What matters now is how they restructure their debt. Essentially, the GIC’s that come due are the problem – billions of dollars. The run on deposits is small chump change compared to this. If they are not renewed, Home has to come up with the money to pay them out. If they call in mortgages, the mortgagees will be scrambling to find new mortgages – not a given that they will get them, but the money is available if the rates go high enough. Otherwise, lots of fire-sale opportunities as they put them on the market. If Home does not pay out on the GIC’s, they are essentially heading for receivership.

The big problem in the States was that the sub-prime mortgages were re-sold as paper backed securities, in order to come up with the money to re-finance and continue what was essentially a ponzi scheme. Home will probably put its mortgage portfolio up for sale, to try to stay afloat. This is the domino effect that compounded the problem, and that brought other financial institutions into the fold – the fact that these sub-prime mortgages were essentially worthless.

If this is just limited to Home, the damage is manageable by other players. Lots of money around to fill the gap, but mortgagees can expect higher ‘ransom’ rates. If these mortgagees have little equity, and cold feet, they may just walk away. But if no one else buys the paper, only Home is affected.

Still enough demand that the foreclosed homes can be sold in a normal market. However, if too many walk away at one time, and the houses are sold at typically lower liquidation prices, it could ripple through regular sale prices. It could be a good time to pick up fire-sale bargains.

GICs are short-term instruments. Unless HGC has matched their mortgages with their financing, it could have problems. That said, it might be a blessing as the company could call in its maturing mortgages and get back the capital it lent out while the market is still hot. If management plays it right, it could be a survivor by avoiding the consequences when the market corrects.

The question I have is what % of HCG’s existing loans are in good standing and reasonably anticipated to be paid off at maturity? That’s the most important part of this equation as the book value of their loan portfolio and cash (pre HOOPP announcement) minus liabilities approximates to 3x the value of the share price.

So basically either the loans are severely impaired and they’re not reporting it (are there any obvious cracks in the housing market where they are exposed?) or the share incredibly undervalued. The emergency loan should cover further depositor redemptions while they liquiditate the loan portfolio.

LOL, just like 2008. New movie: the big Canadian short.

No, they don’t!

I agree, it’s not looking good for them. With a huge high interest loan, stocks falling and people losing faith in them it’ll be a struggle to turn it around before a total collapse.