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Report On Business Morneau won’t rule out Home Capital bailout but expects private solution

Canada's Finance Minister Bill Morneau looks on during the G7 for Financial ministers meeting in the southern Italian city of Bari, Italy.

ALESSANDRO BIANCHI/REUTERS

Finance Minister Bill Morneau would not rule out a government-led bailout of Home Capital but said he believed the alternative mortgage lender could find private solutions to its problems.

As Home Capital bleeds deposits and liquidity, he said he saw no evidence of contagion that would damage the banks or the wider mortgage market.

In an interview with The Globe and Mail in Bari, Italy, site of the two-day Group of Seven summit for finance ministers and central bankers, Mr. Morneau called Home Capital an "idiosyncratic" problem that appeared to be contained. "We have been very focused on this from day one," he said. "From the beginning, we have seen this as a Home Capital issue as opposed to a broader issue."

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Mr. Morneau, who is attending the G7 summit with Bank of Canada Governor Stephen Poloz, who is also closely involved with the Home Capital file, said "we've not had to come forward with any financial assistance" but said it was up to the Office of the Superintendent of Financial Institutions (OSFI) to make that call.

"The responsibility of OSFI is to consider every day Home Capital's situation," he said. "I think what we're hoping is that they'll continue to look for market-based solutions. I'm not going to hypothesize on the OSFI decision on a day-to-day basis, but what I can say is that there are clearly assets at Home Capital that are strong, in terms of their mortgages, and that will provide for a conclusion I expect will allow for people not to be hurt."

When asked whether the government could absolutely eliminate a bailout option, Mr. Morneau said, "It's unlikely to be a situation we're going to face. They're seeking a market conclusion and to the extent that OSFI comes to a conclusion that's different, then that would precipitate a change. I am not going to guess what the outcome would be."

On Friday, the mortgage lender said it would not pursue a quick sale of the company. Instead, Home Capital will consider a wide range of potential funding sources, the company said on an analysts' call.

A top priority is to replace the expensive, $2-billion credit line it negotiated last month with a consortium led by Healthcare of Ontario Pension Plan. Home Capital was forced to accept a 10-per-cent interest rate and payment of a $100-million up front. Home Capital has chewed through all but $600-million of the credit line so far.

Mr. Morneau said that the federal, Ontario and municipal governments were also closely monitoring the housing market, especially in the heated Toronto market, whose price rises he called "unsustainable" after a 30-per-cent jump last year. The Ontario government recently brought in measures to calm speculation and temper prices, including a tax of 15 per cent on foreign buyers.

Mr. Poloz has also warned about "unsustainable" price increases but has said an interest-rate hike is not the solution, even though market speculation was evidently playing a role in the dramatically higher valuations.

Mr. Morneau said, "We are pleased the Ontario government took further measures to deal with demand … We're taking actions that do not have unintended consequences of increasing demand [like giving] people the sense that this market can continue at this pace."

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