One of the last times a Canadian bank ran into trouble, HSBC Holdings Plc came to the rescue. Don’t expect history to repeat itself in the case of Home Capital Group Inc.
HSBC Canada, which leapfrogged small Canadian competitors by acquiring failing Bank of British Columbia in 1986, wouldn’t be interested in Home Capital if the embattled mortgage lender put itself up for sale or sold off assets such as its mortgage portfolio.
“This isn’t something for us right now,” Sandra Stuart, chief executive officer of HSBC’s Canadian unit said Thursday in an interview in her Vancouver office. “We were in the subprime business and we had a subprime portfolio that performed very well, and we took a decision to exit it. We understand deeply what it takes to run a subprime book, and at this stage I would say we’re not interested.”
Home Capital has been seeking to stabilize itself after losing almost $1.9 billion in high-interest deposits since the end of March, forcing it to secure a costly $2 billion rescue loan from a pension fund. The company also hired investment banks to advise on financing and “strategic options” that may include a sale of the company or assets.
Other Canadian financial firms earlier this month ruled out an outright purchase of Home Capital, including Canadian Western Bank and alternative lender Equitable Group Inc. HSBC’s case is noteworthy because of the bank’s history in Canada.
Stuart has first-hand experience with a bank failure. She was a teller of Bank of British Columbia in Vancouver’s suburb of Burnaby when the lender ran into trouble. She became a part of HSBC when the Bank of British Columbia was acquired by the London-based lender in November 1986.
“Reflecting on it, it happened so quickly,” Stuart said. “I remember when HSBC made the purchase and how exhilarating that was to have a foreign bank take over a little British Columbia bank and absolutely overnight the prospect for the whole business changed. It was really exiting.”
Bank of British Columbia’s woes followed the failures of Canadian Commercial Bank and Northland Bank of Canada in 1985, when rising interest rates and a slumping dollar caused their real estate and energy-heavy loan books to deteriorate, according to a Bank of Canada report. The failure of two small Western Canadian lenders eroded the confidence of other banks that relied on wholesale deposit funding, leaving Bank of British Columbia unable to weather the storm.
The B.C. bank was run at the time by Edgar Kaiser Jr., an industrialist whose holdings included Canada’s biggest coal company, and the Denver Broncos of the National Football League, according to a New York Times obituary published when he died in 2012.
The B.C. purchase bolstered HSBC’s Canadian presence five years after entering the country, and the deal became the first of a string of purchases over 22 years in the bank’s strategy to expand across the nation.
HSBC Canada hasn’t seen much impact from Home Capital’s woes, Stuart said.
“If anything, we’ve seen our deposits increase over the last little while,” Stuart said, adding that she doesn’t expect Home Capital’s troubles will spread to other financial firms. “It’s a $20 billion book, it’s going to play out as it’s going to play out. We don’t feel any contagion to us, so I’m suspecting it’s probably going to be isolated.”
Home Capital rose a second straight day, adding 5.9 per cent to $9.39 in Toronto. The stock is still down 70 per cent on the year.