This Is What A Bank Run Looks Like: Home Capital Loses 70% Of Deposits In One Week

Tyler Durden's picture

In the beginning it was a slow pace, then it became a casual jog. Then, starting early last week, the jog morphed into a full-blown run, and - as of the past 3 days - the withdrawal of deposits at Home Capital Group's high interest savings accounts has mutated into a full blown mad dash not to be the last person to have their money at what is now an effectively insolvent alternative lender.

According to HCG's latest press release this morning, the "less than prime" Canadian mortgage lender held HISA deposits of only $391 million as of Monday, May 1; this is down C$130 million from Friday, or a reduction in the total amount by 25%. It is also down 72% from the C$1.4 billion reported one week ago.

For those who need to think all the way back to the third Greek bailout of 2015 to recall what a bank run looks like, here is what the deposit situation at HCG has looked like over the past month.

There is some good news: a terminal bank run at the mortgage lender has already been largely factored in, and is largely covered courtesy of the recently announced $2 billion emergency loan from the Ontario Pension Plan - putting up to 321,000 retirees on the hook - which carries a pre-bankruptcy interest rate of as much as 20%.  To this end, HCG announced
today that its subsidiary, Home Trust, expects to receive the initial draw today of $1 billion from its
$2 billion credit line.

However, there is another problem: the company has another C$12.8 billion in  Guaranteed Investment Certificate deposits, or GICS. As these 30- and 60-day deposits come due in the coming weeks, depleting HCG's already tapped out liquidity, and forcing even more emergency loans. Without a deposit base, Home Capital can’t fund new mortgages.

As we reported over the weekend, while Home Capital hired investment bankers for a possible sale, there is little to no interest in the loan book as the company itself.

Meanwhile, as financial regulators say they are watching closely, overnight Jim Hall, the CIO of Mawer Investment Management, formerly one of the biggest investors at HCG, said he is "recalculating the odds of a contagion widening across the Canadian financial system."

“The probability has gone from infinitesimal to possible - unlikely, but possible. If depositors or bondholders start to lose faith in their banks, well then that becomes systemic.

So is contagion on the horizon? Here Bloomberg has some good observations, noting that unlike in the U.S. housing crash when loan defaults soared, there is little evidence of faulty loans, at least not yet: after all the housing market remains propped up by tens of billions in offshore money flooding into Canada's two main metroareas, Vancouver and Toronto. Furthermore, Home Capital’s delinquency rate, for example, was just 0.20% as of February, suggesting at least for the time being there are no rising delinquency concerns.

All that may change, however, if Chinese money launderers shift to other targets, such as the US west coast as one can now make the case based on several outlier transactions in the Pacific Northwest and, as of past week, Los Angeles.  It would also explain why the Ontario Pensioners demanded they have $2 in mortgage collateral for every $1 lent, hinting that the creditor may anticipate losses as much as 50% on the loan in the future.

Still, investors are starting to get cold feet, and shares of rivals First National Financial and Equitable Group have both tumbled, dragged lower by the Home Capital woes as investors fear contagion.

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Evan Wilson's picture

They still have 30% of the deposits left, besides, who needs deposits when you can get money from the Fed window at 0%?

 

NoDebt's picture

A Canadian bank borrowing money from the US Federal Reserve???

On second thought.... you're probably right.  Nevermind.

Looney's picture

 

But… but… Don’t bank runs happen only in third-world-countries, like Greece or Canada? Aren’t we exceptional? (in my best "dumbass voice")   ;-)

Looney

JRobby's picture

Remember WaMu????

FDIC called it a $10 billion "retail deposit run off". I doubt they know what the fuck they are doing either........ 

https://www.fdic.gov/news/news/speeches/archives/2010/spapr1610.html

PrayingMantis's picture

... "The big five of Chartered banks is made of Royal Bank of Canada, the Toronto Dominion Bank, the Bank of Montreal, the Bank of Nova Scotia, and the Canadian Imperial Bank of Commerce. ...

... "The smaller second tier bank consists of other private and state backed banks that operate in limited area and with subsequent facilities to the customers. These banks too form a core group in the banking industry on Canada. Banks like AMEX Bank of Canada, Citibank Canada, HSBC Bank Canada, ING Bank of Canada and ICICI Bank Canada form the second tire of chartered bank in Canada."

>>> source: http://bankingcanada.net/canadian+chartered+banks/

 

... so you see, even the huge Wells Fargo Bank (schedule III bank in Canada) is not even mentioned as second-tier when they have billion$ operating in and out of treasury management in Toronto ...

 

... "List of banks and credit unions in Canada"

... >>> https://en.wikipedia.org/wiki/List_of_banks_and_credit_unions_in_Canada

 

... so before anyone gets carried away with this "panic", this Home Capital Group is nowhere near a first- or second-tier banking institution in Canada ... not with the Big Five chartered banks nor anyone of those that would "make a blip" in the whole Canadian banking system ...

... if it was a "bank-run" on one of the Big Five chartered banks, then it would be a different can of worms ...

 

Bay of Pigs's picture

Sure, but ALL of them have massive exposure and huge leverage to RE in Canada.

No worries eh? s/

PrayingMantis's picture

 

... yup, no worries ... no sarc either ... Toronto's RE prices went up over 400 to 600% since the last boom/bust cycle ... if market corrections even go down 200%, homeowners would still be ahead ...

 

 

here's what I had posted this morning on another thread which is closely related to this thread ...

...

 

... boom and bust cycles repeat every 8 to 10 years ... if you time your buys and sells in real estate, you might find yourself ahead ...

... I lived and worked in Chicago, Schaumburg IL, Portland, Vancouver, B.C., North Vancouver BC, Las Vegas, San Francisco, Los Angeles, Modesto CA, Fresno, Alameda CA, Pleasanton CA, Oakland CA, Hollywood, Pasadena CA, Toronto ON, Temecula CA, San Diego, Gastonia NC, Lethbridge ALTA, Red Deer ALTA, Charlotte NC, Shelby NC, Sacramento, Stockton, Medicine Hat, Edmonton, Porterville, CA, Glendale, Palm Springs, Brandon Man, Watts CA, Calgary, Kelowna, Grand Rapids, Kamloops, Fort McMurray, Castlegar BC, Kingston ON, Gananoque ON, Camrose ALTA, Saskatoon Sask, Moose Jaw, Regina, Winnipeg, Thunder Bay, North Bay, Manitoulin Islands, Sudbury, Espanola ON, Mississauga, Richmond BC ... (in no particular order) ...

... and when the boom/bust cycles (1991-92;2001-02;2007-08) hit, I found myself in North Vancouver BC, Las Vegas, NV and Toronto (with a half-acre of land) ... and bought detached houses at each location for $110K, $100K & $280K respectively ... the equity for each property went up 63%, 80%, 435%, respectively ...

... so, even when the debt time-bomb hits with a 50% correction, if timed properly, your investment would still remain safe ... and it looks like 2017-18 is now due for this debt time-bomb boom-bust cycle ... wait until it hits then make your move ...

... the point is, these boom/bust cycles are not too difficult to follow (especially in post-internet era or when you follow clues and hints here at ZH) ... during pre-internet era, I relied on business sections of local papers ... and there are places to avoid like Detroit, Niagara area, Stockton, Los Angeles, Chicago and other high-risk locations unless you are in for the long haul and sit on valuable land perhaps ...

... when these doom and gloom scenarios kick in, use it to your advantage ... real estate might be better than stocks ( I got burned a little bit with the Bre-X scam, lol ;)

... btw, the best place to relax and have peace and quiet is a little place called Shelby, in North Carolina ... should've bought a property there ... but that was years ago ;)

... and the worst place for me was Watts, in Los Angeles California ... the company I visited would send out their janitor/caretaker to sit and guard my car a block away from the office until a parking spot was made available in the premises (it explained why lots of cars near the area without wheels were sitting on cement blocks and in some cases, gutted up ;)

;)

 

Stuck on Zero's picture

What you're looking at is not a bank run. My guess is that everyone withdrawing their deposits is transferring the money to another bank. That bank will then loan the money to the bank getting the withdrawals. A real bank run is when the depositors want cash.

Mustafa Kemal's picture

"... I lived and worked in Chicago, Schaumburg IL, Portland, Vancouver, B.C., North Vancouver BC, Las Vegas, San Francisco, Los Angeles, Modesto CA, Fresno, Alameda CA, Pleasanton CA, Oakland CA, Hollywood, Pasadena CA, Toronto ON, Temecula CA, San Diego, Gastonia NC, Lethbridge ALTA, Red Deer ALTA, Charlotte NC, Shelby NC, Sacramento, Stockton, Medicine Hat, Edmonton, Porterville, CA, Glendale, Palm Springs, Brandon Man, Watts CA, Calgary, Kelowna, Grand Rapids, Kamloops, Fort McMurray, Castlegar BC, Kingston ON, Gananoque ON, Camrose ALTA, Saskatoon Sask, Moose Jaw, Regina, Winnipeg, Thunder Bay, North Bay, Manitoulin Islands, Sudbury, Espanola ON, Mississauga, Richmond BC ... (in no particular order) ..."

That sounds like Johnny Cash song

PrayingMantis's picture

 

... I know it sounds weird, LOL! ...  and I once was awarded a NAFTA license for my company, imagine that ... I understand a bit of that NAFTA bruhaha ... ;)  ... mostly ha-ha for me ...

 

... and not bad for a far-eastern born-raised-and-educated impoverished kid who borrowed money for airfare as a "legal" immigrant to North America (and why I despised "illegals" and "refugees" who jumped the queue) and with $5 in his pocket making good living in the land of milk and honey ... well, it used to be for most ...

 

;)

 

 

JRobby's picture

Your horn appears to be dented which has been known to throw it off pitch

PrayingMantis's picture

 

... even bulls have horns that occasionally would pierce a bullfighter's ass ...

 

;)

Bay of Pigs's picture

There was no bust in Vancouver in 2008. RE hasn't even corrected there in 20 plus years. There are always lots of bag holders in RE crashes. This one will be no different. The people getting out now are the smart ones. In two years it will be far too late for the buyers who will be underwater when the prices drop and refinancing will be impossible.

You are far too optimistic on this bubble.

Herd Redirection Committee's picture

MUST FIND... MILLENIAL BAGHOLDERS...

PrayingMantis's picture

 

>>> "You are far too optimistic on this bubble."

 

... perhaps, but if you monitor the RE ups and downs, you might be able to establish whether the glass is "half-full" or "half-empty" and benefit from it ... people would still buy a place to raise their families and no matter what the prices are, there would still be buyers of real estate no matter what ... and buyers might even come from far and wide (like oligarchs from China or India or Russia or even the EU) ... I still consider RE as a safer bet than stocks that are more easily manipulated by corporate shills and "economists" ...

... RE would still be around after the bubble bursts ... unless you own an igloo ;) ...

 

 

PrayingMantis's picture

 

... the opposite of atail ...

 

;)

Luc X. Ifer's picture

I think you miss to observe the core ingredient, the 'gasoline' of a continously moving-up RE market - jobs. Jobs are fewer and fewer, and the good jobs are gone. You can import millions of people accustomed by their culture to live overcrowded in a dwelling, in conditions no healthy at one's head westerner would, and putting together their little contribution to make the mortgage payments, however, these people also need an income of a minimal level to make it, without jobs or vast majority of them paying lower than the affordable mortgage rate, the RE would succumb naturally watever tricks tptb would try to pull-out. Toronto is openly, officially acknowledged a speculators exclusive market, the basics/mathematics show it, so, as there is no economical miracle in sight but only doom & gloom due to the automation, there is no other scenario realistically possible but a catastrophic sudden collapse in RE the sooner more probable than later as this is naturally how it happens when officially the status of speculator aka ponzi market is acknowledged. Maybe ppl on this site remember when I said it that the recent 'Buy RE' show where Pitbull was barking at suckers to give-out their money was actually a sign that the RE ponzi moguls in Toronto got the sign that the scheme is nearing it's collapse, now, there you have it, everything is plain in the open, it takes only critical and inquiring thinking to observe it and avoid being tricked.

 

PrayingMantis's picture

 

... >>> "I think you miss to observe the core ingredient,"

... I know I missed more than that ...

... however, what I understand about a "living" economy is I had to "go with the flow" and follow the trends ..

... at the turn of the 19th century when the fledgling automobile industry came about, people panicked because the auto industry will put a lot of horse-carriage manufacturers, horseshoe-makers, horse breeders, etc. out of work ... but those who went with the flow and "learned" how to work on the new idea survived the job losses ...

... same with "computerization" ... a lot of people feared the new trend because they wouldn't be able to use their "one-write" system of manual accounting, their manually-generated forecasting, and other jobs that would be replaced by computer systems ... but to survive, there were those who specialized in computer systems ...

... then comes robotics ... and people had the same anguish and uncertainty about their jobs ... but I'm sure that those who would be replaced by robotics would only try to learn how to cope with the new industry, they too would survive ...

... your point is well taken, however, if those fearful of losing their livelihood would go back to the learning board and study the newfangled way of making money, I'm sure things will just progress to their liking ...

... personally, I quit work three times to go back to school to learn the new stuff that threatened my job ... I came out better for me and my family ...

 

... if we focus only on the doom and gloom without looking at what we could do to better ourselves, then no one, not even our government could help us ... and we all know that the government is there only to protect (((those))) who butter their side of their bread ...

 

 

;

 

Luc X. Ifer's picture

Nope, wrong by far by falacious contextual only association. The situation is not even resembling the one you mention as valid enough to draw a reasonable parallel. This time we talk about full blown 100% automation. At the times you mentioned there was still enough unknown space and niches where humans could adapt to and specialize due to the inherent state of evolution for our specie, plain and simple there was still unknown and unused niche space possible to be overtaken for exploitation by humans, just simple natural evolution. Full 100% intelligent automation transforms practically humans from usable, value generating cattle into useless cattle, just needing grazing and space to shit. There is no more natural, social and economical niche space where people can make the case to exist productively.

PrayingMantis's picture

... full 100% intelligent automation is beyond the reach of my imagination unless I pull out a crystal ball into the future ... I based my theories on known quantities that already had happened rather than on theories with an absolute outcome into the future like a 100% probability with absolutely no other counter-probability ... 100% is by itself total and no other scenario would really exist based on your theoretical argument ...

... so, by default there's no more argument because you had already expressed a 100% belief that a full 100% intelligent automation would definitely occur which would render human workers obsolete; therefore there's no room for any Yin or Yang debate as such ...

The Deacon's picture

Yes they do.  And if RE plummets....everyone is exposed to varying degrees.

The big 5  banks do own real estate and they hold the mortgages for the people who put 20+% down (least risky - because of more skin in the game). 

But all the high ratio mortgages (5-19.99% DP) are insured by CMHC an arm of the governnment....which is essentially backed by the taxpayer. 

The banks have dumped the risk for the riskiest mortgages and weakest hands onto the taxpayer.

847328_3527's picture

WaMu can step in to bail them out, yes?

 

Perhaps IndyMac?

After all, we're, "Stronger United!"

 

What Is Washington Mutual?

https://www.thebalance.com/washington-mutual-how-wamu-went-bankrupt-3305620

 

IndyMac Bancorp files for bankruptcy

 

http://www.reuters.com/article/us-indymac-idUSBNG5428920080801

jaxville's picture

  The only reason those big banks are around now is because of direct loans from the Federal Reserve and the liquidity injection from CMHC through insured mortgage buybacks and securitization of mortgage debt.   Yes, Canadian banks were bailed out in 2008-2010.  On a per capita basis, the bailouts for Canadian banks exceeded that of the US banks.

  As I understand it....  The first failure of US mortgage debt was in the Canadian commercial paper market in 2007. The subsequent "Montreal Proposal"  spread the cost of MBS failure but mostly dumped it on a Quebec based credit union.

 

847328_3527's picture

The middle class took the hit while the feds and DC bailed out Big Bankers who not only got the bailout money and kept their jobs, they also kept all those fat commissions and bonuses from making the bad loans to begin with.

Not one banker went to jail or was even indicted (as opposed to the 1980's where over 700 financial people actually went to jail).

It's one heck of a job, if you can get it.

oncemore's picture

The article, as I understand, is about contzgion risk.

PrayingMantis's picture

 

... yes, I understand the article is perhaps a twitched tad about contagion risk ...

however, the headline, "This Is What A Bank Run Looks Like: Home Capital Loses 70% Of Deposits In One Week" ... is a bit misleading ...

 

... Home Capital is not really a "bank" in its regular form ... I believe it is a mortgage lender who masquerades as a "bank" for its ownership of "Home Trust" and often a "Trust" is construed as a bank ... the "real banks" in Canada are the Big Five plus perhaps some of the tier II banks ... and calling this article a "bank run" pushes it a bit into the forefront of adjusted sensationalism ... IMO ...

 

 

JRobby's picture

TBTF must be broken up. The economy can not progress with their existance.

A serious inquiry into Goldman, Morgan Stanley & others operations needs to be undertaken.

PrayingMantis's picture

 

... >>> "TBTF must be broken up. The economy can not progress with their existance."

I agree ... but who would go up against the Deep State, NWO, Globalists, (((RedShield puppeteers))) who collectively control TBTF ... even the President, who might've had the right ideas, is still having a terrible time pleasing everybody and their bankers ...

... if you see who is top-three in Russia's investment firms (and btw, let's not forget USA's sanction against the Russians), at the top is Russian, followed by number two JPM and the third is Goldman Squid ... >>> http://russia-insider.com/en/politics/what-sanctions-jp-morgan-and-goldman-sachs-are-now-top-three-investment-banks-russia  ... this was 5 days ago ...

 

... TBTF is a big club and we ain't in it ... (sort of quoting George Carlin's take on the US economy's controllers) ...

 

 

 

Mustafa Kemal's picture

Looney my friend, you are indeed exceptional.

Bay of Pigs's picture

All the big Canadian banks borrowed money from the FED back in 2008-2009. They said they didn't need it of course. So what will they say now?

My guess is that they'll say "we're in great shape".

Kayman's picture

Not one Canucklehead in 10,000 knows how close the Canadian Banks came to cratering.  Canada- great PR, but founded in quicksand.  Without all the recycled dollars from shifting North American manufacturing to China, there would be no crazy real estate values, the foundation (timebomb) of the Canadian economy.

 

Ink Pusher's picture

This Canuck grew up in the Cayman Islands, I am the '1 in 10K'.

Not into banks,I learned that lesson by the age of 12.

I stack Bullion not Bullshit.

Rickety Rekt's picture

I am another, stackin... with a little in Junior Miners for the rip. 

"Millenial" not really into the "Millenial" thing ready to cash in on a home once they move in opposite directions ;) 

 

Luc X. Ifer's picture

Same here, worked at some initiatives put in place to make-up some kind of prevention of such events like 2008 to happen in Kanuckistan, just hot air, and also got to see the scheme used by the gov to bailout the Kanuckistan banks. The information transpired in the press also, but the common street joe is not intelligent enough to comprehend it even if written in front of their eyes on a giant wall.

2_legs_bahhhhhd's picture

I pounded the table for the last ten years about real estate prices and inflation, no one would even listen, so fuck em. I figured out cash flow when I had a paper route at 10 years old, those fuckin deadbeats would try to stiff me for 50 cents. My old man made sure they paid...lol

Making Merica Great Again's picture

Our liquidity is stronk!!

 

yeea man

Bank_sters's picture

Nothing a capital infusion won't plug.  cough..

chubbar's picture

Yeah, a 2 billion dollar infusion at 20% interest, might as well just shoot them and get it over with.

Offthebeach's picture

So borrow at 20% and loan at 4-5%.   Hummm, must be a volume thing.  I'll ask Nuzio, my own personal sub-sub-like bottom of Marianas Trench prime 'loan' expert, after work, at his office at the stool end of the bar . He be  good with numbers.

NoDebt's picture

Proof that Canadians are smarter than Greeks, Cypriots or Italians.  

(Because they get their deposits the hell outta a failing bank instead of just leaving it there until it's poofed into nothingness.)

forgottenozonehole's picture

I'm not surprised,

Average IQ
92 for Greece and 99 for Canada.
Compared to Canadians,  Greeks are retarded.

JRobby's picture

It is possible that more people are aware of the changes in depositor status in liquidation that they might have thought?

After all, they like to snow people under with the "finance is complicated" bullshit...................by design.

Toronto Kid's picture

Many remember watching the news when Lehman went under and thought to themselves, "if that happens up here then I want my money out early."

JethroBodien's picture

Your are correct sir.  Just moved all my cash out of eQUITable bank this morning even after they announced a record first quarter.

 

http://www.google.com/finance?q=TSE%3AEQB&ei=NVMHWYnBIZHwjAHf_ZuYCg

 

I place zero stock in these bullshit fiancial results.  All banks are corrupt and a den of vipers.

 

Moving the money to a larger institution that would be consdidered to big to fail/jail.

BlindMonkey's picture

I can't tell if that chart is  Canadian bank deposits or the reserves of the Dallas pension plans.  

kliguy38's picture

"Its not a panic if you're the first one out the door"

BurningFuld's picture

Ontario just brought in a 15% non resident tax on real estate. Some are panicking......which is probably a good idea.