Home Capital Group Inc. Deposit Run Slowing, Yet Downgraded Again

Home Capital Group Inc. (TSX:HCG) released yet another update on its balance of deposits yesterday, citing a slowing of deposit withdrawals on its high interest savings accounts, with GIC deposits decreasing but staying relatively stable as well.

The company has been releasing updates on a daily basis of late, informing investors as to the situation with the company’s shrinking deposit base due to lack of confidence among investors as to the fate of what was Canada’s largest alternative lender.

In the face of slowing withdrawals, analysts have yet to become 100% satisfied that Home Capital is capable of continuing as a going concern. To that effect, on Monday analysts from Macquarie Research downgraded Home Capital citing uncertainty around the company’s business model and ability to maintain profitability moving forward, noting that Home Capital’s ability to create value remains "in question and includes potentially realizing zero value."

This stark admonishment of Home Capital has largely been a buzzkill for investors who looked to piggyback off of a stabilizing of Home Capital’s market capitalization of late. The tangible asset value of Home Capital is currently much larger than its market capitalization, however, the lender’s inability to obtain a longer-term solution to its debt funding has raised concerns among analysts across the board, including those at Macquarie.

Until the company is able to reduce its reliance on the $2-billion emergency loan it received two weeks ago, investors may be best advised to wait on the sidelines to see how this company proceeds moving forward. In my opinion, Home Capital is far too risky of a company to speculate on at this time.