HomeCapital

Apr 4, 2023

04/04/2023 | 04:05pm EDT Message : *Required fields TORONTO, April 4 (Reuters) - Canada's antitrustregulator said on Tuesday it has sought additional informationin its review of Smith Financial Corp's planned C$1.7 billion($1.3 billion) bid for lender Home Capital Group Inc (HCG). The Competition Bureau Canada was responding to a Reutersquery on whether it had issued the companies any supplementaryinformation request (SIR). "I can confirm that the Competition Bureau is reviewingthe potential acquisition of Home Capital Group by SmithFinancial Corporation," a bureau spokesperson said in an email. The regulator declined to provide a timeline of its review,saying it is obligated to "conduct its work confidentially. "Home Capital and Smith Financial were unavailable for immediatecomment. The bureau seeks additional information from merger partnerswhen an acquisition raises concerns about substantial lesseningof competition. Canada's already consolidated banking industry had twomore M&A deals last year, including Smith Financial's HomeCapital bid, giving six lenders control of about 90% of themarket. Consumer advocates have complained about highertransaction fees than in the United States. Last year, Royal Bank of Canada announced thepurchase of HSBC's Canada unit, a transaction also underregulatory review. Home Capital, rescued by Warren Buffett's BerkshireHathaway Inc five years ago, announced in November itwould be taken private by Smith Financial. Canada's housingmarket and mortgage lending slowed as interest rates spikedafter exponential price growth during the pandemic. Home Capital, which caters to borrowers shunned by biglenders, set aside C$10.4 million for bad loan in the 2022fourth quarter, up from C$1 million in the year-ago period. "There is no surprise that the competition bureau isreviewing this transaction; in fact, it should have beenexpected," said Arthur Salzer, CEO at Northland WealthManagement, a Home Capital shareholder. Salzer said he expects the sale to be approved and HomeCapital to retain its focus on so-called alternative borrowerswith weaker income documentation, such as the self-employed, newimmigrants and those with a poor credit history. Controlled by billionaire Stephen Smith, Smith Financialis also the co-founder of Home Capital's larger rival FirstNational Financial Corp. It is a top shareholder oflender EQB Inc, one of Canada's leading alternativelenders and the country's ninth largest publicly traded bank. The competition bureau's main concern is that the HomeCapital deal will result in Smith Financial controlling toolarge a share of the alternate market, said a hedge manager whois closely watching the transaction. Smith also co-owns Canada Guaranty Mortgage InsuranceCompany, in partnership with Ontario Teacher's Pension Plan. Heis chairman and co-owner of Duo Bank of Canada. Shareholders voted 99.8% in favor of approving the dealat a special meeting on Feb. 8. If Smith Financial does not close the deal before the May 20deadline, it has to pay shareholders an extra 25 Canadian centsper share for every three months of delay. (Reporting by Divya Rajagopal and Maiya Keidan in Toronto;additional reporting by Ismail Shakil; Editing by Denny Thomas,Franklin Paul and Richard Chang)