Key insights
- A Canadian sub-prime lender, GoEasy Financial (GSY), experienced a significant downturn due to bad loan write-offs, dividend suspension, and withdrawn guidance. While the author believes the market may be overreacting and sees potential for recovery, the situation highlights risks in the sub-prime lending sector. The potential bankruptcy, while not the base case, introduces a negative risk sentiment that could indirectly affect US financial institutions with similar risk profiles.
Is anyone following GoEasy Financial (gsy) on the TSX? They're a Canadian sub-prime lender (I love it - they say, "near prime"). Were trading over $200 (that's Canadian dollars, so, I don't know, 37 cents american) last fall, were criticized in a short report, wrote off about $140 million in bad loans last week, suspended their dividend, withdrew guidance, and crashed, just crashed.
I think the market tends to overreact to these things. They're a sub-prime lender, they bought a business that wasn't as solid as they thought, but life goes on. They've got about 200 store-front locations (some corporate, some franchise). My view, they'll have a rough year and be back in a year to 18 months. Hell, even the short seller who "started" their trouble has said that he thinks their come to Jesus moment was pretty much legit.
So, I think they'll double over the next year, or go to zero. But, if they do go bankrupt, I think shareholders get special pricing on foreclosed snowmobiles.