Shlomi Amiga/The Globe and Mail
Yousry Bissada, the wonderfully energetic and engaging CEO of Home Capital Group Inc., had second thoughts about using the Titanic as an analogy for the tangled combination of catastrophes that nearly sank the alternative mortgage lender in 2017, just before he was hired to rescue it. But Bissada raised the subject himself—twice—the first time we talked.
His wife, Gilda, is a big fan of James Cameron’s 1997 epic about the disaster, so he’s seen it many times. They’ve even visited Fairview Lawn Cemetery in Halifax, where many of the victims are buried. Bissada reels off some of the coincidences that sank the ocean liner. The sea was calm, but icebergs were drifting south. A key lookout didn’t have his binoculars that day. If the iceberg had hit 10 feet over, the ship would have survived. The list goes on. “It was 10 or 15 things that went wrong,” says Bissada.
In many ways, the comparison to Home Capital is apt, with one key difference: Imagine a hero taking the helm just before the fatal moment, correcting course and steering the ocean liner safely to Pier 59 in New York.
If you do that, you’ll have an idea of the rarity of the corporate turnaround 62-year-old Bissada has pulled off. Other Canadian companies have watched their share prices collapse spectacularly in recent decades—Nortel Networks, Ballard Power Systems, Canwest Global, BlackBerry and Valeant Pharmaceuticals all come to mind. Yes, they survived the collapse, but only to stagger along as vastly diminished versions of what they once were.
Home certainly came perilously close to going under. In 2015, its share price plunged by almost 25% within days of it announcing it had severed ties with 45 third-party mortgage brokers who’d falsified borrowers’ income information. In early 2017, the stock plunged again as the Ontario Securities Commission disclosed it was still investigating Home over the 2015 revelations, the company fired then CEO Martin Reid, and founder Gerald Soloway resigned from the board.
As they had years before, short sellers—who profit from share-price declines—ganged up on Home, arguing Canadian housing markets were overheated and the company’s stock overvalued. As the crisis of confidence escalated in 2017, Home was also suffering from a classic run on the bank—bleeding cash as depositors fled Home Trust, which the subsidiary company used to gather money to fund mortgages—and some Canadian banks and other lenders discouraged their reps from selling Home GICs.
In June 2017, Warren Buffett’s Berkshire Hathaway extended a lifeline to Home, buying $153 million in shares and providing a $2-billion line of credit. But there were costly strings attached. Meanwhile, employees and executives were jumping ship, and Home’s reconstituted board of industry and financial pros was searching hard for a new CEO.
Enter Bissada, who took over that August. Why would anyone not only accept the job but actually want it? As he tells it, he had a unique combination of experience, skills and determination that made him a perfect fit. An accountant who’d entered the alternative (non-bank) mortgage sector in its early days, he worked his way up to head of TD Canada Trust’s mortgage division, then ran two fintech companies.
Like a lot of leaders in the alternative mortgage business, Bissada goes on at length about the clientele. Alternative lenders don’t have a large slice of Canada’s mortgage market—about 5%, by many measures. But that still represents a huge business: Home alone has more than $20 billion in loans outstanding. It caters to a key market segment, too: entrepreneurs with irregular income, recent immigrants with little or no credit history, divorced couples with bruised credit and other mortgage customers the Big Six banks turn down. “We don’t help people get mortgages,” he says. “They want a home.”
And at first, things went fabulously well. Bissada stopped the bleeding, modernized Home’s outmoded systems and reinvigorated its 700-plus employees. By late 2019, the share price had hit (and exceeded) $30, a target he’d been hoping to reach within five years. But then came new turbulence—plenty of it. Start with COVID-19, add in the analyst warnings that the red-hot Toronto and Vancouver housing markets were still in bubble territory, and top it off with the Bank of Canada starting to ratchet up interest rates early last year to choke off inflation.
Against that backdrop, a determined acquisitor entered the fray: Toronto billionaire Stephen Smith, a mortgage-industry veteran and seasoned value investor. He and Bissada had known one another for decades, and they’d always liked each other. But business is business—documents sent to Home shareholders in early January detail a nearly year-long takeover struggle. “I have seen this movie before,” says Bissada. “But this was a bigger movie.”
In November 2022, Home agreed to be acquired by privately owned Smith Financial Corp. for $44 a share—not the record of more than $55 set in 2014, but impressive in a roiled housing market. “Good deals generally won’t fail over $2 or $3,” Smith says. And he and Bissada both vow Home will go on as a separate brand and company.
But given the still-perilous state of Canada’s housing market, are the two mortgage-biz doyens feeling a bit too lucky? Bissada has steered Home clear of the iceberg, but it still has a ways to go to reach port.
With the various crises at Home Capital escalating in early 2017, Bissada—along with just about every other mortgage-industry vet—could hardly believe the stories pouring out in the media. His overarching thought: This is not right.
Just a few years earlier, the company had been on a roll. On an earnings call with analysts in July 2014, Soloway, Home’s founder and then CEO, declared victory over short sellers who’d argued for more than a year that it was one of the most vulnerable lenders in the overheated Canadian housing market. Most prominent among the shorts was Steve Eisman, who was lionized in Michael Lewis’s 2010 bestseller The Big Short for shorting U.S. subprime mortgage lenders in the run-up to the 2008-09 financial crisis, netting his firm more than US$700 million.
But with Home’s share price climbing toward an all-time high in mid-2014, Soloway told the analysts, “We kept our mouths shut, our heads down and continued to produce increasingly profitable financial results quarter after quarter.” Even after having cut ties with the mortgage brokers in 2015, Home was still widely respected.
The Ontario Securities Commission, however, was still investigating the broker incident, along with Home’s financial disclosure surrounding it. As the company’s problems mounted in early 2017, it was struggling internally, as well. For starters, Soloway and other veterans were past their prime, and so were Home’s internal IT systems, along with the ones it used to interact with external mortgage brokers. Plus, the cash drain from Home Trust depositors withdrawing money and Home using up lines of credit was hampering its ability to fund mortgages approved by brokers.
When a corporate recruiter called Bissada about the CEO job, in many ways, he felt an obligation to preserve an important company in trouble. And his life and career had certainly prepared him for that challenge.
It started in exotic locales and with early dangers. Born in Cairo, Bissada’s family left Egypt when he was six and moved to Eritrea, then still part of Ethiopia. His grandfather was a successful businessman and friend of then Emperor Haile Selassie, and Bissada and his brother went to a private school on a U.S. military base in Eritrea. “I spoke American,” he says. “I spelled color with no ‘u.’ I said zee, not zed.”
But in 1973, Bissada’s mother and her three children fled to Canada, for two reasons: “My parents divorced, and a civil war started.” Despite the split, Bissada’s mom chose Canada, where his father had relatives and where she felt her children would have a better future. They ended up in a two-bedroom apartment in Toronto’s east end. “She was 33, not so good in English, never had a job in her life,” says Bissada. “She is definitely my hero.”
His father sent money from Ethiopia, but it didn’t go far. “We were near poverty, but we had a home. You know, we were fine,” Bissada says. The 13-year-old found the schoolwork easy after Ethiopia, and he was determined to fit in socially. “Every kid on Monday morning would talk about these Toronto Maple Leafs. And, you know, what the hell are Toronto Maple Leafs?” By the end of his first school year, Bissada was watching NHL playoffs. His accent is pure “Tronno,” without a trace of the Middle East or Africa.
But the plotline of the hardworking new Canadian kid derailed during university. Good at math, he studied commerce at the University of Toronto. “I didn’t do drugs, but I was like, Woohoo, let’s party,” Bissada recalls. After two years, humbled, he took a year off and went to work selling cameras at a Blacks store. “It was a great experience. I learned so much about selling,” he says. (You can believe it—strolling around Home’s head office in Toronto, the CEO connects astonishingly quickly with everyone he meets.)
Shlomi Amiga/The Globe and Mail
In 1981, Bissada plugged back into studious mode. An aunt gave him the first of many accounting jobs, and at night he took courses for his designation (he’s a Chartered Professional Accountant). Then came a string of jobs at trust companies, many of them in bad shape—Eaton-Bay Trust, Morgan Trust and the Asper family’s CanWest Trust. “I kept working with messes,” Bissada recalls. In large part, he was following another ambitious young trust-company executive, Rick Arends, who went on to a career in finance and technology, and remains a mentor.
Then, fortuitously, Bissada signed on as controller at what’s now called FirstLine Trust Co., an independent mortgage bank co-founded in 1983 by Brendan Calder and a model for what much of Canada’s mortgage business would become. “We made mortgage brokers legit,” says Calder, a mortgage-banking pioneer who went on to spend two decades teaching at the University of Toronto’s Rotman School of Management. (Calder is another of Bissada’s mentors.)
Before the 1980s, borrowers had pretty much one choice when looking for a mortgage: They went to their bank and took what they could get. (Indeed, when Bissada bought his first house in Toronto in 1988, near the peak of a hot market, he paid $240,000 for the East York bungalow, with a 12.99% mortgage. “I thought I got a great deal,” he says. He sold it two years later—for $210,000.) The technology was antiquated, and mortgage brokers were a fringe element. FirstLine was a securitization innovator, bundling mortgages and selling them off as securities. “The word ‘fintech’ didn’t exist 25 years ago, when Yousry was actually working at it,” says long-time broker Ron Butler, who founded Butler Mortgage Inc.
CIBC was impressed by the upstart and bought FirstLine in 1995. “I thought, Oh boy, they must have great mortgage people. They’re probably going to fire me. But they didn’t,” says Bissada. Instead, they promoted him to run all of CIBC’s mortgage-serving operations.
Canada Trust CEO Ed Clark took note of the young exec, and in 1998 he lured Bissada away to run the bank’s mortgage division. Six months later, TD Bank announced it was buying Canada Trust and put Bissada in charge of the entire single-family mortgage business. “We had the largest market share, and I was running it,” says Bissada. “And I loved it, loved it, loved it.”
Nonetheless, he quit two years later to run Filogix Holdings, a mortgage technology startup. Why? He pauses for a long time before answering. “If I knew, I wouldn’t have…” he starts. What it came down to was a desire to have the president title (egged on, he says, by Calder) and to get in on the dot-com boom, which was still going strong. Alas, not for long. “The first four years were hell,” Bissada says sheepishly. “But I learned a lot about running the place.” In 2006, a turnaround complete, Davis + Henderson LP bought Filogix for $212.5 million. “I made the first bit of money in my life,” Bissada says, and he took a break to hang out with Gilda (whom he’d married in 1997) and their two daughters, now in their early 20s. “I needed to do Grade 2 and Grade 4 homework.”
But after serving on a few corporate boards through the 2008-09 financial crisis, he was soon itching to get back in the game. He joined another small fintech, Kanetix Ltd., as CEO in 2011, describing it this way: “kind of like Expedia for insurance.” After five years, there wasn’t much left to fix.
Meanwhile, the decision makers at Home—including former Ontario Teachers’ Pension Plan CEO Claude Lamoureux, one of three new directors and head of the committee tasked with finding a new CEO—were intrigued by Bissada. Lamoureux had joined the board on May 7, 2017, near the absolute bottom. The next day, Lamoureux says, Home suspended its dividend and disclosed it had burned through $1.4 billion of a $2-billion credit line. Lamoureux urged the chair to get on the phone with reporters to try to calm fears. “If you don’t tell your story, somebody else will make it up,” he says now.
As Lamoureux discovered, Home had been too deferential to its founder, but its financials weren’t in bad shape. Buffett’s investment in June helped, calming markets and pushing Home’s share price back up to around $15.
It still needed a CEO, though. Calder urged Bissada to apply, and the board was impressed that he had a turnaround plan—one that seemed like it might actually work.
So that summer, they tossed him in.
Despite all of Bissada’s experience, he’d never before run a public company. He vividly remembers his first day on the job, Aug. 3, 2017, which featured a conference call with analysts to discuss quarterly earnings, with reporters hanging on every word. “It was a wake-up call for me, how much attention Home was getting,” he says. (A search of references to Home Capital in The Globe’s database for 2017 and 2018 produces 921 hits.) Bissada still savours the deadpan headline the day after that first call, during which he largely stuck to a two-minute script: “Home CEO to assess.”
While Home’s immediate cash crisis had eased with Buffett’s investment, the staff—from top to bottom—had been decimated. Many had been fired in the wake of the rogue-broker scandal; others had fled what they considered a sinking ship. Which meant there was a lot of hiring to do. Bissada also had to rebuild relationships with brokers, who drive 85% of Home’s business. The last thing Bissada needed was reporters or analysts getting on the phone with brokers bearing a grudge.
In many ways, though, the internal turnaround went very smoothly. Victor DiRisio, Home’s chief information officer, was one of Bissada’s last major new hires to arrive, in January 2018. He’s a generalist, with IT experience at many different kinds of companies, including Procter & Gamble Canada, Indigo and Rexall. He says it was obvious Home needed big changes. Many internal systems weren’t just old, he says—they were still based on paper.
But DiRisio says the atmosphere inside Home was excited rather than panicked. He doesn’t think the business cliché “Never let a good crisis go to waste” applied, but pressure often clarifies things, and the company was a promising candidate for an overhaul. There was a good mix of long-term and and new employees, and all were committed to the revamp. Bissada himself understood the technology, and the company was just the right size—at 875 employees, not too big, not too small. “We can do things better and faster than a Schedule 1 bank,” says DiRisio, “but we’re also not a startup.” A case in point: After just two meetings, DiRisio got board approval late in 2018 for an ambitious four-year program of 10 projects.
As for the staff exodus, senior vice-president of human resources Amy Bruyea says it gave Home a bit of a clean slate to bring in people with the right skills and attitude. Bruyea arrived two months before DiRisio, after seven years at Filogix, and went to work putting in place an organizational effectiveness program for employees. One thing that helped enormously, both internally and externally, says Bruyea, is that Bissada is “one of the greatest networking people I’ve ever met.”
By the end of 2018, things at Home had improved so much that Berkshire Hathaway decided to sell most of its holdings, hanging onto less than 10%. Home agreed to pay $16.50 apiece to repurchase shares, a 73% gain for Buffett.
The following May, Home Trust was named Bank Lender of the Year at the Mortgage Awards of Excellence. Sure, awards are nice. But what made Bissada truly happy is when he stopped reading the b-word in news stories—beleaguered Home Capital. “I couldn’t wait until the day they didn’t mention that word,” says Bissada, who says it took a year and a half for it to stop. He kept telling his mother, who still lives in Toronto at age 83, “When they stop writing about you, that’s when they think you’re doing a good job.”
Home’s revenue and profit have been consistent over the past couple of years, but the mortgage market has shifted beneath Bissada’s feet. After climbing back past $30 in 2019, Home’s share price plunged along with the rest of the market as COVID took hold, climbed back to more than $44 in late 2021, then began a long and painful decline back below $30.
In early 2022, Stephen Smith saw his opportunity. At age 71, he’s a formidable match for Bissada: co-founder and executive chair of privately owned First National Financial, Canada’s largest non-bank mortgage lender, and chairman and co-owner of Canada Guaranty Mortgage Insurance Co., Canada’s third-largest mortgage insurer.
Then, as now, analysts warned that Canada’s housing market was in rough shape. But like many disciplined value investors, Smith knows that market and economic uncertainty are the bargain hunter’s friends. Without them, there are few opportunities for outsized returns.
It was a Saturday morning back in September when Bissada and I met at a hipster coffee shop near his family’s house just outside downtown Toronto. (They live in a spacious semi-detached.)
We both arrived on bicycles—his snazzier than mine. Early in the pandemic, he’d bought himself a $5,000 e-bike in yellow rather than the red one he wanted, because new bikes were hard to get. “It’s called a pedal-assist,” he told me, “and it’s definitely exercise.” It’s also a lot faster than the unpowered kind (I scared myself riding it just a couple of blocks).
But Bissada is a speed guy. His favourite sport is Formula One, and he mentioned he was missing a telecast of some qualifying runs. He appreciates the races as much for the speed as the precision of it all. In 1970, the average pit stop lasted 27 seconds; now, it’s down to about two.
What he didn’t tell me was that he was halfway through the takeover back-and-forth with Smith. All Home had disclosed publicly at that point was that its board had rejected an all-cash offer from an unnamed bidder. (Later, he would urge me not to feel bad. “I didn’t even tell my own wife,” he says. He and Gilda went on a 25th-anniversary Disney cruise that November, not long before Home announced it had agreed to an offer, and he occasionally disappeared to take calls but never told his wife what they were about.)
Smith had begun buying Home shares quietly in February 2022, when it was trading at more than $30. That April, he offered $44 a share for the whole shebang. Bissada was surprised a private company was offering to buy an outfit the size of Home, but he and the board put together a special takeover committee and hired outside advisers. In May, the company rejected $44 and sent Smith a counteroffer of $47.
But time was not on Home’s side. The Bank of Canada kept raising interest rates—from 0.25% at the beginning of 2022 to 2.5% by the summer, and all the way up to 4.25% in December. House prices and sales volumes kept declining, particularly in Toronto and Vancouver. And Home’s stock price kept sliding, too—in the summer it slipped below $30, even after Home tried to push up the price with a small buyback offer in August, which elicited an unenthusiastic response.
Smith smelled blood, and that month he tabled an even lower offer of $37.50 a share. The board rejected it, and in September, Home completed its buyback at just $28.60. Later that month, Smith upped the ante slightly, to $41 a share. The two sides went back and forth for two more months and announced the $44-a-share deal in late November, with a go-shop period to Dec. 30. Home contacted 38 potential buyers and gave three of them access to confidential financial documents. But no one came in with a bid.
Both men say they’re happy with the purchase price. Bissada reckons he created about $1.7 billion in value at Home, considering the share price was $15 when he took over. Smith thinks he’s picked up a company that’s basically in solid shape. “It’s not a fixer-upper,” he says.
But some things still frustrate Bissada. One is that Home’s share price dipped below its book value per share (assets minus liabilities, divided by the number of shares) in 2021 and never did make it back, even with an eager buyer bidding up the price. “Over time, the perception of the deterioration of the housing market had grown,” he says. He argues that perception was, and still is, misguided.
Smith, too, thinks that warnings of calamity in the housing market are overblown. As a possible recession looms, some analysts forecast mortgage default rates among alternative lenders will be higher than for the banks. “I think they will be,” Smith says with a patient smile, but not high enough to be a problem. Canadian regulations are strong, and he points to a big plus: historically high employment rates.
He and Bissada might have solid grounds for optimism. Tania Bourassa-Ochoa, senior economics specialist at the Canada Mortgage and Housing Corp. and lead author of its bi-annual Residential Mortgage Industry Report, says the fall 2022 edition had some interesting findings. As housing markets and lending slowed early last year, the Big Six banks’ share of new mortgage lending declined from 73% to 62.1%, and the share of other lenders rose.
And Bourassa-Ochoa says other research shows alternative lenders have benefitted from regulatory tightening. Because of stricter stress tests and other measures, some borrowers no longer qualify for a bank mortgage and go looking for alternatives. “Overall, delinquencies have declined in recent quarters, and their risk profile has improved,” she says.
She also downplays fears about buyers who paid high prices near the peak of the housing boom now walking away from their properties because the market price has fallen below the value of their mortgage. Yes, those walkaways in many U.S. regions in 2007-2008 aggravated the financial crisis, but she says it’s easier for lenders in Canada to go after other assets if buyers stop making payments.
Bissada and Smith have both been in the mortgage business for longer than almost anyone. A lot longer. Home Capital may not have docked at Pier 59 quite yet, but he and Smith have their hands on the tiller, and they’re confident the ship will get there in the end.
Shlomi Amiga/The Globe and Mail
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