NEWS
08/03/2017 07:26 EDT | Updated 08/03/2017 09:40 EDT

New CEO of mortgage lender Home Capital says corporate culture is critical

TORONTO — The new CEO of Home Capital Group (TSX:HCG) says ensuring the company, which nearly collapsed earlier this year, has the right corporate culture is critical to its future.

In his first day on the job Thursday, Yousry Bissada said while the lender's core executive team is strong, there is still much to be done to rebuild its business.

"We still have a lot of hard work ahead of us, but it is going to be a different kind of challenge," Bissada told a conference call to discuss the company's second-quarter results.

"We're in a position where we can look forward and make fresh decisions about the kind of company we want to be."

Home Capital flirted with disaster earlier this year after Ontario's securities regulator alleged the company failed to satisfy its disclosure obligations in a scandal about falsified loan applications that began in 2014.

The news sank Home Capital's stock and the plunge only worsened as customers pulled their deposits, a key source of funding for the alternative mortgage lender, sparking a liquidity crisis.

Home Capital was saved after it secured an emergency loan from the Healthcare of Ontario Pension Plan and then an investment and new line of credit from Warren Buffett's Berkshire Hathaway. The company also settled its case with the Ontario Securities Commission and hired Bissada, a veteran mortgage company executive.

Bissada said he plans to talk with employees, customers, brokers, regulators, investors and other stakeholders about his plans and strategic direction for the company.

"There are excellent people here — people who know this market and know how best to serve it," he said.

Shares in Home Capital fell in morning trading Thursday after the company reported late Wednesday a loss of $111.1 million or $1.73 per share in its latest quarter compared with a profit of $66.3 million or 99 cents per share a year ago.

The results for the quarter ended June 30 included $233.7 million in costs related to the crisis and other one-time items.

In its outlook, Home Capital said it is focused on strengthening its financial position and returning its lending and deposit taking to a more normal level.

It said it plans to focus on guaranteed investment certificates and term deposits, while demand deposits are likely to remain weak.

Home Capital also raised concerns about proposed changes to mortgage lending rules that it says could hurt its business.

It said if they are implemented as proposed, the measures could reduce, possibly materially, the size of the uninsured mortgage market available to the company and others like it.

The Office of the Superintendent of Financial Institutions has recommended a new stress test for all uninsured mortgages as well as expressly prohibiting co-lending arrangements that are designed or appear to be designed to circumvent regulatory requirements.