Home Capital Group Inc. (TSX:HCG) has been in hot water for some time now, fighting a number of battles on different fronts, resulting in the company’s stock price plunging more than 55% year-to-date due in part to allegations of improper disclosures by the company’s management team by the Ontario Securities Commission earlier this year. On Thursday, Home Capital stock rose more than 15% on news that the embattled Canadian alternative lender had reached an agreement with the OSC to settle all outstanding claims and put this ordeal in the rear-view mirror.
The proposed settlement agreement has stipulated fines for the lender as well as three former Home Capital directors. The company has agreed to pay a fine of $10 million, with founder and former CEO Gerald Saloway fined $1 million and prohibited from acting as a director or officer of any reporting issuer for four years, former CEO Martin Reid and former CFO Robert Morton fined $500,000 each, and both prohibited from serving on a reporting issuer’s board or acting as a director for two years.
The consensus among analysts for how this deal will be perceived by the market in the weeks to come has been mixed. Jaeme Gloyn of National Bank of Canada believes that the reputation damage done to Home Capital remains, and the lender’s ability to continue as a going concern continues to be questionable. Other analysts believe that this is a step in the right direction for the embattled lender, with more positive news likely to take the company’s stock higher.
Regardless of where the company’s stock price goes in the coming days, Home Capital simply has too much risk for a cautious investor such as myself to consider making an investment on either side of the rebound trade. For that reason, I remain on the sidelines.
Invest wisely, my friends.