Equitable buying $3.1-billion in mortgage-backed security pools issued by Maple Bank

Toronto-based Equitable Bank has struck an agreement with Canada Mortgage and Housing Corp. to buy $3.1-billion of mortgage-backed security pools issued by Maple Bank GmbH’s Toronto branch, months after Canada’s top banking regulator seized control of Maple Bank’s Canadian assets.

Equitable will assume payments related to the MBS pools in exchange for receiving interest revenue on the underlying mortgages.

The deal marks a significant step toward winding up Maple Bank after German prosecutors closed its Frankfurt-based parent company over an investigation into tax irregularities, ensnaring significant shareholders such as National Bank of Canada and Ontario Teachers’ Pension Plan.

National Bank has already written off its investment of $165-million.

Equitable Bank said it would not comment on aspects of the deal until it is finalized. However, the lender – the ninth largest in Canada – has been increasing its exposure to the mortgage market. In its fiscal second-quarter results, released in August, Equitable said that its securitized financing increased 34 per cent, year-over-year, to $9.1-billion.

“This transaction is an excellent use of cash in that it delivers earnings accretion immediately and over time without diminishing the bank’s strong capital ratios that support our ongoing asset growth,” Andrew Moor, chief executive officer of Equitable, said in a release.

The deal for the MBS pools follows the highly unusual move by the Office of the Superintendent of Financial Institutions (OSFI) in February to seize control of Maple Bank’s Canadian assets, to protect depositors and creditors. CMHC, which backstops interest and principal payments to MBS investors, then suspended Maple Bank as an approved issuer of National Housing Act mortgage-backed securities, setting up an anticipated asset sale.