Failing banks, subsequent bank runs and bailouts in the US reminded me that not so long ago a bank run happened to one Canadian publicly traded bank: Home Capital Group Inc. (TSX:HCG)
But Home Capital is in an interesting situation at the moment, it is in the process of being acquired by Stephen Smith for C$44/share.
In theory, the deal should be closed on or before May 20, 2023, otherwise, the price starts going up:
The Transaction is expected to close in mid-2023. If the Transaction closes on or after May 20, 2023, the Purchase Price will be increased by an amount equal to $0.00273973 per share in cash per day up to and including the day prior to the closing of the Arrangement (equivalent to approximately $0.25 per share for every three-month delay beyond May 20, 2023).
At the same time, shares are trading at around C$40/share right now, which is the reason for this post.
~9% gain in ~2 months. Does it worth the risk?
To make a meaningful return on this trade, one should buy as many shares as possible, because each share can bring almost C$4 in profits.
Even with all the bank runs in the US, there is fewer chances that something similar can happen in Canada, at least in the next 2 months. Even though mortgage owners are definitely struggling at the moment, people are spending more than they are saving, thus slowly draining their bank accounts.
Also, things are moving so fast now that bank runs happen in a matter of days.
At the same time, I have pulled all my money from Oaken Bank for a bunch of random reasons:
- They have stopped sending chocolate boxes for Christmas/New Year! 😥
I’ve received nothing at the end of 2021 or 2022.
Maybe it’s just me? Dunno. But this cute chocolate box was what made Oaken special!
Now it is just another bank…
- They have messed up with my tax forms. I notified them about the problem, but no one called me back.
- I want to stay more liquid and don’t want to lock money in GIC, but 3.4% from savings account is too low.
- Considering that HCG is just another bank, nothing keeps me from moving away.
Well, I’m still undecided about this risk arbitrage trade. 🙂
2 comments on “Home Capital Group Inc. and a Risk Arbitrage”
I guess, I missed this train, was contemplating for too long. 🙂
HCG share price jumped to C$43/share.
Home Capital Receives No-Action Letter Under the Competition Act for Acquisition by Smith Financial Corporation.
It’s May 20, but the deal is not closed yet.
Starting now, every 4 days of delay increases the price by 1 cent.