Berkshire Hathaway Takes Big Stake in Troubled Canadian Lender

By Jacquie McNish Features Dow Jones Newswires

Berkshire Hathaway Inc. said it has agreed to indirectly acquire a 38.39% stake in troubled Canadian mortgage lender Home Capital Group Inc. as part of a rescue package that includes a 2 billion Canadian dollars ($1.5 billion) loan.

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Under the terms of an agreement announced late Wednesday night, Berkshire said it would acquire the stake through Its wholly-owned subsidiary Columbia Insurance Co. for C$400 million through two private placements.

When the purchases are complete, Berkshire said it would hold about 38.39% of Home Capital's common stock. Berkshire said it would only vote 25% of the lenders stock, to comply with Canadian regulations that restrict investors from voting more than 25% of bank shares.

The investment follows a frantic month of negotiations by Home Capital's board with a variety of investors to avert a liquidity crisis after a sudden exodus of deposits.

The deposit flight was sparked by allegations from Canada's leading securities that the company and three top executives materially mislead investors about a mortgage application fraud problem the company uncovered in 2014.

The company and executives struck settlements last week to pay C$29.5 million to the regulator and shareholders belonging to a class-action lawsuit.

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Home Capital has drawn about C$1.6 billion of an emergency loan from a Canadian pension to cope with a dramatic loss of deposits. The loan will be replaced by Columbia's line of credit.

Home Capital has also sold some of its mortgages to raise additional cash. On Tuesday, it agreed to sell about half of its commercial mortgages for C$1.16 billion to a unit of KingSett Capital, a private-equity investor.

(END) Dow Jones Newswires

June 22, 2017 00:55 ET (04:55 GMT)