Equitable Group Inc. tried to distance itself Monday from the troubles plaguing rival Home Capital Group Inc., disclosing some deposit withdrawals and plans for $2-billion in standby financing in a bid to reassure investors of its stability.
Shares of Equitable rose 30 per cent after the Toronto-based alternative mortgage lender announced that it had negotiated a $2-billion credit facility with a syndicate of five major banks to act as a buffer at a time when its deposit base is on the decline. Between last Wednesday and Friday, Equitable said that it averaged daily net deposit outflows of $75-million, with the total representing 2.4 per cent of its overall deposit base. It said these withdrawals were "elevated but manageable."
The lender was originally scheduled to report its first-quarter earnings on May 11, but decided to publish its results more than a week earlier as a way to quash concerns that the troubles facing Home Capital were spreading to other lenders that also serve borrowers who are deemed too risky by Canada's largest banks.
"What it demonstrates, quite clearly, is that we are a bank that's trusted by the other banks," Andrew Moor, chief executive officer at Equitable, said in an interview. "We've got, basically, the entire banking industry behind us."
The financing, which is being led by Toronto-Dominion Bank, was being finalized in the wee hours on Monday morning and has been in the works since last Wednesday, which is when competitor Home Capital revealed that it was scrambling to secure a $2-billion emergency line of credit to offset a wave of withdrawals from its high-interest savings accounts.
On the earnings call, Mr. Moor moved to untangle the status and fate of Equitable from that of competitor Home Capital.
Last month, the Ontario Securities Commission accused the company and three of its former or current executives of making "materially misleading statements" to investors. The allegations have not yet been proven. Home Capital, though, has begun to tap an emergency loan facility amid a run on its deposits base.
"Those issues are unique to them," Mr. Moor explained, referring to Home Capital, adding that "it's unfortunate that banks, including ourselves, are drawn into the mix, particularly since our approach to bank governance and our internal controls are vastly different, and the fundamentals are only getting stronger."
It seems as if investors heard his message loud and clear and sent both stocks on diverging paths.
Shares of Equitable soared by $10.86 on Monday to close at $47.35 in Toronto. In contrast, Home Capital stock fell another 13 per cent to $6.96. Between last Wednesday and Friday, Equitable's shares tumbled nearly 40 per cent, whereas Home Capital's stock plunged 53 per cent.
It also said that has obtained a letter of commitment for a two-year, $2-billion credit facility from a syndicate of Canadian banks including TD Bank, Canadian Imperial Bank of Commerce, National Bank of Canada, Bank of Nova Scotia and Bank of Montreal, Mr. Moor told analysts.
"We don't think we do need the money. But we're bankers and bankers worry about things. We try to be safe and prudent," Mr. Moor said in an interview. "If it can happen to any one institution, it can happen to another. It's like buying insurance, knowing there's always a risk your house can burn down."
As of March 31, Equitable was holding $2.4-billion in savings accounts and $7.4-billion in guaranteed investment certificates (GICs).
The terms are an extension of one of the arrangements Equitable has had in place with a big banks, Mr. Moor added. "We picked up the old term sheet and adjusted some numbers to get to this one," he said.
Equitable said those terms include a 0.75 per cent commitment fee, a 0.50 per cent standby charge on unused portions and an interest rate on the drawn portion of the facility equal to the banks' cost of funds plus 1.25 per cent.
In contrast, Home Capital's line of credit, which is being led by Healthcare of Ontario Pension Plan, has much more onerous strings attached. Home Capital will pay a 10-per-cent interest rate, a 2.5-per-cent rate on undrawn balances and a fee of $100-million – or a whopping 22.5 per-cent effective interest rate on the first $1-billion it borrows.
On Monday, Equitable also reported a 55-per-cent jump in first-quarter earnings to $43.4-million compared with the same period in 2016, beating analyst estimates.