Warren Buffett (Trades, Portfolio), CEO of Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), said he would “substantially exit” from his position in Canadian mortgage lender Home Capital Group Inc. (TSX:HCG, Financial), about a year and a half after starting the investment.
Buffett came to the troubled company’s rescue in June 2017, lending it $2 billion. The investment also entailed a purchase of 16.04 million shares, or a 19.99% stake in the company for a cumulative price of $153.23 million. After Berkshire makes a substantial issuer bid for its shares on Friday, the position will likely fall below 10%.
“We are delighted to see Home Capital back on its feet with healthy liquidity and a solid capital position,” Buffett said in a release.
Buffett’s involvement with the company instilled a vote of confidence after its share price plunged 76% to a multi-year low of $5.85 from April 7 to May 5, 2017. At the time, the company faced substantial funding issues related to “reputational concerns” that were casting “significant doubt upon the company’s ability to continue as a going concern,” management said in its first-quarter 2017 earnings.
The reputational concerns arose from an Ontario Securities Commission investigation launched on Feb. 10 into the impact of falsified information on loan applications and the steps the company took when it discovered the problems. It specifically targeted the company’s president and CEO, its former CEO and then-board member, and its chief financial officer.
Home Capital’s deposit inflows and liquidity position had improved enough by September 2017 that its shareholders rejected a Berkshire offer to invest a further $246.8 million into the company. The second investment would have expanded his equity position in the company to 38.39%.
“Shareholders did not approve the additional investment and, as a result (coupled with a full repayment of Berkshire’s credit line) Berkshire’s investment in Home is now not of a size to justify our ongoing involvement,” Buffett said. “Although we have decided to substantially exit from our investment, we will continue to cheer from the sidelines for our friends at Home.”
Shares of Home Capital have since risen to $14 per share at close Monday, giving Buffett a gain on his $9.55 per-share buy price.
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