HGH - Heartland Group Holdings

[Snoopy]

Sorry Snoopy, I don't follow your line of thinking. Its was released as an attachment to the NZX announcement, I for one have already read it, done some research on what the Australian BBSW floating rate is and posted the approx. cost of funds in an earlier post, just under 6% for tier 2 capital. What's the problem ? the information is available for anyone interested and I've already stated I think its a good deal for HBL shareholders. Maybe they'll update their website at some stage but I am sure you will have already noticed from the terms thereof, (not listed and minimum transfer amount $A500,000), these notes were never intended to be freely transacted at a retail level.

When Turners issued their TNRHA bonds, a lot of extra information that was not generally available to TNR shareholders accompanied that release. I am assuming (perhaps wrongly) that the 31st March 2017 Heartland Bond Information Memorandum may contain similarly useful insights about Heartland. I imagine that those Aussie investors prepared to stump up the thick end of $A500,000+, for example, might want to know some more details ( e.g. existing debt maturity profile, bank borrowing headroom ) of Heartland's other borrowings, than the very thin sketch delivered in the two page summary disclosure?

SNOOPY

[percy]

Another strong finish for the week, by HBL, with the share price at $1.68.
The 100 day EMA is $1.56.
The 200 day EMA is $1.52.
The support level which I thought was $1.55,then $1.60,now appears to be $1.66.
Positive.

[Beagle]

Since posting this on 16 March 2017 the basket of 5 comparative banks I follow in Australia has increased by 3.8% and I therefore have lifted my valuation which h is based on my assessment of a fair PE relative to the Aussie banks by a commensurate amount $1.76 x 1.038 = $1.83. When it gets to $1.83 I'll reassess again.

Only a matter of when it gets to $1.83, not if, in my opinion.
Natural organic growth will get it there sooner or later and in the meantime we enjoy about 7% dividend yield gross inclusive of imputation credits while we wait which is far better than the return on money in the bank or money invested in any other bank's shares..
You could say we are well position aye Percy

[percy]

Only a matter of when it gets to $1.83, not if, in my opinion.
Natural organic growth will get it there sooner or later and in the meantime we enjoy about 7% dividend yield gross inclusive of imputation credits while we wait which is far better than the return on money in the bank or money invested in any other bank's shares..
You could say we are well position aye Percy

Aye we certainly are.!!!! [and loving it].

[janner]

You could say we are well position aye Percy

What took you so long Roger ???... :-))))))

[Snoopy]

a/ Problem: Want for depositors money?
a/ Solution: Offer depositors a more attractive interest rate to attract more funds.

b/ Problem: Not enough short term loans on the books to utilise all depositors funds?
b/ Solution: Offer loans on more attractive terms.

So, in summary there is a 'work around' available for whatever liquidity problem looks to be appearing on the horizon.

My above quote is the 'glib solution' for liquidity problems of banks. The problem with the above solutions are that when a bank has a liquidity problem it is an unusual or rare event. There is no 'provision for low liquidity' in the accounts as there is a 'provision for impaired loans'. Liquidity events are largely unforeseeable because they so unusual.

But one thing is for certain. In a real liquidity crisis , there will not be run of depositors rushing to put new debentures in the bank no matter how high the interest rate offered. The sad fact is that the 'glib solutions' which look perfectly reasonable when a bank is not in crisis will completely fail when it is.

The only real protection from a liquidity crisis are the 'sideways solutions':

1/ to have a 'parent bank' willing to supply lines of credit while the crisis blows over.
2/ to have new share capital issued at a heavily discounted price to new and existing shareholders.

The only indicator that is regularly measured at annual accounts time is 'bank borrowing headroom'. Unfortunately for Heartland shareholders 'borrowing headroom' is not (fully) given in the annual report. So it is up to shareholders to make an 'educated guess' as to what that borrowing headroom might be.

SNOOPY

[Beagle]

What took you so long Roger ???... :-))))))

LOL I've enjoyed most of the ride since ~ 80 cents over the last ~ 3 years. Sat out ~ 2 years when the dairy risks were too much for my liking but that only cost me ~ 18 cents of the total gain and I did pretty well with those funds when reallocated elsewhere. I guess you could say I've cherry picked the good times Plenty more growth and good times to come so no there's no need for cherry picking now

[Joshuatree]

Not forgetting the years of 100's negative rants/attacks on HBL comparing it to failed finance companies and times in the bin because of it .If you call all that negativity cherry picking then readers beware agendas.
Needed to put some balance in what many of us experienced on the HBL threads. Good that you finally came round and have enjoyed some gains but nothing like manyof us have.

[Beagle]

Let it go mate, the risks were very real. Carrying resentment around like that isn't good for your health.

[Snoopy]

Here is my interpretation of the bank liquidity test.

(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding) > 10%

And here is the Tiger's interpretation of the question and the answer.

Here is the Tiger take on the important question that Snoopy is trying to answer.

If has a result of some people actually believing Snoopy's posts that if 10% of the money on loan to Heartland is [attempted to be] withdrawn at the earliest contractual moment can Heartland actually pay them.

The answer to that would appear to be (from reading the accounts) a pretty definite YES.

It looks to me that the Tiger is equating:

"10% of the money on loan" to
"10% of the Expected Net Current Loans Outstanding"

and

"Total Current Money to draw on. " equates to
"Withdrawable funds at the earliest contractual moment."

Now you could certainly argue that being able to withdraw 10% of the money on loan at the earliest contractual moment is one measure of liquidity. But what I was measuring is not that, or anything close to it.

When I measure "Expected Net Current Loans Outstanding" I am measuring:

1/ net current receivables expected to be cashed up minus
2/ current deposits expected to be reinvested.

For FY2016 this equated to $1,069.471m (my post 9218 on this thread)

But 10% of the current money on loan at EOFY2016 (ARFY2016 Note 20) equated to:

0.1 x ($718.587m+ $892.944m + $837.444m) =$244.9m

So straight away you can see that PT and I are talking about a very different quantum of money.

Note that $244.9m is well covered by the expected cash inflow of $1,069.471m over the next twelve months. So PT is satisfied. But I need to note that his calculation, appropriate or not, is a complete 'straw man' exercise from my point of view, as it does not address the original test question that I posed at all.

My concern was with a 'borrowing headroom' available from the parent bank, which PT does not consider in any way. This is not to say that I am right and PT is wrong. I mention this just to make clear that PT and I are looking at different things.

The declared borrowing headroom is $65.571m (my post 9218) from the Australian parent banks plus an undisclosed amount from the NZ parent banks.
Borrowing headroom can be used both to repay depositors and as temporary balance sheet capital to support new loans. My test was to see if this banking headroom is sufficient to cover 10% of an expected projected mismatch in cashflow, when confidence in the bank is at a low (i.e. no favourable equity raising is possible).

The answer to this question, for the very first time in Heartland's history was that there was insufficient declared bank borrowing headroom to cover a meagre 10% of this gap. I presented this finding as a reason to be vigilant, rather than a portent of doom. There is no reason right now to suspect the beginnings of a liquidity crisis are there.

SNOOPY