Home Capital Shareholders Reject Buffett's Expanded Stake

By Bowdeya Tweh 

Shareholders in Canada's Home Capital Group Inc. voted down a plan for Berkshire Hathaway Inc. to increase its stake in the company, dealing a blow to investor Warren Buffett's rescue package for the troubled home-mortgage lender.

Berkshire Hathaway in June agreed to indirectly acquire a 38.39% stake in Home Capital as part of a rescue package that included a loan of 2 billion Canadian dollars ($1.5 billion), which has since been repaid. Home Capital board member Alan Hibben told The Wall Street Journal in June that while the company had weighed several financing offers, it opted for Mr. Buffett's because the plan could help restore confidence in the company after a deposit flight.

But shareholders holding more than 88% of Home Capital shares voted at a special meeting held Tuesday not to allow the company to expand its stake.

Brenda Eprile, who chairs Home Capital's board, said the board respects the shareholders' decision.

"This decision is a clear message that the majority of our shareholders believe that Home Capital's improved deposit inflows and liquidity position diminish the need for additional capital," she said. "We are pleased to still have Berkshire as our largest shareholder."

The deal was structured in two tranches. The first resulted in Berkshire, through its subsidiary Columbia Insurance Co., spending $153.2 million to acquire a 19.99% stake in Home Capital. The remaining stake, expected to cost about $246.8 million, was subject to the shareholders' vote.

Following the vote, trading in Home Capital's stock was temporarily halted Tuesday morning on the Toronto Stock Exchange. The halt was requested by the country's market regulator as part of its fair and orderly market policies.

Berkshire had said it would vote just 25% of the lenders' stock, to comply with Canadian rules that restrict investors from voting more than a quarter of a bank's shares.

Proxy-advisory firm Institutional Shareholder Services Inc. had recommended investors vote against Berkshire's acquisition of a larger stake in the company. However, Mr. Buffett, in an Aug. 30 interview with Bloomberg, said he wasn't dissuaded by ISS's action.

"So we'd like to buy the stock, but if they vote it down, if the shareholders vote it down, we'll be fine," said Mr. Buffett, according to an interview transcript.

A different proxy adviser, Glass Lewis & Co., recommended shareholders approve the deal.

Before the capital infusion, Home Capital had been facing a liquidity crisis after depositors withdrew money at a rate the company found to be alarming. The accelerated pace of withdrawals followed allegations from Canada's leading securities regulator earlier this year that the company, its founder, former chief executive and its chief financial officer misled investors about the scale of a mortgage-application fraud Home Capital uncovered in 2014.

The company and the executives settled with the Ontario Securities Commission for C$29.5 million, without admitting any wrongdoing.

Home Capital has taken steps to shore up its balance sheets in recent months, including securing a C$2 billion credit line through a syndicate of Canadian banks and selling half of its commercial mortgages for C$1.16 billion to a unit of private-equity investor KingSett Capital.

Home Capital is one of the country's largest mortgage lenders to higher-risk borrowers, many of them immigrants or self-employed workers with limited credit histories.

Cara Lombardo contributed to this article.

Write to Bowdeya Tweh at [e-mail]

(END) Dow Jones Newswires

September 12, 2017 12:13 ET (16:13 GMT)

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