(The following statement was released by the rating agency)
NEW YORK, October 13 (Fitch) Fitch Ratings has affirmed the ratings for Home
Capital Group Inc. (HCG) and its subsidiary, Home Trust Company's (HTC) at
'BBB-' and revised the Rating Outlook to Negative from Stable. Concurrent with
this action, Fitch has chosen to withdraw the ratings of HCG and its subsidiary
for commercial reasons. A full list of rating actions follows at the end of this
release.
KEY RATING DRIVERS
IDRS, VRs AND SENIOR DEBT
The rating affirmations reflect HCG's decent operating performance with earnings
improvement in 2014 offset by some tapering in 2015. While Fitch views HCG's
historical profitability as a relative strength, the influence of earnings
performance on HCG's Viability Rating is tempered in the context of the bank's
greater focus on higher risk loans compared to Canadian banking peers. The
ratings affirmations also reflect the company's adequate capital and liquidity
profiles with HTC's Tier 1 and total capital ratios at 18.03% and 20.53%,
respectively, as of June 30, 2015 and HCG's liquid assets of approximately $1.8
billion at June 30, 2015. While capital is well above required levels, Fitch
considers the cushion necessary given the bank's narrow business focus and
funding structure as well as the company's relatively large exposure to
preferred stock securities.
HCG's ratings continue to be constrained by its reliance on high-cost, brokered
time deposits. HCG has grown non-brokered deposits through its Oaken Financial
channel, which enhances its funding profile. HCG's deposits consist primarily
of guaranteed investment certificates (GICs) maturing from 30 days to five
years. The company uses time deposits to match-fund maturities of mortgage
assets, thereby keeping interest rate risk generally well controlled. Individual
accounts are generally maintained below $100,000 (the maximum deposit insurance
protection) and, thus, are viewed by Fitch as fairly stable as long as HCG's
rates remain attractive and the company maintains its overall reputation in the
market.
The Negative Outlook reflects the company's announcement that it suspended 45 of
its mortgage brokers for submitting falsified borrower income information
contained in mortgage applications to the company. Mortgages originated by this
group of brokers totaled approximately $1 billion in 2014. In Fitch's opinion,
the ultimate impact of the broker fraud is difficult to ascertain at this
juncture. Potential implications include increased compliance costs as the
company tightens its underwriting controls as well as contingent obligations to
redress any issues with this pool of loans. Given that Fitch believes any such
costs would materialize over the 12-24 month Outlook horizon, Fitch is unable to
resolve the Negative Outlook prior to the withdrawal.
SUPPORT RATING AND SUPPORT RATING FLOOR
HCG has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's
view, HCG is not systemically important and therefore, the probability of
sovereign support is unlikely.
RATING SENSITIVITIES
IDRS, VRs AND SENIOR DEBT
Rating sensitivities are no longer relevant given today's rating withdrawal.
SUPPORT RATING AND SUPPORT RATING FLOOR
Rating sensitivities are no longer relevant given today's rating withdrawal.
Fitch has affirmed the following ratings with a Negative Outlook and has
subsequently withdrawn them:
Home Capital Group, Inc.
--Long-term IDR at 'BBB-';
--Senior Debt at 'BBB-';
--Viability Rating at 'bbb-';
--Short-term IDR at 'F3';
--Support at '5';
--Support Floor at 'NF'.
Home Trust Company
--Long-term at 'BBB-';
--Senior Debt at 'BBB-';
--Viability Rating at 'bbb-';
--Short-term IDR at 'F3';
--Support at '5';
--Support Floor at 'NF'.
Contact:
Primary Analyst
Christopher Wolfe
Managing Director
+1-212-908-0771
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Secondary Analyst
Doriana Gamboa
Senior Director
+1-212-908-0865
Committee Chairperson
Nathan Flanders
Managing Director
+1-212-908-0827
Media Relations: Hannah James, New York, Tel: + 1 212 908 0500, Email:
hannah.james@fitchratings.com.
Additional information is available on www.fitchratings.com
Applicable Criteria
Global Bank Rating Criteria (pub. 20 Mar 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr
_id=992224
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=992224
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det
ail=31
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