- Board and management track record of nearly 2,000% appreciation in share price, including 48% in the last 12 months before Smoothwater's dissident action
- Origination of $50 million in high quality and profitable new loans in the fourth quarter to date, representing at least a 20% increase over last year's fourth quarter
- Terminated Executives acting jointly with Smoothwater fired because of loss of confidence by the Board
- Smoothwater CEO has no apparent record creating value for shareholders and lacks OSFI-regulated financial institutions experience
TORONTO, Dec. 10, 2013 /CNW/ - Equity Financial Holdings Inc. (TSX: EQI) ("Equity" or the "Corporation") responded to statements made by Smoothwater Capital Corporation ("Smoothwater") in correspondence and discussions with the board and shareholders and in its recent press releases. Smoothwater is acting jointly with Nick Kyprianou and Darryl Ivan (the "Terminated Employees"), ex-employees of the Corporation's subsidiary, Equity Financial Trust Company ("Equity Trust"). The Terminated Employees were fired in October 2013 upon a unanimous decision of Equity's board of directors (the "Board"). In addition to demanding their old jobs back in the place of current senior management, the Terminated Employees and Smoothwater are demanding to replace a majority of the Board.
Equity shareholders should consider some important facts:
The only question for shareholders is whether Equity's current leadership team or that proposed by the dissidents will create more value for shareholders.
- Paul G. Smith, CEO and a founder of Equity, and his team have produced a total return for shareholders of 1,941% since the Corporation's Qualifying Transaction in December 2004 to the last trading day before Smoothwater's shareholder action. In the last 12 months of that period alone, shareholders have benefited from share price appreciation of 48%.
- It was Mr. Smith and the Board who built Equity's business, recruited operations management, and had the vision to leverage Equity Trust's federal trust charter by obtaining a deposit taking license and entering the field of alternative mortgage lending.
- It is the Board and Mr. Smith and his team who continue to lead and operate Equity's business with demonstrable success. Since the firing of the Terminated Employees at the start of the fourth quarter, Equity Trust has originated $50 million in high quality and profitable new loans, representing at least a 20% increase compared to the fourth quarter last year. We remain highly confident that by year end, Equity Trust's loan book will have grown by at least 90% compared to the ending balance last year.
The dissidents are asking shareholders to put Equity's future in the hands of the Terminated Employees who were recently fired because of a loss of confidence by the Board.
- Mr. Kyprianou was fired because the Board lost confidence in his ability to effectively lead the alternative mortgage business. This was a unanimous decision of the Board. Contributing factors included the Board's conclusion that Mr. Kyprianou's leadership created a negative work environment which was adversely affecting the business.
- As Chief Risk Officer, Mr. Ivan's role was to be independent of Mr. Kyprianou in overseeing risk. The Board concluded that he was not. Mr. Ivan was fired because the Board lost confidence in his ability to effectively perform the CRO function required by a regulated financial institution. This was a unanimous decision of the Board. The Special Committee is also of the view that Mr. Ivan was not acting in compliance with the full requirements of the risk management policy.
Smoothwater lacks relevant experience and understanding of OSFI-regulated financial institutions.
- Equity Trust is a federally regulated trust company subject to oversight by the Office of the Superintendent of Financial Institutions ("OSFI"). Smoothwater insists that it need not disclose its nominees for the board of directors of Equity Trust. In our view the suitability and integrity of directors are critical inputs to the risk based approach taken by OSFI in regulating financial institutions and, if OSFI was concerned, we expect that it would impose business restrictions.
- We understand that Smoothwater is saying Equity Trust's platform is under-utilized and that only Mr. Kyprianou can grow the loan book. This is not true. Since Mr. Kyprianou's termination, the loan book has been grown as fast as prudently possible. We believe that seeking to further accelerate growth will cause OSFI to impose constraints that will hurt shareholder value.
- Stephen Griggs, Smoothwater's CEO and nominee for Chair of the Board, has a resume which lacks any experience with OSFI-regulated financial institutions. Furthermore, any track record he has creating value for shareholders is not apparent and we invite him to elaborate on his past performance.
The dissidents initiated a costly and unnecessary proxy fight prior to any meaningful conversation with management or the Board.
- The dissidents' first action was to demand that the Terminated Employees be given their old jobs back in the place of current senior management and that a majority of the Board be replaced. Smoothwater has had no interest in any constructive dialogue, including diligence inquiry with the Board on the reasons for firing the Terminated Employees.
- Smoothwater disclosed that it will pay its proxy solicitation firm up to $500,000 for its services plus disbursements, and that they have hired a law firm and a communications firm. They have demanded that Equity reimburse these costs.
Equity's directors are discharging their fiduciary duty in taking the time to consider alternate proposals, business plans and value maximization for the benefit of all shareholders.
- From the outset the dissidents have demanded that the Board should simply stand aside and allow their nominees to take control of Equity, including reinstating the Terminated Employees in whom the Board had lost confidence. We consider this an irresponsible demand.
- The Board is acting in the interests of all shareholders by conducting a proper process to evaluate all realistic alternatives for enhancing shareholder value. The date of the Annual and Special Meeting of Shareholders was set with that process in mind and to save shareholders the cost of running two separate meetings.
The Board will continue to engage with shareholders and consider their views. In connection with the Annual and Special Meeting of Shareholders, the Corporation will provide a management information circular that will be mailed to shareholders and posted on the Corporation's website and SEDAR.
About Equity Financial Holdings Inc.
Equity is a Canadian financial services company serving the alternative retail mortgage market through its federally regulated and wholly-owned subsidiary, Equity Financial Trust Company. Learn more at www.equityfinancialholdings.com.
Forward Looking Information
Certain portions of this press release as well as other public statements by the Corporation contain "forward-looking information" within the meaning of applicable Canadian securities legislation, which is also referred to as "forward-looking statements", which may not be based on historical fact. Wherever possible, words such as "will", "plans," "expects," "targets," "continue", "estimates," "scheduled," "anticipates," "believes," "intends," "may," and similar expressions or statements that certain actions, events or results "may," "could," "would," "might" or "will" be taken, occur or be achieved, have been used to identify forward-looking information. Such forward-looking statements include, without limitation, the Corporation's expectations in respect of earnings, fee income, expense levels, general economic, political and market factors in North America and internationally, interest rates, global equity and capital markets, activities, the Corporation's expected need for equity on debt financing, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, catastrophic events, and the Corporation's ability to complete strategic transactions and integrate acquisitions and other factors.
All material assumptions used in making forward-looking statements are based on management's knowledge of current business conditions and expectations of future business conditions and trends, including their knowledge of the current credit, interest rate and liquidity conditions affecting the Corporation and the Canadian economy. Certain material factors or assumptions are applied by the Corporation in making forward-looking statements, including without limitation, factors and assumptions regarding interest rates, availability of key personnel, the effect of competition on the Corporation's business, government regulation of its business, computer failure or security breaches, future capital requirements, its ability to fund its mortgage business, the value of mortgage originations, the competitive nature of the alternative mortgage market, the expected margin between the interest earned on its mortgage portfolio and the interest to be paid on its deposits, the relative continued health of real estate markets, acceptance of its products in the marketplace, as well as its operating cost structure and the current tax regime.
Forward-looking statements reflect the Corporation's current views with respect to future events and are subject to a number of risks and uncertainties. Actual results may differ materially from results contemplated by the forward-looking statements. Readers should not place undue reliance on such forward-looking statements, as they reflect the Corporation's current views with respect to future events and are subject to risks and uncertainties and are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Corporation, are inherently subject to significant uncertainties and contingencies. Many factors could cause the Corporation's actual results, performance or achievements to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements, including a significant downturn in capital markets or the economy as a whole, significant increases in the cost of complying with applicable regulatory requirements, civil unrest, economic recession, pandemics, war and acts of terrorism which may adversely impact the North American and global economic and financial markets, inability to raise funds through public or private financing significant changes in interest rates, failure by Equity Financial Trust Company ("EFT") to meet ongoing regulatory requirements, the failure of borrowers or counterparties to honour their financial or contractual obligations to EFT, failure by EFT to adequately monitor and/or adjust its mortgage portfolio management practices for changing circumstances, failure by the Corporation to attract and to retain the necessary employees to meet its needs, failure by EFT to adequately monitor the services provided by third party service providers or to establish alternative arrangements if required, failure by EFT to secure sufficient deposits from securities dealers or a sufficient level of mortgage origination from its mortgage broker network, a failure of the computer systems of the Corporation or one or more of its service providers or the risks detailed from time-to-time in the Corporation's quarterly filings, annual information forms, annual reports and annual filings with securities regulators. The preceding list is not exhaustive of possible factors. The Corporation disclaims any intent or obligation to update or revise publicly any forward-looking statements whether as a result of new information, estimates, future events or results, or otherwise, unless required to do so by applicable laws.
SOURCE: Equity Financial Holdings Inc.
Equity Financial Holdings Inc.
Paul G. Smith President & CEO
(416) 361-0152 Ext 270
Bayfield Strategy, Inc.