Equitable Group Gets More Financial Backers

By Jacquie McNish Features Dow Jones Newswires

A small Canadian mortgage lender won backing from three additional Canadian banks for a 2 billion Canadian dollar ($1.5 billion) funding line it announced earlier this week after a minor exodus of depositors.

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Equitable Group Inc. said all six of Canada's major banks have agreed to contribute to the backstop financing it announced Monday, which was initially supported by only three Canadian banks. The Toronto mortgage lender said Monday it lost 2.4% of its C$10 billion deposits, after a significant deposit exodus at competitor Home Capital Group Inc. shook confidence in the mortgage lending sector.

Canada's major banks and one of its large pension funds have stepped in to ease market jitters by lending $4 billion to Equitable and Home Capital in the past two weeks. The stock prices of Canada's big banks, which control about three-quarters of the C$1.4 trillion residential mortgage market, experienced slight declines in the past week.

Investors have grown concerned that the Toronto-area's overheated housing market is poised for a decline that could pose headaches for smaller lenders such as Equitable and Home Capital, which lend to borrowers with less-than-stellar credit ratings.

As of Monday, Home Capital said it had drawn C$1 billion of a C$2 billion credit line arranged to stem the loss of nearly three-quarters of its high risk savings deposits, which stood at C$2 billion at the end of last year. The lender said it also has C$12.86 billion of "guaranteed investment certificate" deposits as of April 28, which are placed on deposit for fixed terms.

The deposit exodus followed allegations from Canada's leading securities regulator that Home Capital failed to disclose the full impact of mortgage application fraud the lender uncovered in 2014.

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Home Capital denies the allegations.

Write to Jacquie McNish at Jacquie.McNish@wsj.com

(END) Dow Jones Newswires

May 03, 2017 10:31 ET (14:31 GMT)