The roller coaster ride Home Capital Group Inc. (TSX:HCG) has been on of late appears to be adding to the volatility in the embattled alternative Canadian lender. After seeing the company’s stock price crash nearly 85% from its 52-week high this Spring, shares of Home Capital have now more than doubled from its lows on news that the Oracle of Omaha himself, Warren Buffett, would be investing in the company.
The problems for Home Capital began following an investigation from the Ontario Securities Commission (OSC) into the bank’s lending practices, targeting disclosures made in a number of mortgage applications which had improper income verification. The OSC alleged that the company did not properly disclose these issues, and fined three of the company’s directors.
This week, an Ontario court approved the settlement previously made between the company, its three directors, and the OSC stipulating $29.5 million in a settlement which will rid the lender of a class-action lawsuit which has hampered the firm’s ability to generate deposits and reduced investor confidence in the firm for some time now.
The news of this settlement has mixed reviews from analysts, some of whom believe that more downside may remain with Home Capital as new lending regulations are set to be enforced which will disproportionately affect alternative lenders. Others believe that this settlement is a step in the right direction toward a world in which Home Capital investors are satisfied that the company has met its obligations and will be able to move forward in the right direction.
Whatever the case, investors interested in a company like Home Capital should do their homework and dig into the financials further before making any investment decisions.
Invest wisely, my friends.
