HGH - Heartland Group Holdings

[beetills]

I can't think of too many aquisitions that would suit the banking business apart from MTF at the moment.Isuppose they could buy some distressed farms.

[percy]

Good discussion here on ROE, but I think some of you Heartlanders see ANZ on a pedestal that is higher than it should be. From a bankers perspective the amount available to loan is tied to the amount of 'tier' capital available to be loaned against. In the case of Heartland 'Tier Capital' and shareholders equity are one and the same thing. But the ANZ and the other big banks have other sources of 'Tier capital' not available to Heartland.

Perusing my latest ANZ report (from 2012) page 58 lists total shareholders equity as $41.22 billion.

Now go over to page 117 and you will $752m of US trust securities (currently also Tier 1 capital) and three issues of ANZ convertible preference shares adding up to $5,114m (I believe these currently rank as Tier 2 capital). Perpetual subordinated notes of $953m add more tier 2 capital.

Below that is a list of more subordinated notes. Those maturing five years into the future can be fully regarded as more tier 2 capital amounting to $4,632m. Those maturing in four years time ($582m) need to be discounted 20% to arrive at yet more tier 2 capital of $466m.

As at 30th June 2012 ANZ has $5,114m + $4,632m + $466m = $10.212b of Tier 2 capital. That is less than 50% of the available Tier 1 capital ($41,220m + 752m = $41.972b).

So all of that tier 2 capital is available to be borrowed against.

Summing up all the Tier 1 and Tier 2 capital then, ANZ has $52.184b of Tier 1 and Tier 2 capital to back up their loans.

For FY2012 the ROE based on end of year shareholders equity is:

$6,011m/$41.220m = 14.6%

But if you do the same calculation on tier 1 and tier 2 capital, the Return on 'backing capital' is a rather lower.

$6,011m/$52,184m = 11.5%

That is close to the 10% ROE that Heartland is projected to achieve for FY2013.

In addition to this Heartland in common with all other banks will be facing the new Basel III capital conservation buffer (CCB) requirements that will increase the backup equity required to be held on the balance sheet significantly.

Even assuming all those doubtful Heartland property loans on the books coming good (no more capital destroying provisions for bad debts) , the picture that emerges here is irrefutable. Heartland has a very fully stretched balance sheet as everything stands now. There is very little room for growth beyond FY2013 with such a constrained capital base

SNOOPY

Above posted on 25/11/2013.
Just love the last sentence.
Yet only one Australasian bank has excess capital.HBL.

[winner69]

]
Above posted on 25/11/2013. (A good post by snoopy on ANZ)
Just love the last sentence.
Yet only one Australasian bank has excess capital.HBL.

Beauty is in the eye of the beholder - esp. with rose tinted glasses on

Proverbs 16:18 may be relevant here.

[mouse]

]


Proverbs 16:18 may be relevant here.
Pride goeth before destruction, and a haughty spirit before a fall. (King James version)
(For those with only the Koran at home).

[percy]

Yet common sense prevails.

[winner69]

Yet common sense prevails.
Yes hope so, I think it would be common sense for Heartland not to over over leverage themselves by returning capital to shareholders

[percy]

Yes hope so, I think it would be common sense for Heartland not to over over leverage themselves by returning capital to shareholders

The directors and management, who have a lot of skin in the game,a proven history of common sense and prudent stewardship, may, or may not agree with you.

[K1W1G0LD]

Yes hope so, I think it would be common sense for Heartland not to over over leverage themselves by returning capital to shareholders

Does anyone have a fix for a stubbornly stalled shareprice?

[h2so4]

Does anyone have a fix for a stubbornly stalled shareprice?

Sell calls.

[winner69]

Does anyone have a fix for a stubbornly stalled shareprice?

A profit upgrade

Economy on a roll and all that so they must be creaming it - especially as no surprises about bad debts looming

But thats not Jeff 's modus operandi so price possibly remain 'stubbornly stalled'

[Beagle]

Does anyone have a fix for a stubbornly stalled shareprice?

Ask yourself if its a coincidence or not that other companies with a meaningful exposure to the protracted dairy downturn are also languishing at fairly subdued level's e.g. PGW and SKL.

When will this nightmare for the dairy sector end...who can say ?

[SCOTTY]

[QUOTE=SCOTTY;609957]You are forgiven W69

This is why I like the drip and want the share price to stay low ��:
5/4/16. $1.198 (3.5 CPS)
29/9/15. $1.11 (4.5CPS)
27/3/15. $1.32 (3.0 CPS)
29/9/14. $1.015 (3.5 CPS)
20/3/14. $0.8606 (2.5 CPS)
1/10/13. $0.826 (2.5 CPS)

The magic of compounding :)

[BlackPeter]

Does anyone have a fix for a stubbornly stalled shareprice?

Just compare HBL with what the big 4 banks do at the moment (here ANZ ... hint: the blue graph represents HBL:t_up:) ... and be pleased about a stubbornly stalled share price;) - I am.
7954

[percy]

Just compare HBL with what the big 4 banks do at the moment (here ANZ ... hint: the blue graph represents HBL:t_up:) ... and be pleased about a stubbornly stalled share price;) - I am.
7954

Thank you for posting the chart.
Yes the correlation between HBL and the Aussie banks is holding HBL sp steady.
The issues facing the Aussie banks are well known,minning,property,and other sectors such as dairying means their bad debts are increasing.Poor expansion into UK and Asia.Wholesale European funding,and having to raise more capital are rightly worrying investors.
ROE is under pressure,as will be their capacity to pay increasing dividends.
HBL has only a small exposure to dairying,otherwise it faces none of the above issues,proven by the fact they have excess capital.
The market is not seeing this,so we are seeing a security being mispriced.Increasing eps,roe,and dividends, will reward those who take advantage of this mispriced sp .Don't know when it will happen,but it will.

[K1W1G0LD]

Just compare HBL with what the big 4 banks do at the moment (here ANZ ... hint: the blue graph represents HBL:t_up:) ... and be pleased about a stubbornly stalled share price;) - I am.
7954

Yes, it may be that my own expectations are not adapting to these uncertain times.

[winner69]

Heartland strategic focus on SMEs and their 'Open for Business' initiative must be working big time.

BNZ feel they must be missing out. Unusual for them to use radio (quite intensive campaign) advertising - telling small business owners the BNZ can help their business become big. And they have $1 billion to lend.

Go Heartland - stick it up the big banks by looking after those that are often ignored. You have them worried

And still no profit upgrade from Jeff

[Snow Leopard]

Heartland strategic focus on SMEs and their 'Open for Business' initiative must be working big time.

BNZ feel they must be missing out. Unusual for them to use radio (quite intensive campaign) advertising - telling small business owners the BNZ can help their business become big. And they have $1 billion to lend.

Go Heartland - stick it up the big banks by looking after those that are often ignored. You have them worried

And still no profit upgrade from Jeff

I believe Captain Jeff & his crew are carefully offsetting the headwind against the favourable current.

Best Wishes
Paper Tiger

[winner69]

I believe Captain Jeff & his crew are carefully offsetting the headwind against the favourable current.

Best Wishes
Paper Tiger

I gather there are no headwinds

I get it now - probably a balancing act of maximising this years bonus while leaving something for next year.. Just conjecture

So something like $55m for F16 is it then

[Snoopy]

Snoopy wrote
------

That is close to the 10% ROE that Heartland is projected to achieve for FY2013.

In addition to this Heartland in common with all other banks will be facing the new Basel III capital conservation buffer (CCB) requirements that will increase the backup equity required to be held on the balance sheet significantly.

Even assuming all those doubtful Heartland property loans on the books coming good (no more capital destroying provisions for bad debts) , the picture that emerges here is irrefutable. Heartland has a very fully stretched balance sheet as everything stands now. There is very little room for growth beyond FY2013 with such a constrained capital base

-------

Above posted on 25/11/2013.
Just love the last sentence.
Yet only one Australasian bank has excess capital.HBL.


Percy, I think your memory is being a little selective.

On 19th February 2014 , -after I made my post- , Heartland issued $15m worth of new capital to institutions. This was supplemented on 25th March 2014 by a further $5m of new shares issued to existing shareholders in relation to an underwritten share purchase plan.

Then on 1st April 2014, Heartland issued new shares worth $37m to Seniors Money International, which IIRC was in relation to the Home Equity Release Portfolio purchase. That was a total of 56m of new shares issued within a couple of months.

This is all completely separate from the new capital raised by the dividend reinvestment plan. (FY2014: $6.662mm), (FY2015: $$6.624m)

So total new capital issued over the two full years FY2014 and FY2015 was around $70m.

At EOFY 2015 share equity was $480m. So that $70m raised is around 15% of the capital now on the books. Now why did HNZ have to raise such a large amount of capital? Because it wasn't prudent to further leverage their balance sheet to make the acquisitions they did without doing so. So not only does my claim of 25/11/2013 of Heartland being short of capital stand. It has proven to have been true!

Now, moving onto the much talked about 'share capital return' to shareholders. I believe that consummate with this, Heartland are proposing to issue some Tier 1 bonds which will count as capital for reserve bank requirement purposes. The proposal then is not to reduce the capital of the bank. The proposal is to lower the share capital, and replace that with bond capital. IMO this makes this whole discussion of HBL having excess capital moot. The true picture is quite the contrary. Heartland freely issue new capital with their acquisitions, and there is no plan on the table to reduce overall capital on the books.

SNOOPY

[Snow Leopard]

Percy, I think your memory is being a little selective.

On 19th February 2014 , -after I made my post- , Heartland issued $15m worth of new capital to institutions. This was supplemented on 25th March 2014 by a further $5m of new shares issued to existing shareholders in relation to an underwritten share purcahse plan.

Then on 1st April 2014, Heartland issued new shares worth $37m to Seniors Money International, which IIRC was in relation to the Home Equity Release Portfolio purchase. That was a total of 56m of new shares issued within a couple of months.

This is all completely separate from the new capital raised by the dividend reinvestment plan. (FY2014: $6.662mm), (FY2015: $$6.624m)

Snoopy, I think your memory is being a little selective.

The full details were:
$20M cash from the issue of new shares (as above);
$37M of new shares (@ $0.90 each) as above;
and $28.3M from the 'very fully stretched balance sheet'.

As for the 'new' capital raised by the dividend reinvestment plan - :D I laugh in your general direction.

Best Wishes
Paper Tiger

[Snow Leopard]

...At EOFY 2015 share equity was $480m. So that $70m raised is around 15% of the capital now on the books. Now why did HNZ have to raise such a large amount of capital? Because it wasn't prudent to further leverage their balance sheet to make the acquisitions they did without doing so. So not only does my claim of 25/11/2013 of Heartland being short of capital stand. It has proven to have been true!...

I am reminded of the story of the scientist who teaches a spider to jump on command.

He presents it to the world, "Jump" he says and the spider jumps.

He then pulls all the legs off the spider :mad ;: and says "Jump".

The spider does not move.

"I have just proved" says the scientist, "that a spiders ears are attached to their legs"

Best Wishes
Paper Tiger

You worked out the fallacy of a DRIP being new capital yet ?

[Snow Leopard]

...Now, moving onto the much talked about 'share capital return' to shareholders. I believe that consummate with this, Heartland are proposing to issue some Tier 1 bonds which will count as capital for reserve bank requirement purposes. The proposal then is not to reduce the capital of the bank. The proposal is to lower the share capital, and replace that with bond capital. IMO this makes this whole discussion of HBL having excess capital moot. The true picture is quite the contrary. Heartland freely issue new capital with their acquisitions, and there is no plan on the table to reduce overall capital on the books...

If the capital management happens and the actual details are announced then you may or may not be able to use it in evidence for your 'beliefs'.
The bonds would be Tier 2 capital by the way.

Anyway I am off round to percy's house to complain about him setting the dogs howling.
I may knock the head off his favourite garden gnome if he does not promise to mend his ways.

Best Wishes
Paper Tiger

[Snoopy]

Snoopy, I think your memory is being a little selective.

The full details were:
$20M cash from the issue of new shares (as above);
$37M of new shares (@ $0.90 each) as above;
and $28.3M from the 'very fully stretched balance sheet'.


Not sure of your point PT. Heartland issued new shares and borrowed money to make an acquisition. They used the new shares issued as collateral to borrow money to complete the purchase. Perfectly normal behaviour. Are you suggesting the Seniors Purchase could (should) have been fully debt funded?



As for the 'new' capital raised by the dividend reinvestment plan - :D I laugh in your general direction.


Granted the new capital from the DRP is peanuts in the scheme of things. But many peanuts eventually add up to a bag of peanuts. The purpose of a DRP is to raise capital is it not?

The 'fallacy' of the DRP deing new capital is explained under note 14 of the FY20145 financial statements. The $6.624m of new capital added to the books in FY2015 looks real to me.

SNOOPY

[Snoopy]

If the capital management happens and the actual details are announced then you may or may not be able to use it in evidence for your 'beliefs'.
The bonds would be Tier 2 capital by the way.


If the bonds are Tier 2 capital, that just means they have a higher discount factor when the overall capital of the company is considered.

'X' Tier 1 capital or 'X+20% (say)' Tier 2 capital? It makes no difference to the point.

SNOOPY

[percy]

If the capital management happens and the actual details are announced then you may or may not be able to use it in evidence for your 'beliefs'.
The bonds would be Tier 2 capital by the way.

Anyway I am off round to percy's house to complain about him setting the dogs howling.
I may knock the head off his favourite garden gnome if he does not promise to mend his ways.

Best Wishes
Paper Tiger

My apologies.......lol.
And thank you for your sterling efforts.
Whatever way we look at things ANZ,WBC,etc are having to go back to shareholders for more capital,while HBL have the capacity to return capital to us shareholders.

[aquaman]

Sorry for changing the discussion but does there not seem to be a pattern forming of continued top up of shares for sale at 122?

[Snow Leopard]

Not sure of your point PT....

My point is that your point that percy's point that your earlier point that Heartland were capitally challenged, was incorrect, was not incorrect and proven by later capital actions, was incorrect on a number points.

Best Wishes
Paper Tiger

[Snow Leopard]

...It makes no difference to the point...

Which point?

Best Wishes
Paper Tiger

[winner69]

Whatever way we look at things ANZ,WBC,etc are having to go back to shareholders for more capital,while HBL have the capacity to return capital to us shareholders.

You keep repeating this percy, but it does it actually mean anything?

ANZ et al have completely different "capital" structures and thus equity ratios. If Heartland had a similar structure they could will be 'going back to shareholders' as well

and when you think about it aren't Heartland heading down the path of having a capital structure like ANZ and the others?

[percy]

You keep repeating this percy, but it does it actually mean anything?

ANZ et al have completely different "capital" structures and thus equity ratios. If Heartland had a similar structure they could will be 'going back to shareholders' as well

and when you think about it aren't Heartland heading down the path of having a capital structure like ANZ and the others?

Means exactly what it says.

[Bjauck]

My point is that your point that percy's point that your earlier point that Heartland were capitally challenged, was incorrect, was not incorrect and proven by later capital actions, was incorrect on a number points.

Best Wishes
Paper Tiger Is that perchance a prescient homage to the "Two Ronnies"? I am just waiting for a fork handle price chart.

[Snow Leopard]

Is that perchance a prescient homage to the "Two Ronnies"? I am just waiting for a fork handle price chart.

Sad to hear of the passing of Ronnie Corbett :(.

The "Two Ronnies" are definitely one of the sources of inspiration for me.


https://www.youtube.com/watch?v=Cz2-ukrd2VQ

Best Wishes
Paper Tiger

[Snoopy]

My point is that your point that percy's point that your earlier point that Heartland were capitally challenged, was incorrect, was not incorrect and proven by later capital actions, was incorrect on a number points.


The acquisition of Seniors Money International in 2014, by Heartland, from Quadrant Private Equity was done on the basis of:

1/ Issuing some new Heartland shares to Quadrant AND
2/ taking on some debt.

Before this acquisition I said that the Heartland balance sheet was 'fully stretched'. The fact that the Seniors acquisition was done by issuing more equity,and was not fully debt funded is some evidence of this. Not proof in itself. Maybe Quadrant just wanted the shares in Heartland as an investment?

Except that one year later, just after these new Heartland shares had come out of escrow, Heartland went into a trading halt. The reason? Quadrant wanted to do a book build to sell their Heartland shares. Now to the determined believer, this doesn't prove anything either. But I ask you to join the dots.

1/ Heartland funded the Seniors purchase through issuing shares, not paying in cash.
2/ At the first opportunity,Quadrant, the sellers conveted their new Heartland shares to cash
3/ If Quadrant wanted cash to start with, why didn't Heartland make the Seniors acquisition a straght cash purchase? Maybe, just maybe they didn't have sufficient cash borrowing facilities to do a straight cash deal at the time, do you think?
4/ The principal reason why a company can't raise cash quickly is because they don't have sufficient equity to allow them to do so.

In summary, I believe my description of Heartland being 'cash constrained' just before the Seniors acquisition was bang on the money.

SNOOPY

[Snoopy]

Which point?


Sometimes PT, I think you are being deliberately obtuse. But for those that really don't get it.

1/ The reserve bank mandates a minimum amount of capital that a trading bank must hold in relation to the size of its lending portfolio.
2/ This capital includes both share capital and other capital by the way of longer term borrowings - 'capital bonds'.
3/ The trading bank can choose how it satisfies the reserve bank requirments: Straight share capital, or a combination of share capital and long term or perpetual capital bonds.
4/ Not all long term capital bonds are rated equally. The bonds are commonly ranked by the reserve bank on a 'Tier' categorisation. From a capital rating perspective a 'Tier 1' bond is more highly rated than a 'Tier 2' bond. This means that if a 'Tier 1' bond is made up of X dollars, this can be replaced in reserve bank valuation terms by a a 'Tier 2' bond of 'X + a safety factor'.
5/ The reserve bank doesn't specify exactly the combination of share capital, 'Tier 1' or 'Tier 2' bonds a bank must hold. The reserve bank specifies a minimum amount of capital and a formula to calculate it. The trading bank is free to choose whatever combination of share capital, 'Tier 1' capital and 'Tier 2' capital they like - provided that the overall combination satisfies reserve bank requirements.

Thus PT's point of the proposed bond issue by Heartland being 'Tier 2' - rather than the 'Tier 1' I suggested - (and I am not saying you are wrong that it will be Tier 2 PT) is of no consequence. It just means that more Tier 2 capital will need to be issued than the Tier 1 capital that I had suggested, to make up for any 'capital return' of 'shareholders equity' to shareholders - should that 'capital return' go ahead. But of course a smart cookie like PT already knows all that :-) ...

SNOOPY

[Snow Leopard]

The acquisition of Seniors Money International in 2014, by Heartland, from Quadrant Private Equity was done on the basis of:...
...In summary, I believe my description of Heartland being 'cash constrained' just before the Seniors acquisition was bang on the money.

SNOOPY

You know you are right and I know I am right.
I am not going to get involved further on this particular topic (hopefully :D)

Best Wishes
Paper Tiger

[Snow Leopard]

...Thus PT's point of the proposed bond issue by Heartland being 'Tier 2' - rather than the 'Tier 1' I suggested - (and I am not saying you are wrong that it will be Tier 2 PT) is of no consequence. It just means that more Tier 2 capital will need to be issued than the Tier 1 capital that I had suggested, to make up for any 'capital return' of 'shareholders equity' to shareholders - should that 'capital return' go ahead. But of course a smart cookie like PT already knows all that :-) ...

SNOOPY

1, 2, 3 & 5. I am basically in agreement with.
4 - you need to read this RBNZ CAF document (http://www.rbnz.govt.nz/-/media/ReserveBank/Files/regulation-and-supervision/banks/banking-supervision-handbook/BS2A-capital-adequacy-framework-standardised-approach-oct-2015.pdf?la=en) (which is what HBL must conform to these days).

My assertion about Tier 2 is based on all the announcements made by HBL.

But the details of what capital (share & Tier X) reconstructions will be involved we do not yet know.

If it happens then I am sure there will be a range of opinions aired here then.

Best Wishes
Paper Tiger

[mouse]

If I may make the point that my point was about Peabody Energy. Broke, or at least they cannot pay the US$70 million interest due on their borrowings. The accountants obtained capital from borrowings, not shares. Share Capital does not pay interest. Further, it can even demand more cash, with menaces, or 'we will issue new shares at the rate of ten to one share held now'. Companies who find themselves in the very happy position of spare cash can return it to the shareholders.
UNLESS they are a Bank. The commodity that banks trade with is Money. They need lots of it and the more of it available interest free then the more security for the bank. Have you heard of a Bank Run? What happens if it is a bank stampede?
A bank run is not on the horizon today. But Oil was guaranteed never to dip below US$100 a barrel.

[percy]

If I may make the point that my point was about Peabody Energy. Broke, or at least they cannot pay the US$70 million interest due on their borrowings. The accountants obtained capital from borrowings, not shares. Share Capital does not pay interest. Further, it can even demand more cash, with menaces, or 'we will issue new shares at the rate of ten to one share held now'. Companies who find themselves in the very happy position of spare cash can return it to the shareholders.
UNLESS they are a Bank. The commodity that banks trade with is Money. They need lots of it and the more of it available interest free then the more security for the bank. Have you heard of a Bank Run? What happens if it is a bank stampede?
A bank run is not on the horizon today. But Oil was guaranteed never to dip below US$100 a barrel.

Banks in NZ have to obtain a banking licence from The Reserve Bank of NZ, before they can call themselves a bank,or operate as one.
Then they must report quarterly to The Reserve Bank.They must keep their equity and other ratios within certain guidelines.
As far as I can remember Peabody Energy never applied for a NZ banking licence,so I can not see what is gained by talking about them .
As for Australasian banks;all have good equity,and widespread loan books,and remain capable of weathering any future storms.
As far as HBL is concerned, the weather forecast is for sunny days, with plenty of blue skies.

[mouse]

Banks in NZ have to obtain a banking licence from The Reserve Bank of NZ, before they can call themselves a bank,or operate as one.
Then they must report quarterly to The Reserve Bank.They must keep their equity and other ratios within certain guidelines.
As far as I can remember Peabody Energy never applied for a NZ banking licence,so I can not see what is gained by talking about them .
As for Australasian banks;all have good equity,and widespread loan books,and remain capable of weathering any future storms.
As far as HBL is concerned, the weather forecast is for sunny days, with plenty of blue skies.

Peabody Energy is a coal miner. They are the largest coal miner in the world, might even own Pennsylvania. But they are broke, or at least cannot meet their interest payment of US$70 million.

Heartland is a bank. They lend money. The Reserve Bank could, without warning, tell Heartland to find more capital. Since the Reserve Bank is 'monitoring' our banking system. Further, they do not in any way declare any bank in NZ solvent. Nor will they pay our bills. The weather forecast is sunny..........but is that a bit of a squall out at sea?

[percy]

Peabody Energy is a coal miner. They are the largest coal miner in the world, might even own Pennsylvania. But they are broke, or at least cannot meet their interest payment of US$70 million.

Heartland is a bank. They lend money. The Reserve Bank could, without warning, tell Heartland to find more capital. Since the Reserve Bank is 'monitoring' our banking system. Further, they do not in any way declare any bank in NZ solvent. Nor will they pay our bills. The weather forecast is sunny..........but is that a bit of a squall out at sea?

No not without warning.NZ banks report quarterly,they work with The Reserve Bank.Any changes in any capital ratios would be signalled well in advance.You are seeing this with the Australian banks.There are no squalls out at sea.
The skies are a lot bluer with the coal miners going broke.

[Snow Leopard]

So, for the first time EVER I have participated in a DRP (Dividend Reinvestment Plan) and I am now the proud owner of a few more HBLs. :t_up:

So just need to wait and see if this re-capitalization thing happens and they take them, and more, away again. :t_down:

Best Wishes
Paper Tiger

[Jantar]

...
So just need to wait and see if this re-capitalization thing happens and they take them, and more, away again. :t_down:
....
HBL appear to have gone very quiet on this. There is a very short note in the HY report that states they still believe in returning excess capital to shareholders. However no mentoion of a buy back, or raising tier 2 capital. So we will just have to wait and see.

[percy]

HBL appear to have gone very quiet on this. There is a very short note in the HY report that states they still believe in returning excess capital to shareholders. However no mentoion of a buy back, or raising tier 2 capital. So we will just have to wait and see.

I think with the volatility in world markets, sellers of financial businesses may have lowered their expectations,making an acquisition by Heartland Bank the more likely option,than the share buy back.

[Beagle]

Issue of Tier 2 Capital Instrument

Heartland advised the market on 18 August 2015 of its intention for Heartland
Bank to issue a Tier 2 regulatory capital instrument (Tier 2 Capital) during
the financial year as part of its capital management strategy, subject to
market conditions remaining favourable.
Heartland's current intention is for the Continuing Company to proceed with
the issue of Tier 2 Capital in April 2016. At this stage, the indicative
issue amount is $50 million with up to $25 million of oversubscriptions. An
issue of Tier 2 Capital would improve the Continuing Company's capital
efficiency through diversification of the sources and types of capital
funding, and would mean that the Continuing Company's capital structure is
more closely aligned with that of other New Zealand registered banks.

No shareholder approvals would be required to effect the Tier 2 Capital
issue, though further information will be provided in the Notice of Meeting
to shareholders for the upcoming Annual Meeting.

There's been a fair bit of water under the bridge since 18 August 2015 so I suppose one might ponder whether market conditions have remained favourable since this announcement. If one thinks they have then an announcement of this issue must be imminent.

[axe]

So, for the first time EVER I have participated in a DRP (Dividend Reinvestment Plan) and I am now the proud owner of a few more HBLs. :t_up:

So just need to wait and see if this re-capitalization thing happens and they take them, and more, away again. :t_down:

Best Wishes
Paper Tiger

https://www.nzx.com/files/attachments/233188.pdf

You are in esteemed company participating in the DRP with Mr. Greenslade? For me it's a good sign to see him in the DRP too. :)

[iceman]

There's been a fair bit of water under the bridge since 18 August 2015 so I suppose one might ponder whether market conditions have remained favourable since this announcement. If one thinks they have then an announcement of this issue must be imminent.

Roger they did also indicate at the same time that they were looking a Tier 2 capital issue in the absence of any good acquisition opportunities presenting themselves. Maybe they have something lined up that they are running their ruler over !?

[winner69]

Latest Global Dairy Trade auction - prices UP 2.1%

Dairy prices chart showing a positive bias - i can see Roger becoming a Heartland shareholder again

[winner69]

Prob Jeff's bid was a bit on the low side

[Beagle]

Latest Global Dairy Trade auction - prices UP 2.1%

Dairy prices chart showing a positive bias - i can see Roger becoming a Heartland shareholder again

My view is unchanged from that expressed in post #6562, page 438 on 20/10/2015 except that clearly the dairy industry is clearly in worse shape now than six months ago.
I see yesterday that the latest business confidence survey has turned negative and separately the BNZ warned on alarming rates of credit growth running at pre GFC level's.
The correction in banking stocks reflects the fact that its currently a tough environment for banks to shine and investors have genuine concerns over future bad debt provisioning.
HBL in good shape to weather the challenges ahead to be fair and provides a solid fully imputed dividend yield. Probably 7.5 cps in total this year so that's (7.5 / 0.72) / 118 = 8.8% gross yield. Probably the best of the Australasian banks to own if one feels it's in their interests to have an exposure to this sector at present.


Roger they did also indicate at the same time that they were looking a Tier 2 capital issue in the absence of any good acquisition opportunities presenting themselves. Maybe they have something lined up that they are running their ruler over !? Iceman

To the best of my recollection mate they were simply going to go ahead with the issue regardless and if they didn't acquire something they were going to do the buy-back of their own shares.
Speaking or targets and MTF, where did things get too with the Supreme court decision, anyone know ?

[Bjauck]

...Probably the best of the Australasian banks to own if one feels it's in their interests to have an exposure to this sector at present. It looks like The Government is changing the ownership matrix of Kiwibank: https://www.nzx.com/files/attachments/233264.pdf

NZ Super fund and ACC are each to take a stake in Kiwi Group Holdings leaving NZ Post with 55%. Will this ownership musical chairs be preparatory to selling a tranche to the NZ public or will it be instead of a public listing? It would be good to have Kiwibank as a complementary NZ Bank share listing alongside HBL.

[BlackPeter]

It looks like The Government is changing the ownership matrix of Kiwibank: https://www.nzx.com/files/attachments/233264.pdf

NZ Super fund and ACC are each to take a stake in Kiwi Group Holdings leaving NZ Post with 55%. Will this ownership musical chairs be preparatory to selling a tranche to the NZ public or will it be instead of a public listing? It would be good to have Kiwibank as a complementary NZ Bank share listing alongside HBL.

Interesting - and agree: it would be a great idea to list Kiwibank - would allow them easy capital access, increase its value, increase the value of the NZX and decreases the risk that the crown would need to bail them out come the next GFC ....

However - not sure, whether this proposal is a prelude of a public listing. The crown would be likely to keep at least 51%. Selling now already 45% to ACC and Superfund leaves not much left for listing, unless they consider the ACC and Superfund bits as part of the crown ownership (which it basically is).

[Bjauck]

Interesting - and agree: it would be a great idea to list Kiwibank - would allow them easy capital access, increase its value, increase the value of the NZX and decreases the risk that the crown would need to bail them out come the next GFC ....

However - not sure, whether this proposal is a prelude of a public listing. The crown would be likely to keep at least 51%. Selling now already 45% to ACC and Superfund leaves not much left for listing, unless they consider the ACC and Superfund bits as part of the crown ownership (which it basically is). They could always keep just one "golden Kiwi" Crown share.

[Kiwi]

Roger they did also indicate at the same time that they were looking a Tier 2 capital issue in the absence of any good acquisition opportunities presenting themselves. Maybe they have something lined up that they are running their ruler over !?

Kiwi Bank maybe?

[Hectorplains]

Kiwi Bank maybe?

Kiwibank is valued at $1.1B, that's twice HBL's capitalisation. :confused:

[GTM 3442]

Kiwibank is valued at $1.1B, that's twice HBL's capitalisation. :confused:

It would be a h*ll of a bond issue! Plus a partial float as well!

[SCOTTY]

Kiwibank is valued at $1.1B, that's twice HBL's capitalisation. :confused:

Something about a flea doing something to an elephant ��

[winner69]

Latest Global Dairy Trade auction - prices UP 2.1%

Dairy prices chart showing a positive bias - i can see Roger becoming a Heartland shareholder again

Well that theory no good

Heartland near the top of losers board today - down to $1.16

Looking ominious?

[iceman]

To the best of my recollection mate they were simply going to go ahead with the issue regardless and if they didn't acquire something they were going to do the buy-back of their own shares.
Speaking or targets and MTF, where did things get too with the Supreme court decision, anyone know ?

Don't know Roger. This from HY report back in Feb:
"In current market conditions, Heartland believes there is greater opportunity for acquisitions. Heartland wishes to assess opportunities (if any) that arise during this period of volatility and will continue to monitor its capital position (including its Tier 2 regulatory capital position) during this period. The board continues to be of the view that, in the absence of other uses of capital, Heartland’s excess capital should be returned to shareholders."

I reckon they are onto something and are assessing it. And no it isn't Kiwibank which the Government has very explicitly ruled out for private sale

[winner69]

It looks like The Government is changing the ownership matrix of Kiwibank: https://www.nzx.com/files/attachments/233264.pdf

NZ Super fund and ACC are each to take a stake in Kiwi Group Holdings leaving NZ Post with 55%. Will this ownership musical chairs be preparatory to selling a tranche to the NZ public or will it be instead of a public listing? It would be good to have Kiwibank as a complementary NZ Bank share listing alongside HBL.

James Shaw says this about the Kiwibank giveaway /financial engineering for political motives - "Far from being an elegant solution, this is a financial rort."

[Marilyn Munroe]

James Shaw says this about the Kiwibank giveaway /financial engineering for political motives - "Far from being an elegant solution, this is a financial rort."

The government must have confidence in Mickey Cullens business valuation skills.

Which is suprising given the display of his talent in the Kiwi Rail buy.

Boop boop de do
Marilyn

[stoploss]

The government must have confidence in Mickey Cullens business valuation skills.

Which is suprising given the display of his talent in the Kiwi Rail buy.

Boop boop de do
Marilyn

Doesn't really matter it has really just been transferred to another government entity . Totally different to Labour paying Toll over the odds for a railway in much need of a significant upgrade.

[macduffy]

Heartland Bank or Kiwibank thread?

It does matter though. Successful, growing banks require regular injections of capital that a govt posting deficits and/or a struggling owner such as NZPost can ill afford without borrowing. ACC and NZSF are in the business of investing and are much better placed to fund the ongoing capital needs of Kiwibank.

Now back to Heartland.

[stoploss]

Heartland Bank or Kiwibank thread?

It does matter though. Successful, growing banks require regular injections of capital that a govt posting deficits and/or a struggling owner such as NZPost can ill afford without borrowing. ACC and NZSF are in the business of investing and are much better placed to fund the ongoing capital needs of Kiwibank.

Now back to Heartland.

apologies...

[ziggy415]

Well that theory no good

Heartland near the top of losers board today - down to $1.16

Looking ominious?
large parcel (not the nz post type) crossed and share price held up well...add in paper tiger and his drp participation for the first time and im sure roger is accumalating all looks good

[Beagle]

Just for the sake of clarity. I'm not buying and not looking to buy if it goes lower.

[trader_jackson]

http://www.stuff.co.nz/business/78667806/heartland-bank-boasts-the-fastest-loan-in-new-zealand

Not sure if its already been posted... but worth a look...

[percy]

http://www.stuff.co.nz/business/78667806/heartland-bank-boasts-the-fastest-loan-in-new-zealand

Not sure if its already been posted... but worth a look...

Thanks for the link.
Certainly another market well worth developing.

[janner]

Thanks for the link.
Certainly another market well worth developing.

Too smart for their own good perhaps ???

[percy]

Too smart for their own good perhaps ???

No.
Very smart for our good.!!!

[winner69]

Too smart for their own good perhaps ???

Hope not a case of 'easy come easy go'

So 2 minutes to get the loan (approved?) - how long to get the money in your account?

[Beagle]

Hope not a case of 'easy come easy go'

So 2 minutes to get the loan (approved?) - how long to get the money in your account?

One of Geneva finance's key marketing tools was "Finance Made Easy" I still have one of their sky blue, (happy colour, cunning marketing eh !), car chamois they handed out at an annual meeting with that embodied on it to remind me what a "resounding success" that business model was. I should frame it and hang it on the wall in my office. Making credit rapidly available on an unsecured basis relying almost solely on the existing credit score of an applicant is not a business model that's worked well for the vast majority of finance companies. Suppose since HBL are a bank and come under RBNZ security its different for them...one supposes that dairy farmers and the 180 odd staff from Fisher and Paykel's manufacturing plant about to be made redundant and start new "low risk" business's are prime candidates for this marketing initiative and a great way for HBL to show ongoing and enduring support at this tough time in their lives.

[percy]

Hope not a case of 'easy come easy go'

So 2 minutes to get the loan (approved?) - how long to get the money in your account?

Overnight should your loan be approved.

[Beagle]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11620157

Interesting times. Just a thought. What if $4 kg is simply a reversion to the old normal ? Keep in mind we averaged $4 kg for nine years from 1999 to 2007. Reserve bank thinks worst case scenario is land values fall by 40% if we endure low dairy pay-outs for circa 4 years, but what if $4 kg simply becomes the new normal for nearly a decade like last time ?

[winner69]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11620157

Interesting times. Just a thought. What if $4 kg is simply a reversion to the old normal ? Keep in mind we averaged $4 kg for nine years from 1999 to 2007. Reserve bank thinks worst case scenario is land values fall by 40% if we endure low dairy pay-outs for circa 4 years, but what if $4 kg simply becomes the new normal for nearly a decade like last time ?

Just as well Heartland don't have much exposure to dairy loans, unlike the bank banks and Rabobank

[Marilyn Munroe]

......what if $4 kg simply becomes the new normal for nearly a decade like last time ?

This item by Keith Woodford suggests your concerns are feasible;

http://www.interest.co.nz/rural-news/80972/keith-woodford-sees-huge-dairy-operations-us-being-globally-competitive-not-focused

Boop boop de do
Marilyn

[K1W1G0LD]

This item by Keith Woodford suggests your concerns are feasible;

http://www.interest.co.nz/rural-news/80972/keith-woodford-sees-huge-dairy-operations-us-being-globally-competitive-not-focused

Boop boop de do
Marilyn

This has what? to do with HBL

[K1W1G0LD]

This item by Keith Woodford suggests your concerns are feasible;

http://www.interest.co.nz/rural-news/80972/keith-woodford-sees-huge-dairy-operations-us-being-globally-competitive-not-focused

Boop boop de do
Marilyn

Here try this thread

http://www.sharetrader.co.nz/showthread.php?10288-Cows-in-calf-and-other-dairy-issues

[winner69]

This has what? to do with HBL

Hesrtlands exposure to the dairy sector

[K1W1G0LD]

Really, that's just you being mischeivious again winner.........................I thought we'd all gotten over that.

[winner69]

Really, that's just you being mischeivious again winner.........................I thought we'd all gotten over that.

Sharehoders need to be kept an eye on dairy exposure

Is 8% of their lending book ($200 plus) and if anthing goes a bit awry the impact has to be seen in the context of annual earnings of $55m

Its stupid to ignore all together

[percy]

Sharehoders need to be kept an eye on dairy exposure

Is 8% of their lending book ($200 plus) and if anthing goes a bit awry the impact has to be seen in the context of annual earnings of $55m

Its stupid to ignore all together
It is more stupid to harp on as many do.
The endless posts about Heartland's very modest exposure, would cause the casual reader to think Heartland had between 25% and 95% of their loan book in dairying .
It is under 8% and has been pretty well stress tested by Heartland's management.Heartland's management have a record of being right.

[boysy]

Everyone has a record of being right until they are wrong. Coming from a banking background I question whether dairy farmers come to HBL as a lender of last resort ?. I'm just a casual observer of this thread but losses are never predicted otherwise prudent lending would never have taken place.

[Beagle]

Coming from an auditing background some people with no knowledge of accounting issues would be profoundly shocked at how much estimation goes into the area of bad and doubtful debt provisioning that obviously flows into the final profit and loss figure. No way in the world they have stress tested for a decade of $4 dairy pay-out's, in fact if this made up their core scenario they wouldn't be supporting dairy farmers through this because there would be no light at the end of the tunnel !

RBNZ recently suggested that bank's losses from dairy could amount to as much as 14% of their loan book under their worst case scenario of four years of low dairy payouts. For HBL this suggests potential future write-offs of $230m x 14% = $32.2m, (or 6.76 cps) certainly manageable when its spread over a number of years as it surely would be under that scenario. Good that RBNZ ran this scenario and that someone on here made the effort to quantify that in terms of cents per HBL share effect

Not stupid at all to ponder what if $4 kg is the new normal for the next decade, just like it was for the decade leading up to 2007. RBNZ is putting it out there that the fall to $4 for four years is the worst case scenario...but what if it isn't ? Food for thought especially for investors in a bank that hasn't even made a start on increased provisioning in this area.

My new valuation 11 cps earnings x PE 10.5 (sector PE's have come back) = $1.15.5 less 10 cps for the net present value of embedded future losses in the bank's balance sheet pertaining to dairy = $1.055.

[percy]

92% of Heartland Bank's lending is outside of dairying.
No other bank in NZ has such a high % outside of dairying.

[percy]

Everyone has a record of being right until they are wrong. Coming from a banking background I question whether dairy farmers come to HBL as a lender of last resort ?. I'm just a casual observer of this thread but losses are never predicted otherwise prudent lending would never have taken place.

Go back to the start of this thread.Post No.1 ..01-06-2011 and read all the posts .
Then read HBL reports,announcements,and presentations..
You will note HBL have always done what they said they would do.
Then read what posters have posted.Very few have been even nearly right,yet they continue to make a lot of noise..

[winner69]

Go back to the start of this thread.Post No.1 ..01-06-2011 and read all the posts .
Then read HBL reports,announcements,and presentations..
You will note HBL have always done what they said they would do.
Then read what posters have posted.Very few have been even nearly right,yet they continue to make a lot of noise..

Obviously these comments (along with that earlier one) are pointed at me and needs a response but i will resist the temptation to get personal - but i will say I am pretty pleased with myself that i have always been nearly right (almost spot on) with my 'projected'/ 'guessed' Heartland's 1/2 yearly profits. My financial modelling of Heartland pretty good. i reckon a great effort over several years.

Heartland earnings announcements have never surprised me.

[winner69]

92% of Heartland Bank's lending is outside of dairying.
No other bank in NZ has such a high % outside of dairying.

But 8% of Heartlands lending is in dairy ($240m odd) ...and they acknowledge that times are not that great in that sector.

Maybe stupid is not the right word to us but i think it unwise to disregard out of hand. Dairy has the pitential to be a drag on earnings for some years.

Even if worst case is 1% going bad that's ~$2m impact - significant enough to turn a good year for Heartland into a so-so year (no doubt impacting the share price)

As a shareholder got to keep on top of such things - might change the investment criteria.

[nextbigthing]

Even if worst case is 1% going bad that's ~$2m impact - significant enough to turn a good year for Heartland into a so-so year (no doubt impacting the share price)

Winner, $2M is a drop in the bucket. Once you see the earnings from the next acquisition you'll agree.



As a shareholder got to keep on top of such things - might change the investment criteria.

If you're not happy with the return you could always put your money in a bank like ANZ or something. Or you could put it in a HNZ account and get an even better return than ANZ.

$1.60 by Christmas.

[percy]

But 8% of Heartlands lending is in dairy ($240m odd) ...and they acknowledge that times are not that great in that sector.

Maybe stupid is not the right word to us but i think it unwise to disregard out of hand. Dairy has the pitential to be a drag on earnings for some years.

Even if worst case is 1% going bad that's ~$2m impact - significant enough to turn a good year for Heartland into a so-so year (no doubt impacting the share price)

As a shareholder got to keep on top of such things - might change the investment criteria.

Significant???
No.
A bit of a bugger yes, if that is you worse case .
On best case ,it has already been provided for.

[winner69]

Significant???
No.
A bit of a bugger yes, if that is you worse case .
On best case ,it has already been provided for.

I'm wrong sometimes - what happens if it is 2% or 3% or 4% or higher - and dividend gets reduced

Context - several loans >$10m - one goes belly up big time that's 4%

[Baa_Baa]

Some people sold after really decent run up into the 1.40's, and there's only been one buyback (mid Oct'15) and one sell (late Jan'16) since then (with a tricky fake out to be avoided in Feb'16). Currently it's still a 'sold-stay-out'. But that's a capital management viewpoint, I haven't bothered to figure out whether the dividends would've ameliorated the capital losses had one chosen to hold for the duration after the price peaks. The rest of the story is just noise.

[winner69]

Winner, $2M is a drop in the bucket. Once you see the earnings from the next acquisition you'll agree.



If you're not happy with the return you could always put your money in a bank like ANZ or something. Or you could put it in a HNZ account and get an even better return than ANZ.

$1.60 by Christmas.

Heartland trumpeted big time that 1/2 year was up $2m odd on prior period - so earnings increase was just a drop in the bucket then

$1.60 by Christmas - sure thing, esp if they stopped smoothing the earnings out and reported a full year closer to $60m instead of the $55m they say

[boysy]

Ps kiwibank has do direct dairy exposure

[percy]

I'm wrong sometimes - what happens if it is 2% or 3% or 4% or higher - and dividend gets reduced

Context - several loans >$10m - one goes belly up big time that's 4%

And this comes from the poster who stated post#7351 "Heartland earnings announcements have never surprised me."
Well you surprise me,well to be honest you don't.!

[nextbigthing]

so earnings increase was just a drop in the bucket then As per the earlier statement, once you see the acquisition earnings, you'd agree it is. Exciting position!


$1.60 by Christmas - sure thing

Agree.

[Beagle]

Go back to the start of this thread.Post No.1 ..01-06-2011 and read all the posts .
Then read HBL reports,announcements,and presentations..
You will note HBL have always done what they said they would do.
Then read what posters have posted.Very few have been even nearly right,yet they continue to make a lot of noise..

Doing what they say they will do isn't the defining measure of success. Even on a brief overview its clear that banks world-wide have been under serious pressure due to asset quality concerns. The market is clearly worried about future provisioning and the SP of most Australasian banks has reflected that. Anyone like me that made the call a year ago that this stock was fully priced at just over $1.30 would be well pleased to have avoided not only the 10% capital decline in value in HBL since then but also to have participated in the 15% rally in the NZX over the last year by redeploying their capital elsewhere.

In my opinion HBL's 25% relative under-performance to the NZX50 cannot be rationally explained by any other means other than to say the market sees trouble coming ahead. The market is also concerned about the contagion effect the severe pressure the dairy industry is under, rubbing off on other rural service industries too. I think the 8% exposure is just strictly dairy but what's the total exposure when you add in the effect on other service industries and contractors that rely on dairy for a lot of their work ?

Anyway...a friend of mine shared with me on the weekend that the normal pay-out averaged only $4 for the nine years leading up to 2007 so my main point today is what sort of mess are land values in and banks provisioning in if history simply repeats, (as it often does) and why do most people think a recovery in dairy prices is going to happen at some stage over the next year or two ? What evidence are they basing that expectation on ? Just wanted to share so people can have a think, no agenda and not looking to get back in if it gets cheaper.

Why are other banks raising their dairy loan provisioning but HBL are claiming they're all hunky dory ?...what makes their dairy loans so special ?

[winner69]

And this comes from the poster who stated post#7351 "Heartland earnings announcements have never surprised me."
Well you surprise me,well to be honest you don't.!

Never surprised with Heartland announcements - but often disappointed

[winner69]

As per the earlier statement, once you see the acquisition earnings, you'd agree it is. Exciting position!



e.

Not far off now is it

[nextbigthing]

Not far off now is it

The silence is deafening. Happy to wait while they perform thorough due diligence to ensure the premium acquisition at a discount price

[stoploss]

The silence is deafening. Happy to wait while they perform thorough due diligence to ensure the premium acquisition at a discount price

They buying Fonterra ?

[percy]

They buying Fonterra ?

That's it,I am going to bed.!!
lol.

[kizame]

They are probably still sniffing around MTF,I wouldn't be surprised if this still goes ahead.
If so, It will be the slowest aquisition the worlds has ever seen.
They not only have the fastest loans approval, But a new world record is in the offing.

[winner69]

Roger mentioned that the normal Fonterra pay-out averaged only $4 for the nine years leading up to 2007 and that the $4 odd forecast for this year could be the new norm for another few years

Chart shows Fonterra pay out over the years, Current pay out is about average

Sadly many dairy farms were bought on expected returns much higher than $4. To keep on topic I would hazard a guess that some/many of these owe Heartland money and are being managed through a temporary crisis - but that crisis might not be temporary

It is wise for anybody interested in Heartland to track developments (from an external perspective)

[kizame]

Roger mentioned that the normal Fonterra pay-out averaged only $4 for the nine years leading up to 2007 and that the $4 odd forecast for this year could be the new norm for another few years

Chart shows Fonterra pay out over the years, Current pay out is about average

Sadly many dairy farms were bought on expected returns much higher than $4. To keep on topic I would hazard a guess that some/many of these owe Heartland money and are being managed through a temporary crisis - but that crisis might not be temporary

This wise for anybody interested in Heartland to track developments (from an external perspective)

That would be frightening for a lot of farmers.

[ziggy415]

has no one noticed the up tick in this share...volume not bad also .......or are you making money elswhere

[winner69]

has no one noticed the up tick in this share...volume not bad also .......or are you making money elswhere

Market expecting a good Global Dairy Trade auction on Tuesday night .....that's the signal

[ziggy415]

Market expecting a good Global Dairy Trade auction on Tuesday night .....that's the signal
but i thought hbl had little exposure to the rural sector

[winner69]

but i thought hbl had little exposure to the rural sector

Thats what Heartland says ........market might think different

[RGR367]

has no one noticed the up tick in this share...volume not bad also .......or are you making money elswhere

Could be due to the rumour that ANZ is reviewing their UDC Finance and may sell it. And HBL could be interested on it too, if we are to believe the story going around as per NBR this afternoon.

[beetills]

The headline says that it may go for up to 700 mill.
Where would they get that type of money from?
Just curious

[ziggy415]

The headline says that it may go for up to 700 mill.
Where would they get that type of money from?
Just curious
winner probably

[winner69]

t_j - more honework for you.

UDC on the blocks - Hesrtland rumoured to be interested?

Your homework for tonight - should/could Heartland acquire UDC and if so how much should they pay?

UDC a bit smaller than Heartland and a bit more profitable. Last accounts https://www.business.govt.nz/companies/app/service/services/documents/257BA149D73AE977E5CF5FF927B9B4ED

Report back tomorrow pease

(Detention for you for nt coming back on MTF ....no credits for you towards NCEA)

[winner69]

The headline says that it may go for up to 700 mill.
Where would they get that type of money from?
Just curious

WOW - on same multiples that would make Heartland worth $920m plus

About $2 a share - always knew Heartland way undervalued

Jeff should be taking note - it may be best interests of his shareholders to selll Heartland .....to unlock that intrinsic value

If that $700m is A$ than its more than $2 for Heartland

[couta1]

WOW - on same multiples that would make Heartland worth $920m plus

About $2 a share - always knew Heartland way undervalued

Jeff should be taking note - it may be best interests of his shareholders to selll Heartland .....to unlock that intrinsic value

If that $700m is A$ than its more than $2 for Heartland Sounds like you'll be taking a position again aye winner?

[Banksie]

http://www.stuff.co.nz/business/industries/79057498/heartland-absolutely-interested-in-udc-finance-as-anz-bank-mulls-sale

[winner69]

Roger - was using Price Book ratios - that $700 touted is nearly 2 times which would make Heartland worth close to $2.00

Rough figures the other way were UDC profit $57m about what Heartland going to do this year then Heartland worth $700m as well = $1.50 share

Need to Snoopy to check numbers - I recall his conclusion that UDC was a better/more efficient business than Heartland and that might account for such a ridiculous valuation

Looking forward to t_j homework answers though

[winner69]

Jeff would love to make a REALLY BIG acquisition

Punters always fronted up in the past Mr Flood said - even if he needed to get punters to double their investment?

[ziggy415]

Jeff would love to make a REALLY BIG acquisition

Punters always fronted up in the past Mr Flood said - even if he needed to get punters to double their investment?
how does it go again.....oh yeh......$1.60 by christmas ha ha

[percy]

HBL taking over UDC would make very good sense.
HBL have stated any acquisition would have to be earnings accretive.
HBL at today's $1.21, is trading on a PE of 11.32.So would they pay a PE of 9 for UDC.?That would be just over $513mil which is a long way short of the $600 to $700 mil talked about.
HBL's market cap today is $576.5mil.A large cap raising would be needed.Yet if it added up it would be well supported .
Would ANZ take HBL scrip to get UDC off their books?
Another case of a distressed business [ANZ] selling off the crown jewels?
Nice to see the opportunities coming HBL's way.
Still no decision in the MTF Sportzone case.MTF would be a great "bolt on" acquisition for either HBL, or HBLUDC.!
All of this confirms that HBL, having excess capital while the Aussie banks need to raise capital,means the correlation between HBL and the Aussie banks is wrong,and HBL's share price has been mispriced by the market.

ps.Google "60 minutes Moranbah housing",and you can understand why Aussie banks require more capital.

[K1W1G0LD]

Percy, you deserve Guru status , being overlooked on here . I see Winners getting all enthusiastic again .................beware ...................shareprice will go down again now.
toodle pip.

[percy]

Percy, you deserve Guru status , being overlooked on here . I see Winners getting all enthusiastic again .................beware ...................shareprice will go down again now.
toodle pip.

We don't need to concern ourselves with what others do.
Just a matter of trusting our own research.
A lot easier when HBL do what they say they will do.
ps.I am more than happy to remain a percy.Guru,never.![they seem to change their minds too often to be a real percy].lol.

[King1212]

HBL taking over UDC would make very good sense.
HBL have stated any acquisition would have to be earnings accretive.
HBL at today's $1.21, is trading on a PE of 11.32.So would they pay a PE of 9 for UDC.?That would be just over $513mil which is a long way short of the $600 to $700 mil talked about.
HBL's market cap today is $576.5mil.A large cap raising would be needed.Yet if it added up it would be well supported .
Would ANZ take HBL scrip to get UDC off their books?
Another case of a distressed business [ANZ] selling off the crown jewels?
Nice to see the opportunities coming HBL's way.
Still no decision in the MTF Sportzone case.MTF would be a great "bolt on" acquisition for either HBL, or HBLUDC.!
All of this confirms that HBL, having excess capital while the Aussie banks need to raise capital,means the correlation between HBL and the Aussie banks is wrong,and HBL's share price has been mispriced by the market.

ps.Google 60 minutes Moranbah housing,and you can understand why Aussie banks require more capital.

Bravo percy..if u think HBl's share has been mis priced...what price do u believe HBL is valued at?

[trader_jackson]

Looking forward to t_j homework answers though

I am very excited, like many on here, but I'll let the far more experienced people handle this major acquisition.

Re the NCEA: I've passed NCEA a few years ago, with... I would certainly say I was very "well positioned" for university entrance (at the time);)

What I will say is the I believe Heartland is "well positioned" to take on UDC

[nextbigthing]

what price do u believe HBL is valued at?


$1.60 by christmas ha ha

Please pay attention. ;)

[Beagle]

I think HBL's chances of getting UDC on a PE lower than their own are slim to none. Not nearly as many questions over UDC's asset quality and run as a far tighter ship. Warrants a PE premium IMO.
I seriously doubt ANZ are distressed sellers and I think NBR's behind the paywall story on $600m - $700m is where this is at which would imply a massive cash issue if HBL could be put into a position to execute a transaction.

I predicted back in November 2015 that the Supreme court Sportzone decision regarding MTF would be many months coming, suggested 5-6 months.

[percy]

Bravo percy..if u think HBl's share has been mis priced...what price do u believe HBL is valued at?

I seem to remember stating I thought the "fair" share price for Heartland Bank was between $1.25 and $1.35.
With interest rates set to remain, or go lower, maybe my "fair" valuation is now a bit light?
Share price $1.35,dividend 8 cents gives a yield of 5.92%,while at $1.45 the yield is 5.5%.
Today's share price of $1.21 the yield is 6.61%.
The catalyst for HBL's sp will be the multiplies, and the nature of their next acquisition.
A UDC takeover would see a higher re-rating than a MTF takeover.

[trader_jackson]

http://www.afr.com/street-talk/anz-earmarks-udc-finance-for-sale-deutsche-on-the-job-20160415-go721l

Remember we are not alone in a potential bid...

(and remember that old AFR trick to see the article!)

[percy]

Has anyone googled "60 minutes Moranbah housing " yet.?
Not nice.!!

[trader_jackson]

Has anyone googled "60 minutes Moranbah housing " yet.?
Not nice.!!

Mentioned it over on the SUM thread... yes not to pretty, good to know HBL and UDC largely unaffected (in my view)

[tim23]

Yes - too many eggs in one basket in a 1 industry town - greedy people and of course its the banks fault?
Has anyone googled "60 minutes Moranbah housing " yet.?
Not nice.!!

[macduffy]

I agree with Roger in doubting that ANZ could be described as a distressed seller of UDC. They made a decision some time ago to exit the finance co side of the business and sold off the much bigger Esanda in Australia last year. It's correct that they will need to keep augmenting their capital - but then, so will any successful bank with a growing loan book.

[stoploss]

I agree with Roger in doubting that ANZ could be described as a distressed seller of UDC. They made a decision some time ago to exit the finance co side of the business and sold off the much bigger Esanda in Australia last year. It's correct that they will need to keep augmenting their capital - but then, so will any successful bank with a growing loan book.


So will any bank with problem loans be it in the dairy sector , mining sector or in Asia .....
http://www.theguardian.com/business/2016/mar/24/anzs-900m-loss-on-mining-loans-is-the-tip-of-the-iceberg-analysts-say

[Beagle]

So will any bank with problem loans be it in the dairy sector , mining sector or in Asia .....
http://www.theguardian.com/business/2016/mar/24/anzs-900m-loss-on-mining-loans-is-the-tip-of-the-iceberg-analysts-say

Bit like that chart Winner posted the other day of historical dairy prices...Scary stuff !!

[percy]

I agree with Roger in doubting that ANZ could be described as a distressed seller of UDC. They made a decision some time ago to exit the finance co side of the business and sold off the much bigger Esanda in Australia last year. It's correct that they will need to keep augmenting their capital - but then, so will any successful bank with a growing loan book.

The Australian Banks are needing to shore up their capital to meet new Australian capital requirements.
ie more capital to service existing loans.
Growth will require further capital.
While Heartland Bank has excess capital,[for existing loans.]
Selling Esanda and UDC to boast capital for core banking business,may make sense to some,while others will question the decision.

ps ANZ Bank's Moranbah branch is at 1 Griffin Street,Moranbah,Qld,4744.

[winner69]

Bit like that chart Winner posted the other day of historical dairy prices...Scary stuff !!

....when Heartland have $240m plus of dairy loans

Headlines yesterday said dairy farm prices were still going down

[winner69]

Share price going gang busters at the moment

Doesnt seem to be keeping up with those nasty under capitalised aussie banks though

[winner69]

Overnight should your loan be approved.

So a SME goes on line and answer 6 questions right and says they have myob and they get $50,000 in their account the following morning.

Hmm - sounds too easy

[percy]

So a SME goes on line and answer 6 questions right and says they have myob and they get $50,000 in their account the following morning.

Hmm - sounds too easy

As Judge Judy would say;It's all to do with the questions you ask".

[percy]

HBL taking over UDC would make very good sense.
HBL have stated any acquisition would have to be earnings accretive.
HBL at today's $1.21, is trading on a PE of 11.32.So would they pay a PE of 9 for UDC.?That would be just over $513mil which is a long way short of the $600 to $700 mil talked about.
HBL's market cap today is $576.5mil.A large cap raising would be needed.Yet if it added up it would be well supported .
Would ANZ take HBL scrip to get UDC off their books?
Another case of a distressed business [ANZ] selling off the crown jewels?
Nice to see the opportunities coming HBL's way.
Still no decision in the MTF Sportzone case.MTF would be a great "bolt on" acquisition for either HBL, or HBLUDC.!
All of this confirms that HBL, having excess capital while the Aussie banks need to raise capital,means the correlation between HBL and the Aussie banks is wrong,and HBL's share price has been mispriced by the market.

ps.Google "60 minutes Moranbah housing",and you can understand why Aussie banks require more capital.

I may have been too generous in my $513mil value of UDC.
Would need a lot more time than I have, to untie the close relationship UDC have with ANZ,and how much that is worth to UDC.
It will have a big bearing on the UDC valuation.

[Beagle]

http://www.nbr.co.nz/article/potential-buyers-line-anz-banks-udc-finance-business-b-187802

The other thing to keep in mind is UDC is able to raise deposit funding very cheaply due to its parent's AA- credit rating. That would change if HBL bought it and stretched their capital adequacy right to the limit to fund such a potential acquisition.

I personally think a float is probably the best option for ANZ. UDC with its superior profitability and relative lack of exposure to the problematic dairy industry would probably have a higher market capitalisation than HBL.

[mouse]

Assuming Heartland wins the bidding war for UDC. How will they pay? More importantly, how much will I pay? Again, assume Heart borrows 40% of the cost, that means a 'rights' issue of 60% of cost. It looks as if real CASH is needed for this one. Hmmmmmmm? Do I want to double my shares in Heart?
Advice please. Your thoughts please?
And where did our 'cash back' offer vanish to?

[macduffy]

There is no specific guarantee for UDC from its parent ANZ but in practical terms it would have to support UDC if that company got into difficulties. To do otherwise would be tantamount to ceasing business, at least in NZ.

As a longterm investor in UDC debentures and call deposit facilities I wouldn't have the same level of confidence in HBL - residual MARAC memories there! - and would scale back exposures if HBL becomes the owner.

[Bjauck]

Assuming Heartland wins the bidding war for UDC. How will they pay? More importantly, how much will I pay? Again, assume Heart borrows 40% of the cost, that means a 'rights' issue of 60% of cost. It looks as if real CASH is needed for this one. Hmmmmmmm? Do I want to double my shares in Heart?
Advice please. Your thoughts please?
And where did our 'cash back' offer vanish to? I would take up an HBL rights issue if it were used to buy into UDC (at a good price). I think it would give a welcome boost to the size of Heartland and thereby raise its profile, hopefully for the better.

[kizame]

I would have to say I think UDC is too big for HBL to swallow,who else out there would be interested?
I would think there would be competition for this one,and with HBL not paying more than they need to...

Unless they could leave it as a stand alone entity (listed) with a majority share holding.

[King1212]

http://www.nbr.co.nz/article/potential-buyers-line-anz-banks-udc-finance-business-b-187802

[mouse]

I would take up an HBL rights issue if it were used to buy into UDC (at a good price). I think it would give a welcome boost to the size of Heartland and thereby raise its profile, hopefully for the better.

But, you may have to double the size of your investment in HBL. It might eventually be a case of having ACC or similar taking half with HBL the other half.

[macduffy]

I would have to say I think UDC is too big for HBL to swallow,who else out there would be interested?
I would think there would be competition for this one,and with HBL not paying more than they need to...

Unless they could leave it as a stand alone entity (listed) with a majority share holding.

Macquarie Bank, having bought UDC's big brother Esanda last year is the obvious front-runner for me. The private equity/Deutsche Bank consortium that bought GE Finance's Aust and NZ operations recently would likely be interested also. I would expect strong competition with no-one getting a cheap buy!

[Baa_Baa]

Macquarie Bank, having bought UDC's big brother Esanda last year is the obvious front-runner for me. The private equity/Deutsche Bank consortium that bought GE Finance's Aust and NZ operations recently would likely be interested also. I would expect strong competition with no-one getting a cheap buy!

ANZ must be licking their chops with all the publicly disclosed interest in buying UDC. Sure to sell at a tidy premium, if it does = if listed company buys, longer wait for ROI.

[percy]

Macquarie Bank, having bought UDC's big brother Esanda last year is the obvious front-runner for me. The private equity/Deutsche Bank consortium that bought GE Finance's Aust and NZ operations recently would likely be interested also. I would expect strong competition with no-one getting a cheap buy!

If HBL don't buy UDC cheaply, I too hope it will go for huge multiples.
PE of 12.3 would be $700mil.
PE of 15 would take it up to about $855mil.

Then I would expect HBL would be rerated upwards.
I seem to be "well positioned" either way.

We certainly have some interesting times ahead.
And the MTF Sortzone case judgement must be due very shortly.

Opportunities for all.....!!

[Hectorplains]

If HBL don't buy UDC cheaply, I too hope it will go for huge multiples.
PE of 12.3 would be $700mil.
PE of 15 would take it up to about $855mil.

Then I would expect HBL would be rerated upwards.


Yeah, I doubt the correlation coefficient is that strong but hey there's always hope...

[trader_jackson]

Did I read somewhere that even TSB were interested??

At this rate of interest, we could have Flexigroup come out and do what they did to F & P Finance :t_up:

[Hectorplains]

Did I read somewhere that even TSB were interested??

At this rate of interest, we could have Flexigroup come out and do what they did to F & P Finance :t_up:

Ah cool, so while we're making up stuff... the Chinese government will fund ATM, as a warehouser, to launch a UDC takeover.

[winner69]

My mate cam with good news

@ANZ_cambagrie: Global dairy trade prices up 3.8%. Whole milk powder up 7.5%. A nice bounce but nzdusd at 0.70.

Expect another boost to heartland share price, their strategy of hoping that potential problems will just go away is working

[winner69]

If HBL don't buy UDC cheaply, I too hope it will go for huge multiples.
PE of 12.3 would be $700mil.
PE of 15 would take it up to about $855mil.

Then I would expect HBL would be rerated upwards.
I seem to be "well positioned" either way.

We certainly have some interesting times ahead.
And the MTF Sortzone case judgement must be due very shortly.

Opportunities for all.....!!

Percy, your $855m

Guru analysts often use price book ratio to value banks (read your Craigs report)

UDC at $855m is 2.3 times book value

Same multiple for heartland makes them worth $1.1 billion

Share price then $2.40

As you say mate no matter what happens Heartland wins - even if it just a rerating when the market unlocks the intrinsic value embedded in heartland

Maybe not $2.40 but that $1.60 by xmas looks a cert now

[King1212]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11625458

[Beagle]

My mate cam with good news

@ANZ_cambagrie: Global dairy trade prices up 3.8%. Whole milk powder up 7.5%. A nice bounce but nzdusd at 0.70.

Expect another boost to heartland share price, their strategy of hoping that potential problems will just go away is working

Fonterra's pay-out is still well below the level needed for dairy farmers with over 50% gearing to get anywhere near break even. Most independent experts say we need $5.30 a Kg for breakeven for the average dairy famer, much more for those with, (by my calculations), 70% gearing which is approximately where HBL's average loan stands based on today's land and herd values (taking into account steep falls over the last year).

Banks are a very long way from being out of the woods with their dairy loans.

[winner69]

All gloom and dismay over on the Harmoney thread

Dodgy loans, writeoffs, Harmoney not vettingbthings thatvwell, fraud and all sort of stuff.

Those punters just don't get it - all part and parcel of being a lender

They also don't realise they don't really matter - Harmoney just a shop front for Hesrtland and others.

Heartland with their $50m plus (wonder how much it is now) of lending through Harmoney must be creaming it - average RAR of at least 13% they say

And i wonder what Heartlands share of Harmoney is going to be worth when they float - heaps

[winner69]

Wonder if Heartland management are working out why the Seniors acquisition hasn't been EPS accretive?

But then again EPS accretive is a warm fuzzy term that post acquisition seems to be forgotten anyway.

[trader_jackson]

http://www.stuff.co.nz/business/79323556/grey-power-to-lobby-for-governmentrun-reverse-mortgage-scheme

Could affect HBL... although I doubt the government would do it...

As always, thoughts appreciated

[nextbigthing]

http://www.stuff.co.nz/business/79323556/grey-power-to-lobby-for-governmentrun-reverse-mortgage-scheme

Could affect HBL... although I doubt the government would do it...

As always, thoughts appreciated

I doubt the government (current government at least) would be interested in providing something the market is already providing competitively.

[winner69]

http://www.stuff.co.nz/business/79323556/grey-power-to-lobby-for-governmentrun-reverse-mortgage-scheme

Could affect HBL... although I doubt the government would do it...

As always, thoughts appreciated

Thats a good news story for us

We need more desperate oldies taking out home equity release mortgages don't we. A growing niche msrket eh.

Heartland just doing thecresponsible social thing in providing them

Thanks t_j for picking up on that good news

[Grunter]

Percy, your $855m

Guru analysts often use price book ratio to value banks (read your Craigs report)



DDMs are also used - DCFs don't as its virtually impossible to establish the WACC for banks

[percy]

Question time for Winner69 and Grunter.
What formula [if any] did FPF [Fisher Paykel Finance] use when they brought The Farmers finance company?
Possibly a helpful guide;60% of the loan book????

[trader_jackson]

Maybe could also look at a more recent example when Flexigroup brought F&P as well?

On another topic...
http://www.stuff.co.nz/business/79310427/maintenance-travel-health-the-big-three-reasons-for-taking-a-reverse-mortgage
Heartland helping fuel senior's dreams :t_up:

[Grunter]

Question time for Winner69 and Grunter.
What formula [if any] did FPF [Fisher Paykel Finance] use when they brought The Farmers finance company?
Possibly a helpful guide;60% of the loan book????

http://people.stern.nyu.edu/adamodar/pdfiles/papers/finfirm09.pdf

[Harvey Specter]

http://www.stuff.co.nz/business/79323556/grey-power-to-lobby-for-governmentrun-reverse-mortgage-scheme

Could affect HBL... although I doubt the government would do it...

As always, thoughts appreciated

He lost a bit of credibility with this:

Rayner​ says. "You could draw down on a loan with an interest rate of say two per cent."
The Government's ten-year borrowing rate is just under 3 per cent, but Rayner says, one option would be for the Government to provide the loans interest-free to superannuitants.He just wants another hand out because (worst reason ever) he is asset rich!

He he had said 3.5% (being 0.5% above the governments borrowing rate), he could have got a tiny bit more support.

[winner69]

Maybe could also look at a more recent example when Flexigroup brought F&P as well?

On another topic...
http://www.stuff.co.nz/business/79310427/maintenance-travel-health-the-big-three-reasons-for-taking-a-reverse-mortgage
Heartland helping fuel senior's dreams :t_up:

Gives you the warm fuzzies that story eh

We are helping the oldies who a bit shot if dosh enjoy life aren't we ....and making heaps ourselves as well.

[percy]

He lost a bit of credibility with this:
He just wants another hand out because (worst reason ever) he is asset rich!

He he had said 3.5% (being 0.5% above the governments borrowing rate), he could have got a tiny bit more support.

I think his credibility remains intact.
Zero.

[winner69]

Maybe could also look at a more recent example when Flexigroup brought F&P as well?

On another topic...
http://www.stuff.co.nz/business/79310427/maintenance-travel-health-the-big-three-reasons-for-taking-a-reverse-mortgage
Heartland helping fuel senior's dreams :t_up:

About 40% wasn't it?

[winner69]

Maybe could also look at a more recent example when Flexigroup brought F&P as well?

:

t_j have you solved percy's little puzzle yet

[winner69]

Heartland into this disruptive stuff and the use of technology. That's good in these changing times

Read this article about make of Boards in these changing times

Main points were 'Board members know that there company will either embrace technological change or go out of business' and 'At the Board level, there is a need for "geeks", independent directors who can put technology to use'

Heartland passes on the first point ....but who is the geek amongst this lot?

[winner69]

t_j have you solved percy's little puzzle yet

t_j

Another hint to solving percy's little puzzle - Never underestimate how much 'strategic value' is worth

[trader_jackson]

t_j

Another hint to solving percy's little puzzle - Never underestimate how much 'strategic value' is worth

Not yet, I will try have a look at it soon... I should really know it 'off by heart' as I have held FXL shares for some time...

Either way, what I can say now is that with UDC, Heartland would be "extremely well positioned" ;)

[trader_jackson]

Not yet, I will try have a look at it soon... I should really know it 'off by heart' as I have held FXL shares for some time...

Either way, what I can say now is that with UDC, Heartland would be "extremely well positioned" ;)

FXL paid A$275 MILLION, NZ$294 MILLION for F&P Finance in Late October 2015
The acquisition price of F&P Finance represents:
- acquisition multiple of 8.8x pro-forma FY15 Cash NPAT (taking into account expected synergies under FXL ownership), 9.9x not taking into account expected synergies
- 2.9x book value
- 44% of receivables

hopefully that helps..

[winner69]

FXL paid A$275 MILLION, NZ$294 MILLION for F&P Finance in Late October 2015
The acquisition price of F&P Finance represents:
- acquisition multiple of 8.8x pro-forma FY15 Cash NPAT (taking into account expected synergies under FXL ownership), 9.9x not taking into account expected synergies
- 2.9x book value
- 44% of receivables

hopefully that helps..

Like that 2.9 times book value

Hope FXL take Heartland at the same multiple - just shy of $3

[percy]

Like that 2.9 times book value

Hope FXL take Heartland at the same multiple - just shy of $3

Well done Trader Jackson and Winner69.
Go to the top of the class.!!!.

ps.NB.Neither The Farmers Finance Company,or FPF held a banking licence,.
I am saving asking you what you think that is worth for another day..lol.

[winner69]

Well done Trader Jackson and Winner69.
Go to the top of the class.!!!.

ps.NB.Neither The Farmers Finance Company,or FPF held a banking licence,.
I am saving asking you what you think that is worth for another day..lol.

That day will be when somebody wants to buy Heartland eh percy

The answer then - heaps

Today - the market values the worth of Heartland having a banking licence much in line with ANZ etc

Good marketing tool though

[percy]

That day will be when somebody wants to buy Heartland eh percy

The answer then - heaps

Today - the market values the worth of Heartland having a banking licence much in line with ANZ etc

Good marketing tool though

As they say on The Shopping Chanel;
"It really works."...lol.

[winner69]

Though these days from a reputational point of view being a bank is often a liability

Even in this part of the world

[percy]

FXL paid A$275 MILLION, NZ$294 MILLION for F&P Finance in Late October 2015
The acquisition price of F&P Finance represents:
- acquisition multiple of 8.8x pro-forma FY15 Cash NPAT (taking into account expected synergies under FXL ownership), 9.9x not taking into account expected synergies
- 2.9x book value
- 44% of receivables

hopefully that helps..

Yes very helpful.
I think it gives a clear picture of what a "trade buyer" who is experienced in the sector, will pay for a very good business,which FPF is.
Now I wonder where we are with UDC,which is also a very good business.?
The difference will be in the untangling of UDC's ANZ relationship.
That will be interesting.

[percy]

Though these days from a reputational point of view being a bank is often a liability

Even in this part of the world

And from a financial point of view,as Warren Buffett said;
"Only when the tide goes out do you discover who's been swimming naked."
A lot of very low tides in Aussie recently?...lol.

[K1W1G0LD]

Looks like HBL has gone into hibernation for the winter, bit like watching paint dry waiting for the shareprice to pickup. Unlike all the excitement over at AIR!

[winner69]

Most of those nasty Aussie owned banks have reported lower NIMs (net interest margin) from their NZ operations. A competitive market being the most quoted reason

Just as well Heartland with their niche positions wont be suffering the same fate. A lot of their growth coming from the higher margin (niche positions) segments i reckon.

Must be making more than $55m this year but like BNZ Heartland probably will take a 'proactive approach to provisioning' to keep earnings down to just a reasonably acceptable level

[janner]

Most of those nasty Aussie owned banks have reported lower NIMs (net interest margin) from their NZ operations. A competitive market being the most quoted reason

Just as well Heartland with their niche positions wont be suffering the same fate. A lot of their growth coming from the higher margin (niche positions) segments i reckon.

Must be making more than $55m this year but like BNZ Heartland probably will take a 'proactive approach to provisioning' to keep earnings down to just a reasonably acceptable level


Always the glass three-quarters full, eh!. w69..

I think you are correct.. :-))

[kizame]

winner69 is very optimistic at the mo,in fact too optimistic as they come in on guidence,they have prudent management so over guidence I think would tell you that the extra earnings would be a surprise,I think that a surprise being positive or otherwise would say they havn't got a grasp of whats happening. Just my opinion you know.

[percy]

We should be able to see how HBL are tracking later this month, when they announce their 3rd quarter disclosure statement for the nine months ending 31/3/2016.
Still no judgement in the MTF Sportzone case.Must be due/overdue.

[Beagle]

We should be able to see how HBL are tracking later this month, when they announce their 3rd quarter disclosure statement for the nine months ending 31/3/2016.
Still no judgement in the MTF Sportzone case.Must be due/overdue.

I did warn you folks months ago those supreme court judges would take their time. Personally I think ditching the Privvy Council was a mistake, gives a useful counter influence to judges that can sometimes get myopic vision based on N.Z. centric factors.

Anyway...as many will have noticed, most of the Australian banks recently reporting have been ramping up provisioning for bad and doubtful debts because of the protracted downturn in dairy. By way of example
Extract from NBR regarding BNZ
BNZ’s statutory net profit in the six months fell 10.2% to $451 million, largely because its charges for bad loans rose to $79 million from $47 million in the previous first half, although operating expenses also rose 2.3%. The big jump in bad loan charges was mainly due to BNZ’s increased collective provisions for dairy lending. Up to people to decide for themselves if HBL can swim against the outgoing tide this sector exposure represents, effectively or not.

[RTM]

I know Turners is not a bank, however I thought their result was encouraging for Heartland.

[winner69]

Even though in a short term uptrend the year chart still seems to heading from the top left corner to the bottom left corner

Below 200MA and 100MA not a good sign either

Think best strategy is to hold and hope like hell somebody takes them over soon at a huge premium. (Only way to get to 160 by xmas nextbigthing)

[winner69]

Respected Massey banking expert David Tripe says current low dairy prices are probably the new norm - staying low for longer than most expect

[trader_jackson]

Respected Massey banking expert David Tripe says current low dairy prices are probably the new norm - staying low for longer than most expect

Yes dairy is weak, I think everyone acknolwedges this... what I do think is great, is Heartland's many other growth opportunities, through niche markets, such as reverse mortgages, will be interesting to get an update on how things are going

[Beagle]

Respected Massey banking expert David Tripe says current low dairy prices are probably the new norm - staying low for longer than most expect

Won't worry HBL directors, their rural lending team will presently be hard at work refinancing most of their overdue dairy loans (except for a few really toxic ones which they might bite the bullet on), just before balance date and clean their balance sheet up and then they can tell shareholders how good they are and what a low percentage of their customers are in arrears and how good they are in supporting their clients through this...spread the losses over many, many, many years and nobody will notice eh, and senior management will still get most of their juicy bonus's, cunning plan ! Suppose they will talk about acquisitions again at the next annual meeting to gee-up shareholders yet again.

[nextbigthing]

Think best strategy is to hold and hope like hell somebody takes them over soon at a huge premium. (Only way to get to 160 by xmas nextbigthing)

There was a modest private business jet parked up in Christchurch the other day. Apparently after years of travelling in economy, someone finally convinced Buffet to buy a private jet. A modest one was all he would purchase of course.

[davflaws]

refinancing most of their overdue dairy loans (except for a few really toxic ones which they might bite the bullet on), just before balance date and clean their balance sheet up and then they can tell shareholders how good they are and what a low percentage of their customers are in arrears and how good they are in supporting their clients through this...spread the losses over many, many, many years

I have been believing that unless the rural lending team is incompetent, the only losses are the "few really toxic ones that they bite the bullet on".
Have I got this wrong?

[Beagle]

I have been believing that unless the rural lending team is incompetent, the only losses are the "few really toxic ones that they bite the bullet on".
Have I got this wrong?

The real problem is management are usually rewarded with generous bonus's for meeting defined profit targets so they're incentivised to take a liberal view of which loans are totally toxic with no possibility of recovery, heavily in arrears with some possibility of recovery, (often some bankers refinance these sort of loans just prior to balance date to make them look better), doubtful with a moderate probability of recovery and simply overdue for reasons other than systemic issues like dairy being too low.

One of the issues you need to watch for is the real loan to value ratio's of the average loan to the dairy sector. By real I mean that the values used in the original loan applications will no longer be valid unless they've undertaken fresh valuations in the period between about March 2016 to June 2016 after the huge fall in dairy land, stock and machinery prices in February 2016. I think from a practical perspective its unlikely that a significant part of their dairy loan portfolio would have had fresh valuations unless the loan is actively under review. If HBL are using old valuations their stated loan to value ratio is highly debateable.

Investors need to look at how the other banks are faring with their loan provisioning and the substantial additional provisioning they're applying and ask themselves is it really realistic for HBL to be trying to claim their situation is so much better. Questions over asset quality are by no means unique to HBL, in fact we're seeing a very wide range of banking stocks around the world have their share prices come under serious pressure.

The question people might like to ask themselves is why would it be any different for HBL ? Yes they have a better capital ratio than many other banks and as such are in a better position to withstand write-off's but that doesn't change the position in regard to questions over asset quality and while that remains its hard to see the SP gaining momentum. With balance date just around the corner and work by the accountants and auditors soon to get underway this is a good time of year for shareholders to be pondering whether HBL will be forced to take a more realistic look at their dairy loan provisioning in light of the extended drop and especially in the context that there is no discernable light at the end of the tunnel. Around 8% of the bank's loan portfolio.

As always folks, DYOR and this post is not intended to be a recommendation. Just food for thought.
Disc: I don't hold and am not looking to buy on any decline.

[percy]

I have been believing that unless the rural lending team is incompetent, the only losses are the "few really toxic ones that they bite the bullet on".
Have I got this wrong?

You are spot on.HBL have very low exposure to dairying.[Under 8%;,other banks over 10%+].
You can rest assured there are no incompetent's working at HBL.
Of all Australasian Banks, Heartland Bank's directors and management have the largest % ownership.
As per everything in life,you look after your own very carefully,and avoid incompetent's.

[winner69]

You are spot on.HBL have very low exposure to dairying.[Under 8%;,other banks over 10%+].
You can rest assured there are no incompetent's working at HBL.
Of all Australasian Banks, Heartland Bank's directors and management have the largest % ownership.
As per everything in life,you look after your own very carefully,and avoid incompetent's.

C'mon now percy - you know jolly well that basing your claim thats heartlands 8% exposure is 'very low' just because other banks are 10% plus is totally irrelevant

That 8% is still about a $240m exposure.

I won't make any comment about other banks cast offs

[percy]

C'mon now percy - you know jolly well that basing your claim thats heartlands 8% exposure is 'very low' just because other banks are 10% plus is totally irrelevant

That 8% is still about a $240m exposure.

I won't make any comment about other banks cast offs

Neither will I.....
Except I always trust people with "the owners' eye",more than the "hired help".
NB.Look at the "hired help" at AIR.You don't see that at Heartland.!!.They value their shares.
Why? Because they are confident in their own abilities.

[winner69]

.....Suppose they will talk about acquisitions again at the next annual meeting to gee-up shareholders yet again.

Heck, that's not until the end of the year but you maybe be spot on.

Probably they will be taken over before they get around to buying anything themselves ....and possibly they will not even return the much touted 'excess' capital they have

[ziggy415]

Heck, that's not until the end of the year but you maybe be spot on.

Probably they will be taken over before they get around to buying anything themselves ....and possibly they will not even return the much touted 'excess' capital they have
cmon winner nail your colours to the mast...are you pro hbl or not...at least with percy and roger we know which team they bat for.....that fence your sitting on is getting wobbly...which way you gonna jump

[winner69]

cmon winner nail your colours to the mast...are you pro hbl or not...at least with percy and roger we know which team they bat for.....that fence your sitting on is getting wobbly...which way you gonna jump

At times I'm in and at other times I'm out - follow the chart to get an idea

One thing though i'm not besotted with Heartland so can see the good, the bad and the ugly

[winner69]

Just between us Ziggy415, I don't think Winner69 has ever owned any Heartland Bank shares.!

Short memory mate, you once welcomed me to the team. Was about 92cents then I recall.

[K1W1G0LD]

Short memory mate, you once welcomed me to the team. Was about 92cents then I recall.

C'mon winner you like betting both ways.

[ziggy415]

At times I'm in and at other times I'm out - follow the chart to get an idea

One thing though i'm not besotted with Heartland so can see the good, the bad and the ugly
me and you both....have decided to unload a few this week myself...cant read Rogers posts without getting a little twitchy :t_up:

[percy]

me and you both....have decided to unload a few this week myself...cant read Rogers posts without getting a little twitchy :t_up:

Hope that has cured the twitches.!!..lol.

[winner69]

Hey nextbigthing - whats the word on the street about Heartlands capital restructure - have the bonds idea been canned or something?

Surely they would announce it to the market if they had?

[winner69]

Hey nextbigthing, where the hell are you

Like to know one way or the other whether this bond issue is on or not - or even if the return of 'excess' capital is canned as well.

What's the word on your street

[nextbigthing]

Hey nextbigthing, where the hell are you

What's the word on your street

I'm in paradise Winner.

Word on the street is that good things take time, but are worth waiting for. Buy buy buy apparently. $1.60 by Christmas.

[SCOTTY]

me and you both....have decided to unload a few this week myself...cant read Rogers posts without getting a little twitchy :t_up:

Reading Rogers posts is a health hazard and causes high blood pressure. Stopped reading them and blood pressure dropped. A happy HBL holder. :)

[percy]

Reading Rogers posts is a health hazard and causes high blood pressure. Stopped reading them and blood pressure dropped. A happy HBL holder. :)

As always sage advice SCOTTY.lol.

[davflaws]

I found Roger's post very helpful in general terms, and I think I understand his position as:
There are self interested reasons for HBL managers and assessors to take a rosy view of the current situation.
Many of the properties securing the loans are worth less than they were when the loan was taken out and will be worth an awful lot less when/if the dairy industry gets less profitable. HBL's LVRs are inaccurate and optimistic.
This situation poses real risks to HBL profitability in the medium term and even more immediate risk to the SP as HBL is forced to take a more pessimistic provision for impairment and investors take fright.
Other people have different ideas - but how much difference will it make to the likely future profitability of HBL? Help please!

I have started to think about it but haven't got very far. Just for a first stab - there is $240M out. Some one will know how much HBL have put aside for impairment. Multiply by some number to account for biased assessment, bad LVRs, and the grief caused by a further deterioration in dairy, and then do DFCs or whatever you knowledgeable people do to calculate a shareprice.
What do you get? How can the calculation be improved?

[winner69]

Neither will I.....
Except I always trust people with "the owners' eye",more than the "hired help".
NB.Look at the "hired help" at AIR.You don't see that at Heartland.!!.They value their shares.
Why? Because they are confident in their own abilities.


Monetary rewards are not a substitute for intrinsic motivation.

[winner69]

I'm in paradise Winner.

Word on the street is that good things take time, but are worth waiting for. Buy buy buy apparently. $1.60 by Christmas.

Hope to be on the road to Paradise myself later in the week

I would pleased if the street talk is true and they have actually ycanned all this restructuring stuff - bond issue and return of 'excess' capital

[Jantar]

..... Just for a first stab - there is $240M out. Some one will know how much HBL have put aside for impairment. Multiply by some number to account for biased assessment, bad LVRs, and the grief caused by a further deterioration in dairy, and then do DFCs or whatever you knowledgeable people do to calculate a shareprice.
What do you get? How can the calculation be improved?


I posted the following back in July last year, and still stand by it.

"The dairy industry is not in trouble, just receiving reduced pay outs, and still within a statistical normal range. Loans are not to the industry, but to individual owners, each with their own set of circumstances.

Some dairy farmers converted their farms when pay-outs were well above average, and used this high projected income as a basis for their financial planning. Of these, some have converted farms in areas that are not suitable for dairying (like Central Otago or mid Canterbury) and these are the ones who will really struggle to make the conversion pay. But sharemilker Fred in Southland, who borrowed just to buy his stock, and is on a traditional farm which doesn't need pivot irrigators etc. is probably still keeping his head above water and will manage OK.

It is not as if ALL dairy will crash and default. So the banks could afford to let the less likely ones go under, sell the stock at meat prices, and still support those that are marginal or still successful."

The current dairy payout is almost exactly the average payout prior to the boom that started 7 years ago and ended 2 ywears ago. Everything is now back to normal. Those farmers who converted to dairy using traditional values are doing just fine. It is the ones who thought the rosy times were the new norm who are suffering, and I don't believe that is a large proportion of the industry at all.

[Beagle]

Hope to be on the road to Paradise myself later in the week

I would pleased if the street talk is true and they have actually ycanned all this restructuring stuff - bond issue and return of 'excess' capital

Yeap I have heard through certain channels they have deferred the Tier2 capital notes issue and planned return of capital. Amazing they don't have the courtesy to tell shareholders properly seeing as many have already factored this into the SP, (was worth a potential circa 5 cps) by my calculations. Wonder what else they're not telling shareholders about...

[percy]

Shareholders who read the "Looking forward" section of Heartland Bank's interim report remain fully informed.

[ziggy415]

Yeap I have heard through certain channels they have canned the Tier2 capital notes issue and planned return of capital. Amazing they don't have the courtesy to tell shareholders properly seeing as many have already factored this into the SP, (was worth a potential circa 5 cps) by my calculations. Wonder what else they're not telling shareholders about...

But Roger your not a shareholder.....they rang me last week lol:scared:

[Jantar]

Shareholders who read the "Looking forward" section of Heartland Bank's interim report remain fully informed.
"
Looking forward
Underlying asset growth is projected to continue during the second
half of the financial year across all areas, but particularly in consumer
and reverse mortgages.
Heartland believes that current market volatility is expected to give
rise to acquisition opportunities that it may wish to exploit as part
of its growth objective. In considering any acquisition, Heartland’s
criteria remain based on value accretion and access to innovation or a
compelling product or distribution capability.
The Board will continue to monitor its capital position during this
period and continues to support the position that, in the absence of a
more appropriate use, Heartland’s excess capital should be returned
to shareholders.
We continue to expect that NPAT for the year ended 30 June 2016 will
be in the range of $51.0m to $55.0m. This guidance range excludes the
impact of any capital management initiatives.
We are confident that Heartland is well placed to meet this guidance
and deliver on its growth strategy"

The return to shareholders was supposed to be in April. that time frame has been and gone so are we assume that HBL have found a more appropriate use for the tier 2 capital that it hasn't yet raised?

[percy]

"in the absence of a more appropriate use'.
I take it they are looking at appropriate use,ie acquisition/s.
Offcourse, they can not do anything until the MTF sportzone judgement has been made.
We eagerly await that judgement,and look forward to seeing what ANZ Bank do with UDC.
We live in interesting times.

[winner69]

"
[FONT=sans-serif]
The return to shareholders was supposed to be in April. that time frame has been and gone so are we assume that HBL have found a more appropriate use for the tier 2 capital that it hasn't yet raised?

Jantar - maybe, just maybe, they have thought that after a serious review of their dairy loans it would be prudent to shore up their capital base

[Jantar]

Jantar - maybe, just maybe, they have thought that after a serious review of their dairy loans it would be prudent to shore up their capital base
Quite possibly. In any event I am still holding and intend increasing later this year. :)

[Joshuatree]

Yove got investors and traders on here. I know which ones i would believe.

[winner69]

I found Roger's post very helpful in general terms, and I think I understand his position as:
There are self interested reasons for HBL managers and assessors to take a rosy view of the current situation.
Many of the properties securing the loans are worth less than they were when the loan was taken out and will be worth an awful lot less when/if the dairy industry gets less profitable. HBL's LVRs are inaccurate and optimistic.
This situation poses real risks to HBL profitability in the medium term and even more immediate risk to the SP as HBL is forced to take a more pessimistic provision for impairment and investors take fright.
Other people have different ideas - but how much difference will it make to the likely future profitability of HBL? Help please!

I have started to think about it but haven't got very far. Just for a first stab - there is $240M out. Some one will know how much HBL have put aside for impairment. Multiply by some number to account for biased assessment, bad LVRs, and the grief caused by a further deterioration in dairy, and then do DFCs or whatever you knowledgeable people do to calculate a shareprice.
What do you get? How can the calculation be improved?



No need to panic davflaws - dairy won't Heartland go broke.

If things do get really bad the impact will only be a drag on profits over several years - like reducing earnings growth from a healthy number to a much less modest one. That also becomes a bit of drag on the share price over time.

Will see little if any impact this financial year (read between the lines of Rogers post)

[Snoopy]

An update from the previous reporting period, FY2014.

The underlying debt of the company according to the HY2015 statement of financial position is:

$38.666m + $4.109m = $42.775m

To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:

$3,162.169m - ($2,722.443m +$25.831m + $209.544m) = $204.351m

We are then asked to remove the intangible assets from the equation as well:

$204.351m - $49.933m = $154.418m

Now we have the information needed to calculate the underlying company debt net of all their lending activities:

$42.775m/$154.418m= 27.7% < 90%

This compares unfavourably with the comparatuve half year period figure of 13.2%, but favourably with the 40.5% figure from FY2014 date (30th June 2014)

Result: PASS TEST


An update from last years equivalent reporting period, HY2015.

The underlying debt of the company according to the HY2016 statement of financial position is:

$43.377m + $1.095m = $44.472m

To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:

$3,344.498m - ($2,928.621m +$12.439m + $269.769m) = $133.669m

We are then asked to remove the intangible assets from the equation as well:

$133.669m - $54.314m = $79.355m

Now we have the information needed to calculate the underlying company debt net of all their lending activities:

$44.472m/$79.355m= 56.0% < 90%

This compares unfavourably with the comparatuve half year period figure of 27.7%, but favourably with the more recent 58.4% figure from FY2015 date (30th June 2015)

Result: PASS TEST

[Snoopy]

Updating for the half year result HY2015. The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs

EBIT (high estimate) = $128.252m-$33.523m= $94.729m

Interest expense is listed as $62.577m.

So (EBIT)/(Interest Expense)= ($94.729m)/($62.577m)= 1.51 > 1.20

Result: PASS TEST, an improvement from the HY2014 (1.42) position. And also an improvement on the position 6 months ago FY2014 (1.44)



Updating for the half year result HY2016. The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs

EBIT (high estimate) = $134.340m-$37.039m= $97.301m

Interest expense is listed as $62.868m.

So (EBIT)/(Interest Expense)= ($97.301m)/($62.869m)= 1.55 > 1.20

Result: PASS TEST, an improvement from the HY2015 (1.51) position. And also an improvement on the full year position as of 6 months ago FY2015 (1.52)

SNOOPY

[Snoopy]

Updating this number for the half year HY2015

Equity Ratio = (Total Equity)/(Total Assets)

Using numbers from the Heartland HYR2015

= $462.310m/$3162.169m = 14.6%

This is a decrease on the HY2014 position (15.3%). It is also a decrease on the FY2014 position of 6 months ago (15.0%)


Updating this number for the half year HY2016

Equity Ratio = (Total Equity)/(Total Assets)

Using numbers from the Heartland HYR2016

= $485.688m/$3,344.498m = 14.5%

This is a decrease on the HY2015 position (14.6%). But it is also an increase on the FY2015 position of 6 months ago (14.3%). An indication perhaps of a slightly more conservative funding bias, considering company equity supporting company loans?

SNOOPY

[Snoopy]

Once again there is no mention of Tier 1 or Tier 2 in the Heartland HY2015 report.

The 'best case' scenario is that all capital is Tier 1, which is almost certainly correct. $2,657.084m of loans are outstanding. 20% of that figure is:

0.2 x $2,657.084m = $531.4m

Heartland has total equity of $462.310m which is still below the 20% of loan target no matter what the tier classification of the loans.

Result: FAIL TEST

PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it is not too far away from the 17% which by implication is judged acceptable by management under the watchful eye of Reserve Bank chairman Graeme Wheeler. The reserve bank further qualifies their views that a company of Heartlands credit rating still has a 1 in 30 chance of going broke in any year. I prefer to think in business cycles and 30 years will contain around five of those. So you could restate the Reserve Bank's view as saying that HNZ has a one in five chance of going broke at the bottom of the business cycle. For me that investment risk is too high. So I am sticking to my 20% equity requirement, even if the Reserve Bank will settle for less.


Tier 1 or Tier 2 capital adequacy is noted under section 19A (Capital Ratios) in the Heartland HY2016 report.

$2,928.621m of loans are outstanding. 20% of that figure is:

0.2 x $2,928.621m = $585.7m

Heartland has total equity of $485.688m. But from note 19A, only $427.084m is Tier 1 capital. The difference is because intangible assets, deferred tax assets, hedging reserve effects and defined benefit superannuation fund assets on the books must be adjusted for.

On top of the Tier 1 assets, there is a subordinated bond of $1.455m

Nevertheless, however the total tier capital is added together, it is still below the "20% of loan" target no matter what the tier classification of capital buffering any potential problems with the loans.

Result: FAIL TEST

PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it is not too far away from the 17% which by implication is judged acceptable by management under the watchful eye of Reserve Bank chairman Graeme Wheeler.

Using current period Tier 1 capital and loan book figures:

$427.084m/$2,928.621m = 14.6%

So it seems Heartland's position has deteriorated significantly, compared to when it qualified as a bank.

The reserve bank further qualifies their views that a company of Heartlands credit rating still has a 1 in 30 chance of going broke in any year. I prefer to think in business cycles and 30 years will contain around five of those. So you could restate the Reserve Bank's view as saying that HNZ has a one in five chance of going broke at the bottom of the business cycle. For me that investment risk is too high. So I am sticking to my 20% equity requirement, even if the Reserve Bank will settle for less.

SNOOPY

[Snow Leopard]

...PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it is not too far away from the 17% which by implication is judged acceptable by management under the watchful eye of Reserve Bank chairman Graeme Wheeler. ...

Indulge me and explain the above please, I believe that I have no knowledge of this; though I do have jet-lag.

Best Wishes
Paper Tiger

[Snoopy]

In the table on page 4 the 'impaired asset expense' has increased to $5.1m (HY2015, ended 31st December 2014) up from from $3.3m in the corresponding prior period (HY2014) and $5.9m in the full year to 30th June 2014. By simple subtraction the bad debt expense for the period 1st January 2014 to 30th June 2014 ( 2HY2014 ) was $5.9m - $5.1m = $0.8m.


Under Note 4 of HY2016 the 'impaired asset expense' has increased to $5.610m (HY2016, ended 31st December 2015) up from from $5.102m in the corresponding prior period (HY2015). Bad debts for the full year to 30th June 2015 (FY2015) added to $12.105m. By simple subtraction the bad debt expense for the period 1st January 2015 to 30th June 2015 ( 2HY2015 ) was $12.105m - $5.102m = $7.003m.

This means that what we are seeing is 20% fall in bad debts declared over the six months to December 2015, compared to the immediately preceeding 6 month period.

SNOOPY

[trader_jackson]

http://www.stuff.co.nz/business/79920341/supreme-court-ruling-for-fees-on-loans-could-set-a-precedent-for-the-industry

Here we go...

[percy]

http://www.stuff.co.nz/business/79920341/supreme-court-ruling-for-fees-on-loans-could-set-a-precedent-for-the-industry

Here we go...

Thanks for posting the link.
MTF have to pay $25,000 plus,towards CCC costs.
The case only covered 39 loans from 2006,to 2008.
This will cost under $10,000 in total..
Case over,liability known.
Game on.?

[Snoopy]

PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it is not too far away from the 17% which by implication is judged acceptable by management under the watchful eye of Reserve Bank chairman Graeme Wheeler. ...


Indulge me and explain the above please, I believe that I have no knowledge of this; though I do have jet-lag.

Best Wishes
Paper Tiger

PT. This is from my post of 2772 dated 27-02-2014 titled:

"Heartland's Acceptable Operating Leverage Ratio"

------

We can work backwards and see from a 'reserve bank' pair of eyes (wheels?) to deduce what is considered an acceptable operating leverage ratio for the rest of the business (excluding reverse mortgages just purchased).

Apparently, just before the purchase of the reverse mortgages, Heartland had 'surplus' cash of $28.3m -

(Explanatory Note: Total Heartland cash contribution to this deal was $48.3m, made up of the $28.3m 'surplus cash' on the balance sheet at 31st December 2013 plus $20m yet to be raised from shareholders at the time the half yearly report was published.)

- on the balance sheet. If we look at the 31st December 2013 HY2014 balance sheet $178.5m in cash was there. So we can deduce that:

$178.5m - $28.3m = $150.2m

of cash is required , as part of a more comprehensive asset package, to fund all the rest of the Heartland business. Put another way, the 'total equity' (again from the balance sheet) needed to fund the rest of the Heartland business is:

$382.5m - $28.3m = $354.2m

The size of the loan book at balance date was $2,077.0m

So the equity to loan book ratio for the rest of the business, as judged acceptable under the watchful eye of Mr Wheeler, is:

$354.2m/$2,077m = 17.0%

-------

The background to those that have forgotten (I had!) goes like this.

Heartland's purchase of the Seniors reverse mortgage business was financed by the issue of new shares and borrowings. "In theory", Heartland could have purchased the business with:

a/ 100% new shares and no more borrowings OR
b/ 100% new borrowings and no new shares issued.

Instead Heartland management struck a balance between these two extremes.

Heartland issued 43m new shares worth around $NZ38.7m and used $NZ28.3m worth of cash to make up the Seniors purchase price of $NZ60m. This cash/share balance was a judgement call made by Heartland management under the watching brief of satisfying reserve bank capital reqiurements, [i]taking into account the much larger existing businesses already under the Heartland umbrella[i/] IOW Heartland management had to be cogniscent of the total business when the Seniors acquisition was made.

Thus the Seniors purchase gave shareholders a snapshot on management's judgement on the amount of capital needed to support the 'regular' Heartland business relative to the size of the loan book.

SNOOPY

[Subway]

Re: Dairy, I remember at debt briefing last year the CFO when asked about the dairy risk compared to car loans said something along the lines of "well we can always shoot the cows", got a decent chuckle out of the audience

[mouse]

I posted the following back in July last year, and still stand by it.

"The dairy industry is not in trouble, just receiving reduced pay outs, and still within a statistical normal range. Loans are not to the industry, but to individual owners, each with their own set of circumstances.

Some dairy farmers converted their farms when pay-outs were well above average, and used this high projected income as a basis for their financial planning. Of these, some have converted farms in areas that are not suitable for dairying (like Central Otago or mid Canterbury) and these are the ones who will really struggle to make the conversion pay. But sharemilker Fred in Southland, who borrowed just to buy his stock, and is on a traditional farm which doesn't need pivot irrigators etc. is probably still keeping his head above water and will manage OK.

It is not as if ALL dairy will crash and default. So the banks could afford to let the less likely ones go under, sell the stock at meat prices, and still support those that are marginal or still successful."

The current dairy payout is almost exactly the average payout prior to the boom that started 7 years ago and ended 2 ywears ago. Everything is now back to normal. Those farmers who converted to dairy using traditional values are doing just fine. It is the ones who thought the rosy times were the new norm who are suffering, and I don't believe that is a large proportion of the industry at all.

Thanks Jantar. I know very little about farming. But I am insured with Farmers Mutual, FMG. We, it is a Mutual, had a problem a couple of years ago with irrigators toppling over. Quite a number in Canterbury. Some of the centre spigot ones are a Kilometer long. There is now the question of 'what is a safe design length for irrigators?' It seems the American maximum design length is 400 metres. However, this design cannot be simply transferred to NZ. It would depend on local conditions here of maximum windage etc. It takes some time to move a centre spigot so it faces 'down wind.' So pivoting them round is normally not an option.
FMG and Lincoln College, University, are trying to get design guidelines for irrigators.
Now, to the punchline. FMG, I think, are still insuring irrigators. But at some point they will only insure 'complying' irrigators that conform to the new design requirements.
Come a big blow, a lot of the irrigators could fall over and not be insured, or not be adequately insured. This will impact on farming, FMG and Heartland. How much have we loaned on irrigators?
My view is Banks need plenty of actual shareholder capital so that if things go a bit wrong we still meet capital requirements.

[freddagg]

Re: Dairy, I remember at debt briefing last year the CFO when asked about the dairy risk compared to car loans said something along the lines of "well we can always shoot the cows", got a decent chuckle out of the audience

There were certainly a lot shot last Autumn and its probably happening again right now

[blockhead]

"Of these, some have converted farms in areas that are not suitable for dairying (like Central Otago or mid Canterbury) and these are the ones who will really struggle to make the conversion pay"............. (Jantar)

"Now, to the punchline. FMG, I think, are still insuring irrigators. But at some point they will only insure 'complying' irrigators that conform to the new design requirements...................................... .........(Mouse)
Come a big blow, a lot of the irrigators could fall over and not be insured, or not be adequately insured. This will impact on farming, FMG and Heartland."



A couple of comments attributed to Mouse and Jantar I would be happy to debate, Blockhead gets around a lot of Mid Canterbury dairy farms and sees what is going on, Jantars comment re Mid Canterbury farms being not suitable for dairying imho are completely wrong, some of the best farms I have seen are in this area, free draining soils, flat land, easy to irrigate, close to services, what else could you want ?

And Mouse I think you will find many (most) of the cockies with centre pivots now have plans for securing the irrigators when wind is coming, I see many concrete blocks either dug into the ground or able to be put in a line running away from the wind when wind is forecast, and forecasts are generally 2-3 days in advance so plenty of time to get the irrigator in the right place. I imagine Insurance Co's will insure them if they can show they have planned for the wind

[Snow Leopard]

PT. This is from my post of 2772 dated 27-02-2014 titled:

"Heartland's Acceptable Operating Leverage Ratio"

...

Thanks for that Snoopy.

We will have to disagree on the validity of the calculations you made and on the conclusions you drew.

Best Wishes
Paper Tiger

[Jantar]

... Blockhead gets around a lot of Mid Canterbury dairy farms and sees what is going on, Jantars comment re Mid Canterbury farms being not suitable for dairying imho are completely wrong, some of the best farms I have seen are in this area, free draining soils, flat land, easy to irrigate, close to services, what else could you want ?....
How about aquifers that are not drying up and so allowing for that "easy to irrigate" part? At the last 2 years Hydrological society conferences there have been a number of papers presented on Mid Canterbury irrigation and the over allocation of water. At last year's conference there was a presentation on an experiment to take flood water from the rivers and to attempt to recharge the aquifers.

[blockhead]

How about aquifers that are not drying up and so allowing for that "easy to irrigate" part? At the last 2 years Hydrological society conferences there have been a number of papers presented on Mid Canterbury irrigation and the over allocation of water. At last year's conference there was a presentation on an experiment to take flood water from the rivers and to attempt to recharge the aquifers.

Yes that is happening Jantar but perhaps the biggest proportion of Mid Canterbury water is coming from the Rangitata not the aquifiers (I don't know the proportion from one or the other) The Rangitata South irrigation scheme is already taking water based on the "flood" system you mention and is only just providing what is required, all the reservoirs have been empty more than once in this last season.

My point is, Mid Canterbury is a great dairying location.....with water !

[Beagle]

My read of the Supreme court's decision is that finance companies and banks are going to have to be extremely careful going forward that they can justify their loan application fees based on the cost of the process, not as a separate revenue stream. The supreme court has effectively said interest charges are where banks and finance companies should make their profits not loan application fees. I think we all know that with standardised loan application procedures and credit and employment checking processes the banks and finance companies have been doing very nicely thank you very much out of loan application fees in the past. Harmoney has had to modify there's recently, tip of the iceberg in terms of what's coming ? The Supreme court's decision is very much focused on protecting the consumer and forcing finance companies to make their profit out of the interest rate as opposed to currying the real cost of credit through expensive loan application fees and therefore enhances the transparency of the cost of the loan from the consumers viewpoint. Many consumers will cross shop to get the best interest rate.

Greater transparency in my opinion reduces the opportunity to make unusually high profits, especially from small loans. Is it a coincidence that the SP is down the day after the Supreme court's decision or are we in a slightly different credit environment now where profits on loans going forward could be slightly lower ?...you folks be the judge.

[percy]

The case was based on 39 MTF-Sportzone loans written between 2006 and 2008.
So the industry has watched this case with interest for a good number of years..
What has not been qualified is whether this is where MTF's liability ends,or will CCC chase them for other loans written during this period.
The judgement affects all lenders,whether they are banks or finance companies.Level playing fields for everyone.
I guess banks have had to adapt to changing regulations, since the first bank was formed in 1327.
689 years of change???

[Grunter]

My read of the Supreme court's decision is that finance companies and banks are going to have to be extremely careful going forward that they can justify their loan application fees based on the cost of the process, not as a separate revenue stream. The supreme court has effectively said interest charges are where banks and finance companies should make their profits not loan application fees. I think we all know that with standardised loan application procedures and credit and employment checking processes the banks and finance companies have been doing very nicely thank you very much out of loan application fees in the past. Harmoney has had to modify there's recently, tip of the iceberg in terms of what's coming ? The Supreme court's decision is very much focused on protecting the consumer and forcing finance companies to make their profit out of the interest rate as opposed to currying the real cost of credit through expensive loan application fees and therefore enhances the transparency of the cost of the loan from the consumers viewpoint. Many consumers will cross shop to get the best interest rate.

Greater transparency in my opinion reduces the opportunity to make unusually high profits, especially from small loans. Is it a coincidence that the SP is down the day after the Supreme court's decision or are we in a slightly different credit environment now where profits on loans going forward could be slightly lower ?...you folks be the judge.

I think it's more due to the environment signalling consumer interest rate decreases are becoming more likely - Kiwisaver announced a 3.99% mortgage, ASB 4.10% etc etc. This will further squeeze margins lenders earn.

[Snoopy]

Thanks for that Snoopy.

We will have to disagree on the validity of the calculations you made and on the conclusions you drew.

Best Wishes
Paper Tiger


PT, I have reviewed my calculation. The Seniors acquisition, early in CY2014, was the last time Heartland issued a serious number of new shares to fund an acquisition. So I think it is stilll the best guide we have to that window in management's mind as to what constitutes 'sufficient shareholder capital' for Heartland to keep on the books.

However, this Senior's transaction was before the 14th January 2015 easing in reserve bank capital requirements. From that date Heartland had their 'introductory' 12% of loan book requirement reduced to:

(a)the Total capital ratio of the banking group is not less than 8% (10.5% incl 2.5% buffer ratio);
(b)the Tier 1 capital ratio of the banking group is not less than 6% (8.5% incl 2.5% buffer ratio);
(c)the Common Equity Tier 1 capital ratio of the banking group is not less than 4.5% (7.0% incl 2.5% buffer ratio).

Prior to 14th January 2015, there was no separate 'buffer ratio' requirement for Heartland.

The most streched covenant that Heartland currently must comply with is (a). This means that Heartland have been given an extra 1.5% (12% - 10.5% = 1.5%) "wriggle room" to remain in compliance with their debt covenants. IOW while my calculation I believe was correct at the time it was done, I now need to revise it becasue I am using it as a forecasting tool for today. Specifically I need to take into account the lesser amount of capital that the reserve bank now dictates Heartland must hold.

SNOOPY

[Baa_Baa]

The folks on the Harmoney thread are grappling with a few issues, recently the fraud case and now an unexpected significant hike in fees. Worth a read. Not sure whether this is weighing on Heartland, it might be just small beer.

[Snow Leopard]

PT, I have reviewed my calculation. The Seniors acquisition, early in CY2014, was the last time Heartland issued a serious number of new shares to fund an acquisition. So I think it is stilll the best guide we have to that window in management's mind as to what constitutes 'sufficient shareholder capital' for Heartland to keep on the books.

However, this Senior's transaction was before the 14th January 2015 easing in reserve bank capital requirements. From that date Heartland had their 'introductory' 12% of loan book requirement reduced to:

(a)the Total capital ratio of the banking group is not less than 8% (10.5% incl 2.5% buffer ratio);
(b)the Tier 1 capital ratio of the banking group is not less than 6% (8.5% incl 2.5% buffer ratio);
(c)the Common Equity Tier 1 capital ratio of the banking group is not less than 4.5% (7.0% incl 2.5% buffer ratio).

Prior to 14th January 2015, there was no separate 'buffer ratio' requirement for Heartland.

The most streched covenant that Heartland currently must comply with is (a). This means that Heartland have been given an extra 1.5% (12% - 10.5% = 1.5%) "wriggle room" to remain in compliance with their debt covenants. IOW while my calculation I believe was correct at the time it was done, I now need to revise it becasue I am using it as a forecasting tool for today. Specifically I need to take into account the lesser amount of capital that the reserve bank now dictates Heartland must hold.

SNOOPY

Surely the answer to the question what "window in management's mind as to what constitutes 'sufficient shareholder capital'" is answered simply by reading the capital adequacy section from the disclosure statements?

Or am I missing the point here?

Best Wishes
Paper Tiger

PS With regard to the Post Title: See this video clip (https://www.youtube.com/watch?v=8g_GeQR8fJo) from the original "The Italian Job" movie, which I watched last night.

[Snow Leopard]

ANZ Half Year Disclosure Statement (https://nzx.com/files/attachments/235509.pdf) is out and on page 15 their current Capital Adequacy Ratios are down to:

12.8% for the group (appears to be the one that matters) and
11.8% for the bank.


Best Wishes
Paper Tiger

[777]

This is the Heartland thread - keep it on topic

Bit harsh. Comparisons are justified.

[Snoopy]

Surely the answer to the question what "window in management's mind as to what constitutes 'sufficient shareholder capital'" is answered simply by reading the capital adequacy section from the disclosure statements?

Or am I missing the point here?


What you are telling me is part of the picture PT. But no bank would be foolish enough to run their actual loan to equity ratio as low as the minimum reserve bank requirements. Otherwise a customer like young Percy could go into Heartland to withdraw $100 to buy a bunch of flowers for his good wife. But he would be kept waiting until Joe Driver from the coin arcade, puts in the morning coin take to make the balancing $100 deposit required to avoid tipping Heartland into administration!

The question is, what level of buffer over and above the reserve bank requirements do management regard as acceptable? To answer that you would have to

1/ Do a 'scenario analysis' based on less likely withdrawal and deposit scenarios.
2/ Look at the asset loan base and assess the prospect of what quantum of loans going bad is required to degrade company equity to unacceptable levels.

Shareholders are not in possession of enough information to answer those questions. But bank management are. So I say the best way to look out for what equity to loan ratio is 'acceptable' is to look at what Heartland's chief bank manager does in practice. And the window of buying Seniors was one opportunity to do just that.

Now going back to the raw data we have from that transaction:

-----

'Total equity' (from the balance sheet) needed to fund the rest of the Heartland business is:
$382.5m - $28.3m = $354.2m

The size of the loan book at balance date was $2,077.0m

So the equity to loan book ratio for the rest of the business, as judged acceptable under the watchful eye of Mr Wheeler, was:

$354.2m/$2,077m = 17.0%

------

However, that transaction was under the old equity to loan book rules (12% ratio required). The current limiting factor is a 10.5% requirement.

So the lesser 'management acceptable' equity required to manage the same sized loan book today would be:

$354.2 x ( 10.5/12 ) = $309.9m

and the adjusted 'management acceptable' equity to loan portfolio value ratio is now:

$309.9m / $2,077m = 14.9%

Note: This figure includes an extra margin of 14.9 -10.5 = 4.4 percenatge points above the minimum reserve bank guidelines.

SNOOPY

[Snoopy]

The adjusted 'management acceptable' equity to loan portfolio value ratio is now:

$309.9m / $2,077m = 14.9%

Note: This figure includes an extra margin of 14.9 -10.5 = 4.4 percenatge points above the minimum reserve bank guidelines.


Refer to the interim report of FY2016 for the latest audited Heartland information. Time has rolled on and the total loan portfolio at the latest balance date (31-12-2015) was: $2,928.621m (Interim Statement of Financial Position)

Home equity release loans, which apparently have separate capital requirements total $422.706m (note 18c).

So the loan portfolio, less home equity release loans, was:

$2,928.621m - $422.706m = $2,505.915m

Balance date shareholder equity was: $485.688m
(Explanation: I know that assessable Tier capital is reduced to $428.539m as outlined in note 19a. But this is a recent report disclosure. So I need to use the 'slightly incorrect' earlier quoted higher number to maintain compatability with my previous calculation).

So firstly, I can calculate the 'equity' to support the Reverse Mortgage Business as:

0.114 x $422.706m = $48.188m

And that measn the equity left to support the rest of the business is:

$485.688m - $48.188m = $437.5m

So the equity to loan book ratio, with the reverse mortgage business taken out of the equation, at balance date was:

$437.5m / $2,505.915m = 17.4%

Now let's imagine for a moment that Heartland only had share capital of $373.4m

$373.4m / $2,505.915m = 14.9% (the same value that mangement were comfortable with before).

By this measure then, Heartland currently has:

$437.5m - $373.4m = $64.1m of 'surplus capital' on the books.

The total of individually impaired and restructured assets still on the books amount to just over $30m (note 6). So if the impairment people have done their job correctly, you would have to conclude that Heartland, relative to their position of a year ago, is getting stronger in terms of balance sheet strength. And in absolute terms, if you take management's past judgement as 'reasonable', they are now in 'more than reasonable' shape.

SNOOPY

[percy]

So HBL have $64.1mil of "surplus capital" on the books.
I am not surprised,as they said they had "surplus capital."
Yet all the Australian Banks have been raising capital.
Big difference,