Fitch Affirms & Withdraws Home Capital Group & Subs' Ratings; Revises Outlook to Negative

NEW YORK--()--Fitch Ratings has affirmed the ratings for Home Capital Group Inc. (HCG) and its subsidiary, Home Trust Company's (HTC) at 'BBB-' and revised the Rating Outlook to Negative from Stable. Concurrent with this action, Fitch has chosen to withdraw the ratings of HCG and its subsidiary for commercial reasons. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS

IDRS, VRs AND SENIOR DEBT

The rating affirmations reflect HCG's decent operating performance with earnings improvement in 2014 offset by some tapering in 2015. While Fitch views HCG's historical profitability as a relative strength, the influence of earnings performance on HCG's Viability Rating is tempered in the context of the bank's greater focus on higher risk loans compared to Canadian banking peers. The ratings affirmations also reflect the company's adequate capital and liquidity profiles with HTC's Tier 1 and total capital ratios at 18.03% and 20.53%, respectively, as of June 30, 2015 and HCG's liquid assets of approximately $1.8 billion at June 30, 2015. While capital is well above required levels, Fitch considers the cushion necessary given the bank's narrow business focus and funding structure as well as the company's relatively large exposure to preferred stock securities.

HCG's ratings continue to be constrained by its reliance on high-cost, brokered time deposits. HCG has grown non-brokered deposits through its Oaken Financial channel, which enhances its funding profile. HCG's deposits consist primarily of guaranteed investment certificates (GICs) maturing from 30 days to five years. The company uses time deposits to match-fund maturities of mortgage assets, thereby keeping interest rate risk generally well controlled. Individual accounts are generally maintained below $100,000 (the maximum deposit insurance protection) and, thus, are viewed by Fitch as fairly stable as long as HCG's rates remain attractive and the company maintains its overall reputation in the market.

The Negative Outlook reflects the company's announcement that it suspended 45 of its mortgage brokers for submitting falsified borrower income information contained in mortgage applications to the company. Mortgages originated by this group of brokers totaled approximately $1 billion in 2014. In Fitch's opinion, the ultimate impact of the broker fraud is difficult to ascertain at this juncture. Potential implications include increased compliance costs as the company tightens its underwriting controls as well as contingent obligations to redress any issues with this pool of loans. Given that Fitch believes any such costs would materialize over the 12-24 month Outlook horizon, Fitch is unable to resolve the Negative Outlook prior to the withdrawal.

SUPPORT RATING AND SUPPORT RATING FLOOR

HCG has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, HCG is not systemically important and therefore, the probability of sovereign support is unlikely.

RATING SENSITIVITIES

IDRS, VRs AND SENIOR DEBT

Rating sensitivities are no longer relevant given today's rating withdrawal.

SUPPORT RATING AND SUPPORT RATING FLOOR

Rating sensitivities are no longer relevant given today's rating withdrawal.

Fitch has affirmed the following ratings with a Negative Outlook and has subsequently withdrawn them:

Home Capital Group, Inc.

--Long-term IDR at 'BBB-';

--Senior Debt at 'BBB-';

--Viability Rating at 'bbb-';

--Short-term IDR at 'F3';

--Support at '5';

--Support Floor at 'NF'.

Home Trust Company

--Long-term at 'BBB-';

--Senior Debt at 'BBB-';

--Viability Rating at 'bbb-';

--Short-term IDR at 'F3';

--Support at '5';

--Support Floor at 'NF'.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Bank Rating Criteria (pub. 20 Mar 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=992224

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=992224

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Christopher Wolfe, +1-212-908-0771
Managing Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Doriana Gamboa, +1-212-908-0865
Senior Director
or
Committee Chairperson
Nathan Flanders, +1-212-908-0827
Managing Director
or
Media Relations, New York
Hannah James, +1-212-908-0500
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Christopher Wolfe, +1-212-908-0771
Managing Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Doriana Gamboa, +1-212-908-0865
Senior Director
or
Committee Chairperson
Nathan Flanders, +1-212-908-0827
Managing Director
or
Media Relations, New York
Hannah James, +1-212-908-0500
hannah.james@fitchratings.com