The Phaserl


Canada’s Banking System Is Crashing Before Our Eyes

by Justin Spittler, Casey Research:

Last Wednesday, its stock plummeted as much as 66%.

The next day, it fell another 20%.

Home Capital Group (HCG.TO) is now down more than 78% since the start of the year. And it’s trading at its lowest price ever.

That’s a staggering decline for such a short period. But some analysts think the stock’s headed even lower.

n a minute, I’ll show why this could happen sooner than you think.

But first, you need to understand why Canada’s biggest non-bank mortgage lender is in free fall.

• Last week, securities regulators accused the company of misleading investors…

When customers got wind of the news, they started frantically pulling money out of Home Capital.

They withdrew $472 million last Wednesday alone. They pulled out another $290 million on Thursday.

By Friday, the bank had just $521 million in its high-interest-rate savings accounts. That’s down from $1.4 billion as of last Monday.

• There’s no reason to think Home Capital will stop bleeding cash, either…

After all, Standard & Poor’s just downgraded the company’s credit rating to “junk” status. This means the company is at high risk of defaulting on its loans. That’s the last thing any investor or depositor wants to know.

Plus, the company’s director just resigned due to a “conflict of interest.”

These are major red flags. You usually only see this stuff happen right before a company collapses.

• Home Capital is now in survival mode…

Last Wednesday, it secured a C$2 billion line of credit from an unnamed source.

The company hopes this cash infusion will stop the bleeding. But, at best, it will only buy the company time.

That’s because Home Capital will have to pay 22.5% in interest on the first billion dollars of its credit line. If it uses anything above that, it will have to pay a 15% interest rate.

Those are sky-high rates. They could end up suffocating the company instead of saving it.

Home Capital isn’t the only Canadian lender in serious trouble, either…

• Equitable Group (EQB.TO) is also bleeding cash…

Equitable Group is another mortgage lender in Toronto.

Between last Wednesday and Friday, customers pulled C$225 million out of the company’s accounts.

This led the company to secure its own $2 billion credit line on Monday. It did this even though management called the outflows “elevated but manageable.”

Now, I’m not a banker. But I do know that companies don’t take out multibillion-dollar emergency lines of credit when everything is fine. They do this when they have big problems.

In short, Equitable Group is likely in far more danger than its investors realize.

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3 comments to Canada’s Banking System Is Crashing Before Our Eyes

  • Bob

    Panic spreading across Canada’s financial system? I’m no expert on this, but I can tell you that it wouldn’t even occur to 99% of Canadians that any of the six major banks had any risk whatsoever, and if you told them there was a risk they wouldn’t believe you. Canadians are under the delusion that their banking system is the most secure on the planet. So I’m not sure who might be panicking, but it isn’t the population. We’re as asleep as Americans.

  • mac

    …Cdn Banks were bailed out in 2008…secretly, but it can be proven. Ya, the Cdn Bank meme years ago had some basic sanity, but today with Oil and Cdn Real estate in danger of collapsing, well, the Banks are likely going to be left out in the cold.

    A ton of sub-prime auto loans outstanding, many w/o payment…
    Tons of unpaid student loans…

    Lumber, basic metals and precious metals and resource companies are all down, too.
    Loonie going south rather fast now…

  • Craig Escaped Detroit

    The Black Swans are loaded into the catapults, ready to launch.

    This is just the “calm before the storm”, the “pregnant pause”, the “fuse is lit”. We just don’t know how fast or slow that fuse is burning. We’ll know it when we hear the BANG!

    There’s gonna be an epic shortage of toilet paper because so many sheeple are going to be “pooping in their pants”.

    A lot of people don’t know this geographical fact, but Detroit is actually a tiny bit NORTH of “Windsor, Canada”. When you drive from Detroit, into Windsor, the visual change is astounding.

    Detroit is a war zone, dead, burnt out, crime, trash, etc, and you drive across the bridge (or thru the tunnel), and emerge into Canada where the city is clean, well repaired, and appears quite safe (all depends on how many immigrants and negroes have taken over). It’s been more than 10yrs since I’ve been there.

    I hope EVERYBODY in North America, Central America, South America, Europe, Asia, etc….are all growing some gardens. We are gonna need it.

    OK guys, plant those seeds, stack that silver, store that ammo, dig that well, install some solar, stock up on canning jars and supplies.

    Prepare too early, before it’s TOO late!!!!!!!

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