Shares of Canadian subprime lender Goeasy are down 60% today on guidance regarding surging loan defaults and write downs. It comes ahead of the March 25 earnings report.
The company announced a $331mm charge to reflect weaker-than-expected recoveries on loans and will breach leverage covenants as a result. They have secured accommodation
agreements but this is a bad turn of events and they have suspended the dividend.
Sub prime lending is often first to drop near the end of a credit cycle and the company said recovery efforts on late-stage delinquencies — mostly in autos and power sports equipment — had been exhausted
Sub prime lending is often first to drop when we hit the pain point in the credit cycle. Parts of Canada have seen home prices fall more than 25% and unemployment is now creeping up as well.
Canadian bank shares rose more than 40% last year as the market estimated that the worst of the housing decline was already handled but this raises fresh questions.
If possible, the good news here is that this company was rife with fraud. Jehoshaphat Research alleged in September 2025 that the company was inflating pre-tax earnings and hiding a rise in unpaid interest.
Investors believe GSY has a “secret sauce” of novel, brilliant underwriting. We agree – well, sort of. The secret sauce is accounting, rather than underwriting, creativity. A number of aggressive accounting policies and rule changes have massaged charge-offs, delinquencies, opex, earnings and ROE into more favorable-looking short-term performance.
Notably, the CFO quit in September and the CEO resigned at the beginning of 2025.
So this house of cards has come tumbling down and the question is whether other Canadian lenders are hiding losses or will be facing rising defaults soon.
So far, the market isn’t seeing a problem as shares of the largest banks are up today. They have a reputation for prudent lending but every bank has that reputation until it doesn’t.
As for that chart, what a double top!
As for the analysts, 8 of 9 had a buy rating on shares at the time of the short report in September. Today, TD — who has a $135 price target and a hold rating writes:
We view this as negative given the
earnings outlook will be lower and highly uncertain
This article was written by Adam Button at investinglive.com.
