The world’s most famous investor has unshackled Home Capital Group from its financial woes.Warren Buffett’s Berkshire Hathaway announced late last night that it would be indirectly acquiring $400 million worth of Home Capital shares in two separate transactions — this will eventually translate into Buffett owning almost 40 percent of Canada’s most troubled mortgage lender.As of 11am this morning, Home Capital’s stock had spiked 13 percent, bringing its value to almost $17 per share. At the height of the company’s meltdown in late April/early May, one Home Capital share was only worth $5.85.“Berkshire’s investment in Home Capital is a strong vote of confidence in the fundamental, long-term value of our business,” said company chair Brenda Eprile in a press release.That’s definitely one explanation, but keep in mind that Warren Buffett has a track record of plunking down money in financially distressed companies. Back in 2008, just weeks after the collapse of Lehman Brothers that sent investors into panic mode, Buffett cooly pumped $5 billion into Goldman Sachs — with the knowledge that Goldman too was on the brink of collapse. That deal, in fact, paid off handsomely with Berkshire Hathaway amassing $2.5 billion in profits.“The best thing that happens to us is when a great company gets into terrible trouble. We want to buy them when they’re on the operating table,” Buffett famously told Businessweek back in 1999 when whispers of the dotcom bubble bursting started becoming reality.Home Capital’s troubles first began in 2015, when 45 mortgage brokers affiliated with the company were fired for forging the incomes of applicants who were looking to take out mortgages from the company.The news of the firing itself didn’t quite shake Home Capital — it was only on April 19, 2017, when the Ontario Securities Commission released a series of scathing allegations against the company that depositors began frantically pulling out their money from the bank. Since then, Home Capital has been struggling to make ends meet, selling off assets, shaking up its board, and hunting for a wealthy knight in lucrative armour.Berkshire Hathaway will make an initial investment of $153.2 million in the company, buying up nearly 20 percent of the company (or 16 million shares) through a subsidiary, Columbia Insurance Co. And this purchase comes at a massive bargain — Berkshire Hathaway is buying each share for just $9.55, which works out to a 36 percent discount from Wednesday’s closing price of $14.94 per share.Later in the year, subject to shareholder approval, Berkshire will make a second investment of almost $250 million in the company, acquiring 24 million shares at $10.30 each. That will bring its total stake in the mortgage lender to 39 percent.According to Home Capital director Alan Hibben, over 70 parties were interested in acquiring the company, but Home Capital’s preference was Berkshire Hathaway. Hibben confirmed to BNN this morning that it was Home Capital that had reached out to Berkshire Hathaway.“There’s no question that Berkshire Hathaway is giving us a glow. We wanted someone who would be visible in the deposit market…Warren Buffett and Berkshire Hathaway. It’s hard to imagine a better brand name than that.”Home Capital recently agreed to a settlement of $10 million of fines and costs with the Ontario Securities Commission for allegations that company misled shareholders on the true nature of the fraud committed by independent brokers affiliated with the company.It has also repeatedly refuted allegations of financial mismanagement hurled its way by short sellers, who claim Home Capital is lending money to unqualified buyers, propping up Canada’s housing bubble.Follow Vanmala on Twitter
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