On Tuesday the S&P 500 was down 0.1% while Toronto was down 0.5%.
About the only notable move in the stocks on our list was Toll Brothers up 2.0% to $37.36.
Home Capital (which is not on our list) bounced up 30% on news of selling some assets. As I mentioned yesterday, this begs the questions as to whether these mortgage assets were sold at a loss or gain or what guarantees Home Capital is providing. The Globe and Mail asked the same question. The Globe indicates a book value of $25 for the shares versus the market value of $8.86.
Home Capital will release earnings tomorrow (Thursday). They could actually report a good profit in Q1 ended March 31. But in April there were transactions such as the emergency loan that will generate losses. I don’t know if the accounting rules will require or permit the loss to be booked in Q1. Presumably there will be some estimate of Q2 profits and I would expect that to be a negative number. But the issue is not really the profit or loss at the moment. The issue is whether the company can stay in business. The new strategy will be to originate mortgages to sell which is an admission that they are no longer able to attract deposits to fund mortgages. Can they attract borrowers? That may depend on what alternatives borrowers have. Home Capital shares will likely be volatile in the hours after this earnings release and conference call as analysts attempt to understand the state of the company.
This whole mess with Home Capital could turn into an advantage for Canadian Western Bank’s alternative lender division called “Optimum Mortgage”. Optimum may also be involved in buying mortgages for Home Capital possibly at fire sale prices at the moment.
Statistics Canada reported building permits were down 5.7% in March. This was due to the volatile multi-family sector as well as lower commercial building intentions. Single family permits were up 3% and were up about 20% (from a quite weak 2016) in Alberta. Alberta single family building permits remain about 45% below the March 2014 level.