday that Home Capital had reached a non-binding agreement in principle with an institutional investor for the loan.

Under the terms of the loan, Home Capital is required to make an initial C$1 billion draw and pay a non-refundable commitment fee of C$100 million. The loan is secured by a pool of mortgages originated by Home Trust, the company’s mortgage origination subsidiary.

S&P Global Ratings downgraded Home Capital Thursday to junk with a B+ rating, from BBB-, the lowest level of investment grade.

The senior unsecured rating on Home Trust was lowered to BB from BBB. DBRS Ltd. downgraded Home Capital to BB from BBB (low) and placed all ratings under review with negative implications on April 26.

Here are the terms for this HOOP loan, vaguely.

http://www.homecapital.com/press_releases/2017/NRCreditAgrmt.pdf

Liquid assets of $1.3 billion plus an additional portfolio of… securities totalling approximately $200 million.

By the way, the BMO Mortgage-Backed-Security Bond contains securites rated from AAA (best) to B2 (junk). BMO is taking the top three tranches for itself (best). There is also a non-rated portion which could be anything. In other words, off-loading risk.

https://www.bloomberg.com/news/articles/2017-04-17/bank-of-montreal-to-offer-mbs-as-canada-shrinks-mortgage-support

But the Bank of Montreal deal may find headwinds, said Paul Gardner, partner and portfolio manager at Avenue Investment Management Inc. Canada last year tightened access to the federal insurance to help tamp down rapid home price growth in areas like Toronto and
Vancouver. The federal government or Ontario could craft more legislation to cool the housing market, Gardner said.

“Residential mortgages, my God, it’s the last thing you want to invest in right now,” Gardner said by phone from Toronto. “When the capital markets are flush with cash, it makes sense that they would try at least to issue this stuff.”

Homes have grown less affordable in Canada as housing prices have increased far faster than wages. Existing home prices rose 18.6 percent in the 12 months ended in March, while wages grew just 1.1 percent, the slowest rate since the 1990s. In Toronto, affordability reached its worst level since 1990 at the end of 2016, according to a report from Royal Bank of Canada.

The Bank of Montreal bond is backed by C$1.96 billion of prime residential mortgages, more than half of which are in Ontario and Quebec, according to a Moody’s pre-sale report. Around 95 percent of the securities in the transaction will be rated Aaa. The lowest rated portion will be B2, and there is a non-rated portion as well, the bond grader said. BMO intends to purchase and hold the top three tranches of the debt, equal to about 98 percent of the principal, according to the report.

https://en.wikipedia.org/wiki/Moody%27s_Investors_Service

Tranches
http://www.investopedia.com/terms/t/tranches.asp

Anyone want to comment?

#109 HCG is garbage on 04.27.17 at 11:41 pm

HCG is a Ponzi scheme and their time is up, won’t be able to pay interest on their loan and pension will lose all money. Big housing crash postpone by couple of months though…

#110 BS on 04.27.17 at 11:42 pm

9 Leo Kolivakis on 04.27.17 at 9:28 pm

Jim Keohane recused himself from Home Capital’s board and then resigned once the deal was signed.

Jim is still holding his equity position in HCG which is a massive conflict. If this was such a great deal for the pension fund why was there no other lenders lining up for a 27% yield? Banks are giving out mortgages for 2.7% or 1/10 the yield. There is obviously massive risk here. There is no other way to spin it.

#111 april on 04.27.17 at 11:45 pm

#87 – sounds like you have skin in the game.

#112 Mark on 04.27.17 at 11:46 pm

“The $2B infusion to Home Capital seems sufficient to replace the demand deposits which have been rapidly eroding. However there’s some $12B in GIC deposits, which as they mature, are in danger of not being renewed. This high rate loan is inadequate to replace these GIC’s as they mature.”

Once a one-off bank run begins, its pretty rare that it stops. Those GIC depositors will want the same deal as HOOPP et al are receiving, perhaps even more since they are not being granted a security interest in mortgages but are rather unsecured creditors. Which is obviously unsustainable.

The big-5 are most likely licking their chops at the prospect of being able to severely escalate spreads on mortgage loans. Most of which will flow to their bottom line. Funds which are fleeing HCG will significantly be placed with the big-5, lowering their financing costs.

#113 Niko Dog on 04.28.17 at 12:09 am

I can’t believe that this is legal! At best it is horrible judgement on the part of HOOP, James Keohane, and Home Capital.

If you feel the same way email the Ontario Securities Commission today and tell them to investigate!

[email protected]
http://www.osc.gov.on.ca/en/contactus_index.htm

Thanks garth….. I’m speechless

#114 n1tro on 04.28.17 at 12:30 am

@Leo #12

Your article just highlights the problems of pension plans and other government entities struggling to get decent yields in a low rate environment. HOOP is in the same boat. So the solution is to put a butt load of money on a high risk bet? If giving HCG a loan is indeed a safe bet despite its rating being downgraded to junk, how does buddy know this unless it is insider information?! The facts show that Jimbo is playing pretty loose with other people’s money and probably violating some mandated HOOP rules on choosing investments. Pretty sure one of the rules is that investments must meet certain ratings…junk not being one of them.

#115 Lisa on 04.28.17 at 12:33 am

Benefits are a burden for business here, compared to the U.S? Garth, what about businesses having to provide health care for employees in the U.S?

And isn’t it unethical to be encouraging wealthy to avoid tax. I got hit with pretty major capital gains this year and I was happy to pay them. Think of all thos displaced by automation and other circumstances and do your best to help by paying your taxes. It is one of the great things about making money.

It amazes me that so many people with money are so weirdly attached to it and so unwilling to do their fair share

#116 Ponzius Pilatus on 04.28.17 at 12:37 am

#104 Long-Time Lurker on 04.27.17 at 11:34 pm
Can someone explain to me how this is a good investment? Junk rating (B+) with a market value worth ($515m) of a quarter of the line of credit ($2b)?

http://www.financialpost.com/m/wp/news/blog.html?b=business.financialpost.com/news/fp-street/home-capital-group-director-keohane-resigns-after-fund-backs-2-billion-loan&pubdate=2017-04-27

S&P Global Ratings downgraded Home Capital Thursday to junk with a B+ rating, from BBB-, the lowest level of investment grade. The senior unsecured rating on Home Trust was lowered to BB from BBB. DBRS Ltd. downgraded Home Capital to BB from BBB (low) and placed all ratings under review with negative implications on April 26.

Boland said estimates on a sale price for Home Capital would be speculative, but said commercial banks may be interested. Home Capital’s market value has plunged to C$515 million, from about C$3.5 billion in 2014.

Can someone explain to me how this anything other than a bailout? Let’s see, I provide all the capital and I take all the risk!

Add “subprime” before “mortgages” when you’re reading.

Leo Kolivakis this is from your blog:

http://pensionpulse.blogspot.ca/2017/04/canadas-subprime-mortgage-crisis.html?m=1

Home Capital is Canada’s largest alternative mortgage lender, providing subprime loans to people who don’t qualify for traditional bank mortgages.

Still, Home Capital’s stock is bouncing up today (wouldn’t touch it with a ten-foot pole!) and I was surprised to see the Royal Bank is the latest Canadian firm to explore a sale of bonds backed by uninsured residential mortgages after that bank’s CEO warned of a frothy Canadian housing market.

My advice remains the same as last Friday: don’t touch these shares with a ten-foot pole!

HOOPP confirmed in a separate statement late Thursday that it has agreed, along with a syndicate of lenders, to provide the $2 billion credit line.

The one-year credit line from HOOPP has a 10 per cent interest rate on outstanding balances and a 2.5 per cent rate on undrawn amounts. The finalized agreement follows an announcement early Wednesday that Home Capital had reached a non-binding agreement in principle with an institutional investor for the loan.

Under the terms of the loan, Home Capital is required to make an initial C$1 billion draw and pay a non-refundable commitment fee of C$100 million. The loan is secured by a pool of mortgages originated by Home Trust, the company’s mortgage origination subsidiary.

S&P Global Ratings downgraded Home Capital Thursday to junk with a B+ rating, from BBB-, the lowest level of investment grade.

The senior unsecured rating on Home Trust was lowered to BB from BBB. DBRS Ltd. downgraded Home Capital to BB from BBB (low) and placed all ratings under review with negative implications on April 26.

Here are the terms for this HOOP loan, vaguely.

http://www.homecapital.com/press_releases/2017/NRCreditAgrmt.pdf

Liquid assets of $1.3 billion plus an additional portfolio of… securities totalling approximately $200 million.

By the way, the BMO Mortgage-Backed-Security Bond contains securites rated from AAA (best) to B2 (junk). BMO is taking the top three tranches for itself (best). There is also a non-rated portion which could be anything. In other words, off-loading risk.

https://www.bloomberg.com/news/articles/2017-04-17/bank-of-montreal-to-offer-mbs-as-canada-shrinks-mortgage-support

But the Bank of Montreal deal may find headwinds, said Paul Gardner, partner and portfolio manager at Avenue Investment Management Inc. Canada last year tightened access to the federal insurance to help tamp down rapid home price growth in areas like Toronto and
Vancouver. The federal government or Ontario could craft more legislation to cool the housing market, Gardner said.

“Residential mortgages, my God, it’s the last thing you want to invest in right now,” Gardner said by phone from Toronto. “When the capital markets are flush with cash, it makes sense that they would try at least to issue this stuff.”

Homes have grown less affordable in Canada as housing prices have increased far faster than wages. Existing home prices rose 18.6 percent in the 12 months ended in March, while wages grew just 1.1 percent, the slowest rate since the 1990s. In Toronto, affordability reached its worst level since 1990 at the end of 2016, according to a report from Royal Bank of Canada.

The Bank of Montreal bond is backed by C$1.96 billion of prime residential mortgages, more than half of which are in Ontario and Quebec, according to a Moody’s pre-sale report. Around 95 percent of the securities in the transaction will be rated Aaa. The lowest rated portion will be B2, and there is a non-rated portion as well, the bond grader said. BMO intends to purchase and hold the top three tranches of the debt, equal to about 98 percent of the principal, according to the report.

https://en.wikipedia.org/wiki/Moody%27s_Investors_Service

Tranches
http://www.investopedia.com/terms/t/tranches.asp

Anyone want to comment?
——————-
Yeah, stop posting these long comments.
And go back to lurking.

#117 Jessica on 04.28.17 at 12:46 am

Let’s not compare apples & oranges. Top fed rate for 2017 in Cdn is 33%, and top fed rate in the US for 2017 is 39.6%.

So if you want to compare a 50%+ top tax rate in Cdn for combined fed & province, then you have to compare that to the top combined state/fed in US: Top combined marginal tax rate in Cdn is 54% in NS. Top combined marginal tax rate in US is 52.9% in Cali.

Second, US citizens are taxed on worldwide income, even if they’ve never stepped foot in the US. For their entire adult lives. The United States is one of two countries in the world that taxes its non-resident citizens on worldwide income, in the same manner and rates as residents; the other is Eritrea. You can’t move away from Uncle Sam. You can easily move away from Auntie Beaver.

Third, US corporate fed tax is 34% before state tax up to 16%.

Do you really think their government can operate on less? 15%, my a$$. Trump just realized he’s running departments individually larger than any corporation in the world.

1000s of Americans are renouncing their citizenship. We got it better here than most.

#118 Jessica on 04.28.17 at 12:48 am

Quite disturbing about James Keohane, though.

#119 L on 04.28.17 at 12:50 am

@12 Leo

Would have to agree with Leo. HOOPP is one of the largest & best managed pension funds around & has done extremely well under the president & CEO JK.

#120 Jessica on 04.28.17 at 1:20 am

#55 Snowboid on 04.27.17 at 8:24 pm
Counterpoint on US Tax plan:

http://www.newsweek.com/trump-tax-cuts-ignore-history-arithmetic-590903

—-

Excellent analysis!

#121 Where's The Money Guido? on 04.28.17 at 1:42 am

#19 People Gone Mad! on 04.27.17 at 7:31 pm

It’s all in the plan, don’t you know. Usually they try this stuff here (Canada) first, like TFW’s, union busting, all that middle class rape.
Make housing scarce by buying it all up and leaving it empty. Indenturing the slaves with these huge mortgages, then let it pop, buy up the foreclosed props, and we get to bail the too big too fail thieves with increased taxes.
It’s all in the plan man. They will not stop the bubble and ensuing inflation to get everyone snared, even the savers.
Same trick used for eons…..enough said. http://www.veteranstoday.com/2015/03/08/the-hidden-history-of-the-incredibly-evil-khazarian-mafia/

#122 DON on 04.28.17 at 2:58 am

#87 Leo Trollstoy on 04.27.17 at 9:48 pm

Interest rates are going lower and people are going to save billions more in monthly interest and housing prices will double at least over the next 15 to 16 years

Welcome to Toronto and Vancouver real estate!!
*******************
AH What’s up doc.

You quoted a realtor and believe in an endless pool of rich buyers. Too much Skin in the game? – YIKES!

#123 Johnny D on 04.28.17 at 4:29 am

@#68 acdel

We agree 100% on this one then. Sorry if I seemed brash in my initial response. That can only be attributed to frustration towards reading such one sided stories from CBC with exaggerated headlines, worded in such ways as to just get clicks.

All in all, that was a non-story just using obfuscated statistics to try to keep the “rich people are evil” meme intact.

#124 Stalling for time? on 04.28.17 at 4:40 am

#47 crowdedelevatorfartz has the optics and morals of it correct. Old Boy’s Club to the rescue.

I would not be surprised if large position Home Cap. shareholders (e.g., Executive) are selling like crazy at the small uptick in share price today. Looks like a stalling tactic or “Hail Mary” pass to me.

History never repeats…

#125 Tony on 04.28.17 at 5:04 am

Re: #93 Rich Young on 04.27.17 at 10:16 pm

https://www.youtube.com/watch?v=ueZv0KOqNfs&t=206s

#126 Koshy Alex on 04.28.17 at 6:31 am

The predictions for oil at 70$ in 2017 is looking very bleak now. Already the Al-Stealing ruling family of Saudi Arabia, who are aided, abetted and protected by the American military thugs, is forced to restore all the subsidies to the Saudi public in face of unrest brewing inside the country. This means to generate revenue they will have to abandon all the cuts and pump more oil which will lead to the further collapse in prices. It will be interesting to see the effects it will have on the Canadian economy.

http://www.arabianbusiness.com/saudi-arabia-restores-bonuses-allowances-for-state-employees-671603.html

http://www.economist.com/news/middle-east-and-africa/21721405-cuts-pay-and-perks-government-workers-are-abruptly-reversed-saudi-arabias

http://www.arabianbusiness.com/calls-grow-on-social-media-for-saudi-jobs-protest-672198.html

#127 westcdn on 04.28.17 at 6:31 am

crowdedelevatorfartz on 04.23.17 at 2:17 pm
@#86 westcdn
“I don’t know why I write things …..”
*******************************************
You should have stopped there…..

Okay, I could have. Some people need a response. I tell stories. I don’t follow this blog every day like you seem. I say countervail things but it is not for harm. It is a discussion point – something over your head.

#128 T2 on 04.28.17 at 7:12 am

the budget will balance itself.
Peace, love, and joy… er joints,
T2

#129 Wrk.dover on 04.28.17 at 7:16 am

I’m calling bank run @ HCG

If I had a GIC there earning 1%, I would forgo the 1% and pull it out. If I was so cheap that I held out for my due 1%, I would certainly not renew at renewal time.

Somewhere in the above comments is a claim that HCG has some 10 or 12 billion in GIC deposits….as of yesterday, how long will they be on deposit though?

Or I am being maudlin and HCG is a well run entity and this is all none of my business?

My money is safe because Poloz!

#130 maxx on 04.28.17 at 7:27 am

I’m sooo grateful I don’t live in Ontario today. Returning is highly unlikely as it’s being run into the ground. If Ontarians think they’re paying crazy-high taxes and energy costs now……

It’s impossible to fathom that an outfit tasked with the enormous responsibility of managing retired health-care workers financial well-being can get away with an “investment” like this one without being first vetted by plan owners.

“Normally HOOPP’s policy is not to disclose information on our investments”? Is he $hitting us?! These investments directly impact people’s lives! They ought to have a right to know every single detail of their pension pot contents and who’s messing with them. This is insane risk.

It would appear that no one is answerable to anyone in Ontario. Taxpayers are simply served up a steaming mound of stonewall pudding. Time and time again. The lack of respect is off the scale.

I used to believe that people with corporate or government pensions were far more fortunate than we are. Those lauded bastions of retirement comfort are all at risk now. All of them. We went our own way over 30 years ago and today we are better off than we could ever have dreamed. Better than anyone we know.

Ontario’s health care workers may just have gotten “hooped” by yet another jaw-dropping gift of largesse offered up to the rapacious deity of bricks and mortar.

Canada is flushing its fiscal future down the toilet for the sake of re. Like a pathetic loser at a casino trying to make up losses.

Small wonder Canucklehead re is being shorted by foreign investors.

#131 maxx on 04.28.17 at 8:25 am

#16 Short the TSX on 04.27.17 at 7:26 pm

Completely agree.

#132 crowdedelevatorfartz on 04.28.17 at 8:25 am

@#99 Leo with the Moon Phase in Denial
“Our public pension system is far from perfect but it’s the envy of the world. ”
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

I’d say the Norwegians, Kuwaitis, etc might beg to differ……..

http://www.google.ca/url?url=http://www.investopedia.com/news/5-largest-sovereign-wealth-funds/&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwj-yuXPkcfTAhVDMGMKHYPLCCMQFghEMAg&usg=AFQjCNGFRkLSJB8xKy9GTEmQ9wm72gL5bA

#133 Victor V on 04.28.17 at 8:32 am

Home Capital bleeds another $290-million of withdrawals

https://beta.theglobeandmail.com/report-on-business/home-capital-bleeds-another-290-million-of-withdrawals/article34841709/?ref=http://www.theglobeandmail.com&service=mobile

#134 FLHTK on 04.28.17 at 8:39 am

Wow, this guy should be going to prison! Gambling with peoples future income. My wife is in HOOP, this should never be allowed to happen in Canada the laws must be changed. This guy should be made by law to forfeit all his shares in the company for doing unethical business transactions.

#135 maxx on 04.28.17 at 9:05 am

#19 People Gone Mad! on 04.27.17 at 7:31 pm

……”And for those who want to argue with me, I am a middle class worker, owe no one anything, sitting on just under a million in a portfolio and some cash and own my own home and in my mid 40’s. But I think people are crazy now, buying at these prices, it just doesn’t make economic sense.”

Mid-forties and doing extremely well.

Legions will soon come to realize that, unlike other things in life, in matters of bank balances…………….. size really does matter.

Read this and feel great about where you are:

http://www.macleans.ca/news/canada/drowning-in-debt-is-the-new-normal-in-canada/

#136 Pepito on 04.28.17 at 9:09 am

“The vast majority of benefits from Mr. Trump’s tax plan would accrue to the highest earners and largest holders of wealth, according to economists and analysts.” NYT headline today.

And this is what you’re cheerleading, Garth? Yeah, let’s widen the wealth gap even more.

#137 Andrew t on 04.28.17 at 9:10 am

What a messed up scenario this is turning out to be. And, boy, if we needed any proof of just how fast the “herd” can turn once it’s spooked look no further.
https://beta.theglobeandmail.com/report-on-business/home-capital-bleeds-another-290-million-of-withdrawals/article34841709

#138 James on 04.28.17 at 10:45 am

Now this is too funny, but it is at the same time SAD!
The entire world is in trouble.

Donald Trump has been president for 99 days. And, in an interview with Reuters Thursday, it sounds like he misses the days when he, well, wasn’t president.
“I loved my previous life, I loved my previous life. I had so many things going,” Trump told Reuters. Quoted verbatem “I actually, this is more work than my previous life. I thought it would be easier.”
Then, later: “I do miss my old life. This — I like to work. But this is actually more work.”
WTF?

That sentiment is, in a word, strange. For a few reasons.
It’s absolutely true that all presidents express privately and then, eventually, publicly some level of longing for the life they left behind or the life they will return to. But that usually happens after, say, seven or eight years in the White House. Not after 99 days.
The truth is and even Donald Trump might admit this in his most candid moments that he had almost zero idea of what being president would entail when he started running for the office almost two years ago now.
Who knew that being president would be so hard………

Virtually the entire free-kin world you big fake president dickhead!!!!!!!!! Wow talk about on the job training, unfortunately this is like training a Chimpanzee not to throw his poop at you as you walk by his cage. It isn’t going to happen folks, isn’t going to happen!

#139 James on 04.28.17 at 10:49 am

Just read the one page sheet on trumps tax plan. The general analysis is, where is Trump going to get six trillion dollars to pay for his tax plan? Mexico?

#140 Canada is a HOUSE OF FRAUD on 04.28.17 at 11:01 am

104 Long-Time Lurker on 04.27.17 at 11:34 pm
Can someone explain to me how this is a good investment? Junk rating (B+) with a market value worth ($515m) of a quarter of the line of credit ($2b)?

http://www.financialpost.com/m/wp/news/blog.html?b=business.financialpost.com/news/fp-street/home-capital-group-director-keohane-resigns-after-fund-backs-2-billion-loan&pubdate=2017-04-27

S&P Global Ratings downgraded Home Capital Thursday to junk with a B+ rating, from BBB-, the lowest level of investment grade. The senior unsecured rating on Home Trust was lowered to BB from BBB. DBRS Ltd. downgraded Home Capital to BB from BBB (low) and placed all ratings under review with negative implications on April 26.

Boland said estimates on a sale price for Home Capital would be speculative, but said commercial banks may be interested. Home Capital’s market value has plunged to C$515 million, from about C$3.5 billion in 2014.

Can someone explain to me how this anything other than a bailout? Let’s see, I provide all the capital and I take all the risk!

Add “subprime” before “mortgages” when you’re reading.

Leo Kolivakis this is from your blog:

http://pensionpulse.blogspot.ca/2017/04/canadas-subprime-mortgage-crisis.html?m=1

Home Capital is Canada’s largest alternative mortgage lender, providing subprime loans to people who don’t qualify for traditional bank mortgages.

Still, Home Capital’s stock is bouncing up today (wouldn’t touch it with a ten-foot pole!) and I was surprised to see the Royal Bank is the latest Canadian firm to explore a sale of bonds backed by uninsured residential mortgages after that bank’s CEO warned of a frothy Canadian housing market.

My advice remains the same as last Friday: don’t touch these shares with a ten-foot pole!

HOOPP confirmed in a separate statement late Thursday that it has agreed, along with a syndicate of lenders, to provide the $2 billion credit line.

The one-year credit line from HOOPP has a 10 per cent interest rate on outstanding balances and a 2.5 per cent rate on undrawn amounts. The finalized agreement follows an announcement early Wednesday that Home Capital had reached a non-binding agreement in principle with an institutional investor for the loan.

Under the terms of the loan, Home Capital is required to make an initial C$1 billion draw and pay a non-refundable commitment fee of C$100 million. The loan is secured by a pool of mortgages originated by Home Trust, the company’s mortgage origination subsidiary.

S&P Global Ratings downgraded Home Capital Thursday to junk with a B+ rating, from BBB-, the lowest level of investment grade.

The senior unsecured rating on Home Trust was lowered to BB from BBB. DBRS Ltd. downgraded Home Capital to BB from BBB (low) and placed all ratings under review with negative implications on April 26.

Here are the terms for this HOOP loan, vaguely.

http://www.homecapital.com/press_releases/2017/NRCreditAgrmt.pdf

Liquid assets of $1.3 billion plus an additional portfolio of… securities totalling approximately $200 million.

By the way, the BMO Mortgage-Backed-Security Bond contains securites rated from AAA (best) to B2 (junk). BMO is taking the top three tranches for itself (best). There is also a non-rated portion which could be anything. In other words, off-loading risk.

https://www.bloomberg.com/news/articles/2017-04-17/bank-of-montreal-to-offer-mbs-as-canada-shrinks-mortgage-support

But the Bank of Montreal deal may find headwinds, said Paul Gardner, partner and portfolio manager at Avenue Investment Management Inc. Canada last year tightened access to the federal insurance to help tamp down rapid home price growth in areas like Toronto and
Vancouver. The federal government or Ontario could craft more legislation to cool the housing market, Gardner said.

“Residential mortgages, my God, it’s the last thing you want to invest in right now,” Gardner said by phone from Toronto. “When the capital markets are flush with cash, it makes sense that they would try at least to issue this stuff.”

Homes have grown less affordable in Canada as housing prices have increased far faster than wages. Existing home prices rose 18.6 percent in the 12 months ended in March, while wages grew just 1.1 percent, the slowest rate since the 1990s. In Toronto, affordability reached its worst level since 1990 at the end of 2016, according to a report from Royal Bank of Canada.

The Bank of Montreal bond is backed by C$1.96 billion of prime residential mortgages, more than half of which are in Ontario and Quebec, according to a Moody’s pre-sale report. Around 95 percent of the securities in the transaction will be rated Aaa. The lowest rated portion will be B2, and there is a non-rated portion as well, the bond grader said. BMO intends to purchase and hold the top three tranches of the debt, equal to about 98 percent of the principal, according to the report.

https://en.wikipedia.org/wiki/Moody%27s_Investors_Service

Tranches
http://www.investopedia.com/terms/t/tranches.asp

Anyone want to comment?
——————-

Mortgage brokers and big5 bankers are in an all out panic. They all know fraud is on a grand scale and they trying to contain it. They can try but it’s over. No one is going to further lend in this Ponzi scheme. once prices stop going up there is no point holding cash flow negative RE. Then it becomes a race to sell before all the fake gains are gone. Jobs and economy slow down which leads to more jobloss/lower RE prices and the Ponzi scheme unwinds.

#141 bill on 04.28.17 at 11:03 am

hooped for sure…as in ‘right up the…’

#142 Canada is a HOUSE OF FRAUD on 04.28.17 at 11:08 am

Was watching CP24 hot property earlier amd couldnt stop laughing.

Al Sinster still blaming lack of supply the main culprit in high home prices. Then someone called in asking if they should sell now. He jumped and told them no DO NOT list your house yet. People are all listing their properties, they’re vreatimg an oversupply. Prices will drop. Just wait.

When will CP24 decide to get people on the show who dont have a conflict of interest? Oh wait. It must depend on who pays the most.
—————————————————————-

Realtors are such shameless shills. it’s to funny..lack of supply to stop stop listing cause they are creating over supply. Best part NO ONE is buying. It’s a house of cards.

#143 Ronaldo on 04.28.17 at 11:19 am

Methinks HOOPP is going to be Hooped. As strange as strange can be this one. Not going to end well. Many people going to be very angry. Where are the regulators?

#144 Canada is a HOUSE OF FRAUD on 04.28.17 at 11:26 am

■Another $290 million withdrawn from savings accounts Thursday in Home Capital.

http://www.cbc.ca/news/business/home-capital-friday-1.4089781

#145 TurnerNation on 04.28.17 at 11:28 am

#44 Nonplused notice every single playoff round goes to 7 games -Never 3 or 4. Any sport.
The billions in ad and ticket revenue is more important.

#146 CJBob on 04.28.17 at 11:40 am

#123 Wrk.dover on 04.28.17 at 7:16 am

If I had a GIC there earning 1%, I would forgo the 1% and pull it out. If I was so cheap that I held out for my due 1%, I would certainly not renew at renewal time.

Somewhere in the above comments is a claim that HCG has some 10 or 12 billion in GIC deposits….as of yesterday, how long will they be on deposit though?
_____________________
I have Home Capital GIC’s, recently bought a 5 year term at 2.15%. I have less than $100,000 which is insured from CDIC. If Canadian banks start going bankrupt we’ve got bigger problems than my GIC. I sleep fine at night.

Worry about crossing the street or that cheeseburger that’s killing you.

#147 TurnerNation on 04.28.17 at 11:41 am

I’ll try and be at General Store May 13 afternoon. In a rented car natch.
Wondering if it has a Safe Room for when Smoking man triggers people??

#148 joepublichosers on 04.28.17 at 11:43 am

The great Canadian shell game has begun…this scrambling for funds has just begun, and eventually Joe Public will get totally hosed.

#149 Long-Time Lurker on 04.28.17 at 11:43 am

#111, Ponzius Pilates.

What I posted means something. It’ll help a lot of people not get screwed. Think about that.

#150 n1tro on 04.28.17 at 11:44 am

@12 Leo

Would have to agree with Leo. HOOPP is one of the largest & best managed pension funds around & has done extremely well under the president & CEO JK.

_________________________________

“HOOPP doing well” and “under the president & CEO JK” are 2 separate things. They may perhaps overlap in a venn diagram scenario. The consistent performance of any established company is done the employees much lower. A CEO is just their to collect a fat paycheque. If you are going to give credit to a “C” level person for a business’ success (other than being a startup), it would have to go to the COO.

#151 cd on 04.28.17 at 11:48 am

heard this metaphor on the radio…

if the healthcare bill was a 5k run, then the tax reform bill is a marathon.

#152 Alex N calgary on 04.28.17 at 11:50 am

Someone I know works for Home Trust, they had them reviewing mortgages to see who was sub-prime back in January, makes sense in the Alberta Market, a taste of things to come it seems.

The Question is the bailout from the Pension a shrewd insider investment move to make a ton of money on the pension? or a conflict of interest?

I think post #108 was speaking of BMO offloading its lowest rated mortgage bonds and keeping the highest for itself, is this a similar move to what happened in the USA? and if so, are those high rated bonds perhaps mis labeled if we’ve had no oversight on selling everyone and their dog a Mortgage last 5+ years?

Good job staying away from Capital Home speculation too much, we need more info, this bubble thing has been notoriously hard to predict. Or is the idea to calm your investors from making a panic move on withdrawing from certain things?

#153 Braj on 04.28.17 at 11:51 am

#111 Ponzius Pilatus on 04.28.17 at 12:37 am

GM MAKES THE BEST CARS.

#154 The Mao on 04.28.17 at 11:55 am

#136 That caller was in Bradford. Look it up on the map, it’s right in the middle of nowhere. Definitely don’t see how supply can be restricted there, as demand must also not be that great. So the advice to not put another house for sale while there are already a few in the area is just common sense. On the other hand, in a more desirable area yu could have 25 houses that may seem like they are sitting, but they could be gone in 2 weeks if buyers finally understand that NOTHING has changed and they should try to get a good deal while they can. This pause won’t last forever.

#155 Rexx Rock on 04.28.17 at 12:00 pm

Our central bank and goverment policies are crushing our dollar.Retireing in Thailand just got more expensive.34 baht to 25 in a few years.Mexico will be expensive in the next few years.What the hell is going on?

#156 Ex Pat Canuck on 04.28.17 at 12:06 pm

Hi Garth, you might want to check recent history, Bush Jr. tried a similar tax cut for the corporations and wealthy and it died a cruel and sudden death, just like the current prez’s tax plan will. It will go down in flames and I think you know this. There is no free lunch, my friend, and I suspect that if you looked at the totality of the taxes we pay here in the States PLUS the epic cost of health insurance we have to pay here, Canada’s taxes don’t look to be all that out of line. I know, I know. You are writing in sound bites and there’s not enough room to tell the whole story in one of your columns. But still, you seem to make big efforts to make America’s taxation situation sound oh so much better compared to Canada’s. It’s not that simple.

#157 For those about to flop... on 04.28.17 at 12:06 pm

Mrs Flop thinks that it is a good idea that we go and advance vote this weekend since I can’t stand on my feet for long periods to beat the crowds of actual Election Day of May 9th.

None of the three parties really excite me and my biggest motivation is to get my ballot paper and roll it into a cylindrical shape and shove it into someone’s descending triangle…

M42BC

#158 PopGoesThe... on 04.28.17 at 12:13 pm

Interesting how 4 months ago, there were more rental properties than sale listings. Now, more properties for sale than available for rent in GTA.

#159 Mark on 04.28.17 at 12:38 pm

“Realtors are such shameless shills. it’s to funny..lack of supply to stop stop listing cause they are creating over supply. Best part NO ONE is buying. It’s a house of cards.”

Yeah no kidding, if prices were truly as high as the RE sell side would like us to believe, then there should be an avalanche of supply coming to market or at market. But there isn’t, which would appear to indicate that prices are much lower than we are being led to believe.

When individuals go to list their properties these days, they probably look at the newspaper headlines and see the claims of massive appreciation over the past few years. 20-30% in Toronto. When they actually sit down with a Realtor, unfortunately, the comparables do not support such significant appreciation for their particular piece of property, and disappointed, they decide not to list and to keep waiting for the “appreciation” wave to hit their property.

Only problem is, the ‘appreciation’ seen in the RE sell-side stats was due almost entirely due to sales mix changes, and not actual ‘appreciation’ on individual identical properties. So that ‘appreciation’ wave will never arrive.

With subprime credit tightening and probably locking up at this point with the funding problems at HCG and elsewhere, the incremental buyer of GTA real estate, the “landlord family”, is pretty much out of the marketplace. So significant depreciation is likely on a go-forward basis.

House of cards indeed, I couldn’t agree more. The whole sector and its most significant leveraged participants, the “landlord families”, are going to get the mother of all financial enemas in the coming months/years to come.

#160 joblo on 04.28.17 at 12:40 pm

Here’s a peek at what’s next?
Western Australia may as well say Western Canada?

https://youtu.be/Ff-2tfBKKSk

#161 A Reply to #135 bill on 04.28.17 at 12:42 pm

… wazoo?

#162 Raj on 04.28.17 at 12:49 pm

Looks like Finally, shit has hit the fan :)

Equitable group down another 13% today on top of 33% drop the other day !!

http://finance.yahoo.com/quote/EQB.TO?p=EQB.TO

#163 For those about to flop... on 04.28.17 at 1:05 pm

#141 TurnerNation on 04.28.17 at 11:41 am
I’ll try and be at General Store May 13 afternoon. In a rented car natch.
Wondering if it has a Safe Room for when Smoking man triggers people??

/////////////////////////////

Hey TN,safe room won’t be finished it time.

The boss has been too busy finalizing the texture of the new flavour of ice-cream to be debuted that day to mark the occasion…it’s working name at the moment is…

Pathetic Confetti.

Tough to swallow…

M42BC

#164 Dan.t on 04.28.17 at 1:06 pm

I will say it again…when it comes to Real Estate in Canada, you can lie, cheat, steal, then lie again, then steal some more and NOTHING will happen.

The amount of debt and fraud in the system is mind blowing. But no one wants to touch it. Regulators turn a blind eye, gov just imposed window dressing measures and RCMP, won’t even go there- if Canada is the new money laundering hot spot, there is a reason for it.

Normally people should be in jail but no, a massive conflict of interest , a old boys club bail out with other peoples money”director Keohane resigns after fund backs $2 billion loan”and hey, it’s all good.

What am I missing here. Canadians 2 trillion in debt, pretty darn good chance that rates will rise sooner than later, USA doing great, Canada only economy is selling each other houses and yet, Condos get flipped and greater fools still rush in and houses at 600k-700k + and up are snatch by speculators, probably on average every Canadian owns multiple properties and prices just keep going up??

I think it is different this time! Canadian housing will be the ONLY asset ever in the history of the world that goes straight up (with only minor 5% blips along the way).

Man, Canadians are smoking some serious weed.

No asset class ever goes up forever…and if it runs up straight for 18-20 years- eventually, over and over again, it will very often retrace 50%, especially when bubbles are involved. I could show thousands of such charts but it’s pointless. With stocks, happens fast, with housing, takes a much longer time.

How do you argue to those who view real estate as religion that after a massive run up housing, it is super risky right now.

Canadians believe Canada housing never goes down. FOMO buy now or never, and it’s different this time, and rates will never rise, and immigrant will buy all our houses, and China and foreign money don’t care what it costs, and on and on, so it’s like shouting into a void.

Even when none of it makes financial or fundamental sense. Maybe I think to much about risk and do math- it seems being reckless is the way to go…just buy, who cares about the rest.

Look what home capital did! Massive conflict of interest Bail out then quit. Just like Canadians buying homes and speculative condos, just do it and screw the consequences. Nothing will happen.

#165 Montreal Guy on 04.28.17 at 1:12 pm

#156 Raj:

They quietly raised HISA from 0.9 to 1.5%; I’m wondering if there’s a run on deposits too… Friday news dump soon?

#166 endgame on 04.28.17 at 1:31 pm

our financial system is burdened with too much debt, its collapse is all but inevitable. the most challenging times in all of human history are coming.

#167 traderJim on 04.28.17 at 2:13 pm

#54 Chris

“Is this pension fund backed by taxpayers? God I hope not…”

Hate to tell you that all public employee pension plans are of course funded by taxpayers.

And the fact that some people don’t even realize that, or the fact that public pension plans such as those for military, police, firepersons, are outrageously gold plated and generous, allowing for example an employee with 25 years of service to retire AND DRAW THEIR PENSION IMMEDIATELY at age 47.

Obviously pension plans have been devised to raise overall compensation for public sector employees without the average taxpayer ever having a clue what’s really going on.

So here’s what’s going on: Fireman with high school diploma starts work at 20 or 22, has a side job as a contractor due to not really working a whole lot of hours, retires at 45 or 47, takes his pension, then transfers immediately to a different jurisdiction and gets full salary and starts working on pension #2.

By age 65 Fireperson has amassed a cool $2 million + in pension benefits, plus a few houses, and if he’s a decent contractor on the side has a nice big Ford 350 for work and an Escalade for picking up groceries.

And Joe Taxpayer is footing the bill. But hey, they rescue crazy girls from cranes, so they must be worth it.

#168 Mark on 04.28.17 at 2:23 pm

So when do the majors start raising their rates in response to this? With the monolines increasingly out of business due to funding issues, the big-5 increasingly have a lot more market power to increase their mortgage loan rates.

It just defies credibility to suggest that there won’t be any contagion.

Next BoC announcement on the 24th of May. The chances of a cut grow by the day.

#169 Jack Hanson on 04.28.17 at 2:24 pm

Another day of falling interest rates. I am so glad I bought those 4.9% to 5% long term government bonds, 2039 to 2040 maturities back in 2009, 2010.

They are up just in interest 40% and the market values are up another 25% to 27%.

The only GIC’s I have is through an investment dealer with PC Bank at 2.5% just got last year.

#170 bill on 04.28.17 at 2:36 pm

#155 A Reply to #135 bill on 04.28.17 at 12:42 pm
Yup….

#171 bill on 04.28.17 at 2:39 pm

#155 A Reply to #135 bill on 04.28.17 at 12:42 pm
no paddles either…

#172 crowdedelevatorfartz on 04.28.17 at 2:46 pm

@#121Westcdn
“It is a discussion point – something over your head.”
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

The “discussion points” aka “stories” are only “over my head” when they represent disjointed random neurons firing off in absolutely no coherent sequence……..AND they have nothing to do with the topic at hand…..

#173 debt collapse on 04.28.17 at 2:57 pm

#160 endgame on 04.28.17 at 1:31 pm

our financial system is burdened with too much debt, its collapse is all but inevitable. the most challenging times in all of human history are coming.

===

That would assume that somehow governments can no longer print money and debt can not be inflated or written off.

The most challenging times in all human history may have been before money was invented.

#174 Alberta Ed on 04.28.17 at 3:00 pm

Sounds like someone is getting HOOPPed.

#175 Look like pensions are getting ripped off on 04.28.17 at 3:06 pm

EQB and OMERS….lol how did that work out?
TORONTO, Dec. 12, 2016 (Canada NewsWire via COMTEX) — Equitable Group Inc. (“Equitable” or the “Company”) announced today that it has entered into an agreement with OMERS, the pension plan for Ontario’s municipal employees, for a private placement of common shares of the Company (“Shares”) at a price of $61.76 per Share, for aggregate proceeds of up to $50 million (the “Private Placement”). Under the agreement, OMERS will acquire 809,585 Shares which represents approximately 4.9% of the issued and outstanding Shares http://www.marketwatch.com/story/equitable-group-enters-into-agreement-with-omers-for-50-million-common-share-private-placement-2016-12-12-18202400

SP under $38 and falling and they bought in not to long ago. Dec12, 2016.

#176 jess on 04.28.17 at 3:51 pm

private equity “club deals”
without admitting wrongdoing
https://dealbook.nytimes.com/2014/08/07/k-k-r-agrees-to-settle-lawsuit-on-private-equity-collusion/?_r=0

=====================
Blackstone //swift river
Posted on April 27, 2017 by Yves Smith

Wall Street Journal Reports on Appearance of Private Equity Self-Dealing at Blackstone and Other Firms Nearly Four Years After We Broke the Story
Posted on April 27, 2017 by Yves Smith
http://www.nakedcapitalism.com/2017/04/wall-street-journal-reports-on-appearance-of-private-equity-self-dealing-at-blackstone-and-other-firms-nearly-four-years-after-we-broke-the-story.html
BlackRock Inc (BLK.N) Chief Executive Officer Larry Fink on Friday sounded another warning on the U.S. economy after the government reported anemic growth in the first quarter.

“We’re actually decelerating,” Fink, whose firm is the world’s biggest asset manager, said during a talk at the Morningstar Investment Conference in Chicago.

#177 TurnerNation on 04.28.17 at 3:55 pm

Reverse positions on Home Crapital and Genworthless boys. Let’s go kaputs.

#178 jess on 04.28.17 at 4:08 pm

Brazil meltdown? – protest strikes

biggest corruption probe in Brazil’s history known as Operation Car Wash,

http://www.aljazeera.com/news/2017/04/anti-temer-strike-paralyses-major-cities-brazil-170428140826374.html
Brazil’s President Michel Temer could be stripped of power if an electoral court invalidates the results from the 2014 presidential election over allegations of corruption.

Six months after hosting South America’s first-ever Olympic and Paralympic Games, the Rio de Janeiro venues – some of which have been looted – sit mainly idle and already in disrepair, raising questions about a legacy that organisers promised would benefit the Brazilian city and its residents
https://www.theguardian.com/sport/gallery/2017/feb/10/rios-olympic-venues-six-months-on-in-pictures

#179 choptstix on 04.28.17 at 4:24 pm

”Housing talk gets louder and angrier in Vancouver.”
Globe and Mail/Kerry Gold

http://www.theglobeandmail.com/real-estate/vancouver/housing-talk-gets-louder-and-angrier-in-vancouver/article34850038/

#180 Binder Dundat on 04.28.17 at 4:36 pm

Jim Keohane: Home Capital not a risk investment

(Sorry wrong link previously)

http://www.bnn.ca/csuite-interviews/video/home-capital-not-a-risky-investment-for-us-hoopp-ceo%7E1111585

Highlights:

* he forgets what a DIP deal is
* he thinks the falsified income mortgages have worked themselves out of the portfolio as the falsification happened “around 2-3 years ago”
* he figures home prices would have to “decline materially” for HOOPP to lose principal

#181 Dan.t on 04.28.17 at 5:20 pm

Forgot to mention… a negative, actually a massive negative real estate story comes out exposing the corruption and fraud in the system and debt house of cards, and only because “they” paid for media couldn’t sweet it under the rug is it still in the news.

Of course on page 15, tried to hide it but I guess when the corruption too big is, Canadians get mad.

Crap, print a news article about the cute family who wrote a nice letter to the sellers of that 1.2 million detached POS run down 1972 build pleading that they can’t live without it … and they got it! That is friggen front page news but…

Corruption and massive conflict of interest worth billions, let’s try and down play it and hopefully it goes away.

It’s real estate! Welcome to Canada. Your land, your country being sold world wide to the highest bidder, screw community, screw Canadian values…. Canada and Canadians have changed since I grew up there… and not for the better.

#182 I'm stupid on 04.28.17 at 5:56 pm

#161 TraderJim

You need an 85 factor to be eligible for a full pension for teachers. I don’t know about police or fire. Your age plus years of service must equal 85. I think you need 30 years of service also. My wife who is a teacher is eligible at 52. 70% average of her highest grossing 4 years. It should be around $65800 but it works with OAS and CPP so when she’s eligible her pension will be reduced to equal $65800 including CPP and OAS inflation adjusted for life.

You shouldn’t be angry about it because you could have become a teacher or police officer or fireman. Just saying!

#183 I'm stupid on 04.28.17 at 6:00 pm

#161 TraderJim

And the one time in his entire career that he must go into a burning house he earned every penny. Stop crying, the situation you’re in is your own fault.

#184 Tony on 04.28.17 at 6:16 pm

Re: #158 Dan.t on 04.28.17 at 1:06 pm

Americans exposed the entire thing just like the Conrad Black story we all once remember. We can thank America for trying to undo some of the wrongdoings in Canada.

#185 maxx on 04.28.17 at 8:37 pm

#58 Keith on 04.27.17 at 8:35 pm

“A quick google search shows that this pension fund has 70 billion in assets. So if this loan goes completely wrong and no money is recovered, which would be an unlikely scenario, it’s about a 3% loss of assets. Not exactly the end of the world.”

Are you for real?????

It’s precisely this sort of reasoning that keeps people….PO!!!
No financial loss is ever acceptable, nor should it ever be rationalized into acceptance. Especially when it comes to OTHER PEOPLE’S pension money. Otherwise, nothing is learned, let alone gained.
Absolutely incredible to see the number of people who simply blow stuff like this very thing off as insignificant.
Absolutely incredible that it happens all the time, every day.
Every day, somewhere in this country, someone regurgitates “it’s only x%”…….it’s only a few bucks…meh.
Every day, times X percent, in a whack of places is a $hitload of wealth.

We really do need to bring fiscal literacy programs to our young, starting at age 5 – like 50 years ago. That way, they can start parsing calculations like the one above to their advantage.

#186 maxx on 04.28.17 at 9:09 pm

#101 AlWho on 04.27.17 at 11:00 pm

“Was watching CP24 hot property earlier amd couldnt stop laughing.

Al Sinster still blaming lack of supply the main culprit in high home prices. Then someone called in asking if they should sell now. He jumped and told them no DO NOT list your house yet. People are all listing their properties, they’re vreatimg an oversupply. Prices will drop. Just wait.

When will CP24 decide to get people on the show who dont have a conflict of interest? Oh wait. It must depend on who pays the most.”

In the past 2 days, we’ve received 4 “revised prices” from a local realtard. Note that it is not a “reduced” price, but a “revised” one. We’re not in a hurry at all. Those revised prices can rot a whole lot more.

Jaysus, realtards ought to go revise themselves.

#187 steerage steward on 04.29.17 at 12:20 am

Some how I told you so doesn’t cut it

Garth has been speaking truth for a 12 years, and counting.

Not happy here, when our friends and family that didn’t listen to us now lose everything.

#188 steerage steward on 04.29.17 at 12:26 am

A voice in the desert declaring truth

funny what takes people to listen