Home Capital Group: Who’s Making Millions Shorting This Stock?

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Otcmarkets.com, which tracks U.S. short positions, reports that more than 18-million Home Capital Group Inc. (TSE:HCG) shares were being shorted as of April 13

Financial Post | May 11, 2017: So here’s a funny thing. Marc Cohodes, big-time American short seller, contacted me Monday on Twitter, asking me for my phone number. In a column last week, I had said that the official short position in Canada on Home Capital Group Inc. (TSX: HCG) was 2.5-million shares. That was technically right, as far as the TMX data go, but way off base in the great world of short sellers inhabited by the likes of Marc Cohodes. The otcmarkets.com site, which tracks U.S. short positions, reports that more than 18-million Home shares were being shorted as of April 13.

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Last week, I had sent Cohodes a tweet asking him to reveal his short position. “Show us your books,” I said. No answer then. So I wondered if Cohodes, no doubt a man of high integrity who favours full disclosure in all things corporate and investment, wanted to call me and point out that he and his shorting comrades were actually short 12,695,228 Home Capital shares. I just came up with that guess, but it’s possible.

So, based on my rough assessment, it appears the short sellers sold Home Capital shares at an average price somewhere in the ballpark of $35, hoping to someday get them back at a much cheaper price. At that price, if Home Capital should slide all the way to zero, if they were indeed short 12,695,228 shares, Cohodes and his co-conspirators stand to make a profit of $444 million. Add in other short sellers in Canada and the U.S. — some estimates are that as much as 50 per cent of Home’s 60-million outstanding shares have been shorted — and the total take raked in by shorts on Home’s ruination could approach $1 billion.

[Editor’s Note: Depositors have withdrawn more than 90 per cent of funds from Home Capital’s high-interest savings accounts since March 27, when the company terminated the employment of former CEO Martin Reid.

The lender said on Tuesday that an unnamed buyer intends to purchase up to $1.5 billion ($1.1 billion) worth of its mortgages. It also said it will in future focus on originating mortgages to sell, rather than holding them on its balance sheet and funding them through deposits. The changes will result in lower mortgage balances, increased costs and reduced profitability, it warned. In an update today, Home Capital said liquid assets stood at approximately $1.02 billion as of end of day May 10, 2017 and combined with the undrawn amount of $600 million under the Company’s $2.0 billion credit facility led by HOOPP, the Company’s aggregate available liquidity and credit capacity totaled approximately $1.62 billion.

Home Trust’s High Interest Savings Account (HISA) deposit balances are expected to be approximately $128 million on May 11, 2017 after the settlement of transactions that took place on May 10, 2017.] 

Read more at business.financialpost.com

Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.

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