ANZ.NZX - Anyone holding?

[mani99]

Hi all,

New member here (and recent arrival to these shores).. and I wanted to know if anyone else here has any holdings in ANZ? I bought in a couple of weeks ago and am since already down 8%... but I cannot figure out why the price has been dropping. There hasn't been any news that I have seen or any particular reason for the price to decline.

Any opinions would be appreciated.

Thanks.

[Mista_Trix]

Take a look at the charts, you've got some pretty strong patterns in there from the last couple of years.
You might need to average down to catch up to where you bought in at.

Why a bank? Just interested :)

[mani99]

I've never been too keen on averaging down.. a habit built many years ago, but I might be tempted in this case.

No particular reason for a bank, I just looked at the fundamentals of the company and decided it would be a good (first) investment on the NZX. Nothing has changed so I could be tempted to put some more money in, but in the past I have always been strict on cutting losses and usually sell if the price drops by 15%... I could be selling these sooner than I wanted!

[macduffy]

Several reasons here:

All the Aussie banks are a bit weaker than they were a couple of months ago. The usual reasons - SP's getting a bit rich; Aussie economy looking weaker; worries about an overheated property market; tougher capital adequacy rules may cause banks to cut/restrain divs to conserve capital, etc There's always a reason for some commentators to warn that the banks "good times" are coming to an end!

There was a strong uptrend in the period prior to ANZ going ex div. 91cps.

Disc: I've been accumulating the Aussie banks for over 25 years. Have an average cost for ANZ of around $5. Not selling at this stage.

[winner69]

Several reasons here:

All the Aussie banks are a bit weaker than they were a couple of months ago. The usual reasons - SP's getting a bit rich; Aussie economy looking weaker; worries about an overheated property market; tougher capital adequacy rules may cause banks to cut/restrain divs to conserve capital, etc There's always a reason for some commentators to warn that the banks "good times" are coming to an end!

There was a strong uptrend in the period prior to ANZ going ex div. 91cps.

Disc: I've been accumulating the Aussie banks for over 25 years. Have an average cost for ANZ of around $5. Not selling at this stage.

Good story Mcduffy ....testament to the theory it's better to own the bank than put you money in it


Like you I've had ANZ for years, since last century. I don't even count them in my share portfolio, rather as just a long term deposit.

The strong NZD hasn't helped mani over the last month or so either.

[born2invest]

already down 8%... but I cannot figure out why the price has been dropping

It's called volatility.

It happens occasionally with shares you know?

[mani99]

Thanks all... I think I may just stick with these for a while.

One other thing, can anyone recommend the best place to get company financial details? At the moment I'm using Yahoo and ASB Securities. In the UK I used a broker which provided extensive information, winners/losers of the day, most traded stocks etc etc.

Cheers.

[blueswan]

I have been trading the Banks as well but ASX ones and the sector has gone up by almost 30% from June of this year and there will be lot of nervous hands that will take profit at this high levels. Even MQG Macquarie which is not part of the big four has gone up quite a bit. Both WBC and CBA are over 100B Market Cap a few days ago and even ANZ was about to join 100B club. Now only CBA is over 100B. Investors are waiting for some fundamentals to prop up this market for the next stage.

[hanth888]

Yip, but bought in at around $25 a couple of years ago and haven't bought any since. I'm pretty keen on their Asia strategy. I was recently in Singapore and Vietnam and their presence there (well, ATM presence at least) was surprising.

You can always compare it to their performance on the ASX - http://nz.finance.yahoo.com/echarts?s=ANZ.AX#symbol=anz.ax;range=1m;compare=;i ndicator=volume;charttype=area;crosshair=on;ohlcva lues=0;logscale=off;source=undefined;

NZ listing seems to have gone down more relative to the ASX listing. But then the AUD cross has weakened significantly in the last week or two (circa 5%) so this could be priced into the NZ listing (i.e. you are holding assets based in Australia priced in NZ Dollars, when Aussie Dollar weakens your holding is worth less).

[Casino]

Hi all,

New member here (and recent arrival to these shores).. and I wanted to know if anyone else here has any holdings in ANZ? I bought in a couple of weeks ago and am since already down 8%... but I cannot figure out why the price has been dropping. There hasn't been any news that I have seen or any particular reason for the price to decline.

Any opinions would be appreciated.

Thanks.


www.interest.co.nz/rural-news/67853/commerce-commission-suing-anz-asb-and-westpac-misrepresenting-interest-rate-swap-co

[gv1]

Also aussie will be bringing capital requirements for banks... their decision might come out end of the week.

[janner]

Why did you buy in the first place Manni99 ??

Genuine question ..

[Snoopy]

I have been looking at the operating performance of ANZ in the New Zealand marketplace. It makes an interesting yardstick with that local bank Heartland.

The problem with comparisons is that banks to not report their performance in an identical way. My particular measuring stick of choice at the moment is 'Operating Margin'. This is 'Operating Profit' divided by assets under management. I regard 'Operating Profit' as the same as Earnings Before Interest and Tax (EBIT).

If you turn to page 156 of AR2013, the 'Segment Result Before Tax' (EBT) for NZ operations is listed at $A1,219m. ( I will work in $A for the NZ operation because this is the currency used in in the Annual Report.) To get EBIT I have to add back an allowance for the core underlying bank debt.

Total interest expense is shown in note 4 as $15,869m. But this includes interest payable to depositors. The underlying interest bill is only $4,789m.

Where the allocation of corporate interest between segments is not specified, I prefer to allocate this in proportion to divisional revenue. Again using the information on page 156, New Zealand revenue is:

$2,208m / $18,446m = 12% of the total.

12% of $4,789m comes out to $574m

Adding this to the NZ segment result gives me my EBIT figure.

$1,219m + $579m = $1,793m

Total NZ 'external assets' are listed on p156 as $85,229m.

So the 'operating margin' based on assets in loans is:

$1,793m / $85,229m = 2.104%

I note that this is the operating margin, looking at the NZ business in its entireity.

SNOOPY

[Snoopy]

I have been looking at the operating performance of ANZ in the New Zealand marketplace. It makes an interesting yardstick with that local bank Heartland.









My EBIT figure.

$1,219m + $579m = $1,793m

Total NZ 'external assets' are listed on p156 as $85,229m.

So the 'operating margin' based on assets in loans is:

$1,793m / $85,229m = 2.104%

I note that this is the operating margin, looking at the NZ business in its entirety.


For operating segment purposes, Heartland operates in four sectors:

1/ Retail & Consumer
2/ Business
3/ Rural
4/ Non core property

ANZ have more categories in their breakdown of business units. I cannot say whether the ANZ categories, listed in AR2013 p127 dovetail neatly into the rather broader Heartland headings. But my best guess as to how they might be aligned is below:

1/ Retail & Consumer includes 'Personal Lending'

2/ Business includes 'Business Services', ''Electricity Gas and Water supply', 'Entertainment Leisure and Tourism', 'Financial Investment and Insurance', 'Government & Official Institutions', 'Manufacturing', 'Retail Trade', 'Transport and Storage', 'Wholesale Trade' 'Other' and 'Financial Investment and Insurance'.

3/ Rural includes 'Agriculture forestry fishing and mining'

4/ Non core property includes 'Construction' and 'Property Services'

So how do the relative numbers stack up? Stay tuned.

SNOOPY

[Snow Leopard]

Snoopy: If you want to analyse the NZ part of ANZ why not work from the Disclosure Statements available at http://anz.co.nz/about-us/media-centre/investor-information/

If you are going to burrow into any other NZ banks they should have public DS as well.

Best Wishes
Paper Tiger

[macduffy]

An interesting exercise, Snoopy, but not particularly helpful if your object is to compare the investment merits of the two banks. Whether you buy ANZ on the NZX or the ASX you're buying ANZ Group, the NZ business of which forms a minor - and decreasing - portion of revenue and profits. On the other hand, comparisons of the respective NZ businesses may offer some helpful insights into HNZ's prospects, providing that it's possible to take reasonable regard for the different business segments, sizes etc.

Cheers

[percy]

I am reminded of a friend of mine who used Macquaries research.Every three or four months they had a "new" "our preferred"
bank.!! My friend's advisor told him to take no notice as the one he held {ANZ] would be "our preferred" bank again some time soon.
ANZ is offcourse looking to Asia to drive growth.All four Australian banks have proved to be excellent investments.Although HNZ's model is a lot different , it will be interesting to see whether they can grow
[from a small base] as well as, or out preform the Aussie banks.
Update.My new advisor at Craig's rates ANZ as his preferred Australian bank.[at present]lol.

[Schrodinger]

I find these useful. KPMG has pulled the NZ components for you already..

http://www.kpmg.com/NZ/en/IssuesAndInsights/ArticlesPublications/FIPS-quarterly/Documents/KPMG-FIPS-Quarterly-June-2013.pdf

[blueswan]

I still hold ANZ,WBC and NAB but on the ASX Options. Im still long and I still believe we are just on a corrective phase right now and these big four are jockeying for position in the Aussie mortgage market since their real estate prices are picking up as well and RBA might not be thinking of raising rates as of yet. But aside from these big 4 banks dont forget MQG Macquarie since they might also surprise us with a strong boost in Share Price.

[Snoopy]

An interesting exercise, Snoopy, but not particularly helpful if your object is to compare the investment merits of the two banks. Whether you buy ANZ on the NZX or the ASX you're buying ANZ Group, the NZ business of which forms a minor - and decreasing - portion of revenue and profits.


Macduffy, you are quite right to point out that looking at the investment performance of ANZ in NZ is not that useful from an ANZ investor perspective. I do know this but didn't state it explicitly which I probably should have done.

You aren't right about ANZ NZ being a decreasing area of profits for the whole group though. In FY2013,the profit (NPAT) contributed from NZ was $A881m out of a total profit of $6,272m. That represents 14% of total profits (AR2013 p156). Do the same exercise for FY2012 and the $A642m in profit from the $5,661m total represents only 11% of total profits. Looking into 2014 I can see the buoyant NZ economy,the rollover of the integration of the National bank and the rise in the $NZ/$A exchange rate providing a further big boost in earnings in $A terms. So contrary to what you suggest, NZ is actually the fastest growing profit (and revenue) region within the ANZ group and is getting more and more significant overall.



On the other hand, comparisons of the respective NZ businesses may offer some helpful insights into HNZ's prospects, providing that it's possible to take reasonable regard for the different business segments, sizes etc.


As you surmise this is the real reason for looking at the NZ section of ANZ in particular. But your point on making sure the sector by sector comparisons are valid is very relevant.

SNOOPY

[Snoopy]

Snoopy: If you want to analyse the NZ part of ANZ why not work from the Disclosure Statements available at http://anz.co.nz/about-us/media-centre/investor-information/

If you are going to burrow into any other NZ banks they should have public DS as well.


Thanks for this reference PT. I see that ANZ divide their business segments into retail, commercial, wealth and institutional. Not strictly comparable with the likes of Heartland,but I will look into it further.

I have also found this profit announcement from UDC

https://www.udc.co.nz/comm/about_us/media_article/article/17669/0/0/udc-finance-lifts-profit.html?type=borrowing

That announcement is rather superficial. UDC is a wholly owned subsidiary of ANZ bank and is probably a better comparative stick to measure the likes of Dorchester and Heartland against. But I haven't found a segmented UDC results disclosure in detail yet

SNOOPY

[Snoopy]

For operating segment purposes, Heartland operates in four sectors:

1/ Retail & Consumer
2/ Business
3/ Rural
4/ Non core property

ANZ have more categories in their breakdown of business units. I cannot say whether the ANZ categories, listed in AR2013 p127 dovetail neatly into the rather broader Heartland headings. But my best guess as to how they might be aligned is below:

1/ Retail & Consumer includes 'Personal Lending'

2/ Business includes 'Business Services', ''Electricity Gas and Water supply', 'Entertainment Leisure and Tourism', 'Financial Investment and Insurance', 'Government & Official Institutions', 'Manufacturing', 'Retail Trade', 'Transport and Storage', 'Wholesale Trade' 'Other' and 'Financial Investment and Insurance'.

3/ Rural includes 'Agriculture forestry fishing and mining'

4/ Non core property includes 'Construction' and 'Property Services'

So how do the relative numbers stack up? Stay tuned.


The question I want to address here is whether the ANZ group in New Zealand is an at all appropriate measuring stick for Heartland. With my categorization as described above,I get the following concentration of credit risk for ANZ New Zealand.

1/ Retail & Consumer: $A63,347m (53.0%)
2/ Business: $A37,973m (31.8%)
3/ Rural: $A18,105m (15.1%)

That adds to 100% and I have deliberately left out the separate 'property' category which comparator Heartland describes as non-core.

The comparative figures from the Heartland Annual Report for FY2013 are:

1/ Retail & Consumer: $NZ988m (49.5%)
2/ Business: $NZ549m (27.5%)
3/ Rural: $NZ457m (22.9%)

I would judge that a good match for an 'apple with apple' comparison,or at least a 'Granny Smith' to 'Braeburn' comparison.

SNOOPY

[Snoopy]

The question I want to address here is whether the ANZ group in New Zealand is an at all appropriate measuring stick for Heartland. With my categorization as described above,I get the following concentration of credit risk for ANZ New Zealand.

1/ Retail & Consumer: $A63,347m (53.0%)
2/ Business: $A37,973m (31.8%)
3/ Rural: $A18,105m (15.1%)

That adds to 100% and I have deliberately left out the separate 'property' category which comparator Heartland describes as non-core.

The comparative figures from the Heartland Annual Report for FY2013 are:

1/ Retail & Consumer: $NZ988m (49.5%)
2/ Business: $NZ549m (27.5%)
3/ Rural: $NZ457m (22.9%)

I would judge that a good match for an 'apple with apple' comparison,or at least a 'Granny Smith' to 'Braeburn' comparison.


To extend the comparison, I have been looking at the New Zealand Business of WBC. p202 of AR2013 contains the relevant sector breakdown. Once again I have made 'best guess' assumptions to align the different business categories listed with those listed by Heartland.

1/ Retail & Consumer: $A24,463m (46.0%)
2/ Business: $A22,030m (41.4%)
3/ Rural: $A6,661m (12.5%)

This is a rather different picture to the other two, with a lot more in the 'business' category and a lot less in 'rural'. So should we expect difference in profitability to go along with this? Stay tuned.

SNOOPY

[Snoopy]

To extend the comparison, I have been looking at the New Zealand Business of WBC. p202 of AR2013 contains the relevant sector breakdown. Once again I have made 'best guess' assumptions to align the different business categories listed with those listed by Heartland.

1/ Retail & Consumer: $A24,463m (46.0%)
2/ Business: $A22,030m (41.4%)
3/ Rural: $A6,661m (12.5%)

This is a rather different picture to the other two, with a lot more in the 'business' category and a lot less in 'rural'. So should we expect difference in profitability to go along with this? Stay tuned.


On p251 of the annual report, NZ profit is listed at $A879m. You need to add back the one off impairment charge of $A97m to get a more representative figure of $A976m.

p145 has a detailed summary of interest expenses. I add up those not due to depositors (at call and term rates) , certificates of deposit and 'debt issues' to sum to $A3,381m.

Apportioning this underlying business debt across geographic sectors from (p257) and the amount of interest allocated to the New Zealand business can be deduced as follows:

(3,885/38,783)*$A3,381m = $A338.7m

We need to add this back into the after tax 'segment profit' to get EBIT:

EBIT= $A976m + $A339m = $A$A1,315m

Total Assets are listed as on p251 as $61,469m.

So the operating margin based on end of year assets (*) is:

$A1,315m/$A61,469m = 2.14%

That compares very closely with the ANZ New Zealand figure of 2.10%, despite the difference in business mix.

SNOOPY

(*) In an twist in phrasing, ANZ uses the phrase 'external assets' (p156 ANZ report), whereas WBC uses the term more generic 'assets'. However cross reference with the ANZ balance sheet reveals that 'external assets' seem to include 'all assets'. I remained confused as to why ANZ called these 'external assets' in the segmented result section of the report. It does make more sense to me to calculate operating efficiency on an underlying loan book basis. Nevertheless the two numbers as calculated are comparable.

[Snoopy]

Snoopy: If you want to analyse the NZ part of ANZ why not work from the Disclosure Statements available at http://anz.co.nz/about-us/media-centre/investor-information/


Page 1 of this document lists the NZ applicable credit ratings for the NZ arm of ANZ bank.

Rating Agency,Current Credit Rating, Qualification

Standard & Poor’s, AA-, Outlook Stable
Moody’s Investors Service, Aa3, Outlook Stable
Fitch Ratings, AA-, Outlook Stable

From note 28 of this document the ANZ capital ratio, in accordance with Basel 3 requirements (fully effective 1st January 2014 in New Zealand) as at 30th September 2013 are as follows:



ANZ.NZ Banking Group(Reserve bank minimum requirement)


Common Equity Tier 1 capital:10.4%(4.5%)


Total Tier 1 capital:10.8%(6.0%)


Total capital:12.4%(8.0%)



This means at 30-09-2013 there was a total capital buffer of 4.4%.

Now for comparison purposes we can look at the Heartland bank figures on exactly the same date, from the three month figures released to the stock exchange on 27-11-2013

The figures in brackets are the minimum requirements that must be kept as a condition of bank registration.



Heartland Bank(Reserve bank minimum requirement)


Common Equity Tier 1 Capital:14.45%(10.0%)


Total Tier 1 Capital:14.45%(10.0%)


Total Capital:14.45%(12.0%)



This means at 30-09-2013 there was a total capital buffer at Heartland of 2.45%

This is evidence that in the event of a downturn there is a far lesser chance that ANZ shareholders will have to dip into their pockets than Heartland shareholders.

SNOOPY

[Snoopy]

My particular measuring stick of choice at the moment is 'Operating Margin'. This is 'Operating Profit' divided by assets under management. I regard 'Operating Profit' as the same as Earnings Before Interest and Tax (EBIT).

If you turn to page 156 of AR2013, the 'Segment Result Before Tax' (EBT) for NZ operations is listed at $A1,219m. ( I will work in $A for the NZ operation because this is the currency used in in the Annual Report.) To get EBIT I have to add back an allowance for the core underlying bank debt.

Total interest expense is shown in note 4 as $15,869m. But this includes interest payable to depositors. The underlying interest bill is only $4,789m.

Where the allocation of corporate interest between segments is not specified, I prefer to allocate this in proportion to divisional revenue. Again using the information on page 156, New Zealand revenue is:

$2,208m / $18,446m = 12% of the total.

12% of $4,789m comes out to $574m

Adding this to the NZ segment result gives me my EBIT figure.

$1,219m + $579m = $1,793m

Total NZ 'external assets' are listed on p156 as $85,229m.

So the 'operating margin' based on assets in loans is:

$1,793m / $85,229m = 2.104%

I note that this is the operating margin, looking at the NZ business in its entirety.


Thanks to Belgarian for pointing me in the right place to uncover the equivalent figures for UDC. UDC is ANZ's wholly owned finance subsidiary and probably a better measuring stick for some of those other NZ listed finance companies.

https://www.udc.co.nz/pdf/UDC_Prospectus.pdf

The 'profit before tax' is listed as $59.664m (p35). But this includes a provision for credit impairment of $7.123m which I would remove to get the picture of ongoing operational performance. So I get EBT of $66.787m.

Now go to note 4 (p43) on interest expense. There is underlying interest over and above what is due to debenture holders of $16.623m.

So total underlying EBIT = $66.787m + $16.623m = $83.07m

Now turn to page 45 (note 8) and you will see total loans and advances of: $2,065.117m

So the operating margin based on the end of year loan balance book is:

$83.07/$2065.11 = 4.02%

That is almost twice the margin of the underlying ANZ bank in NZ, which is not what I was expecting. I will have to consider.

1/ whether I have made a mistake.
2/ what all this means for the likes of the potential of Heartland.

SNOOPY

[macduffy]

Hi Snoopy.

Why wouldn't you expect that a finance company would have a higher operating margin than a retail bank? In relatively favourable economic conditions? After all, the finance company is lending to the higher risk end of the market - at higher interest rates. Certainly, their cost of funds is likely to be higher but its noticeable these days that UDC's debenture rates are very similar to ANZ's deposit rates for the same term. I don't know about relative overheads but UDC doesn't support an extensive branch network with the costs involved there.

My instinct would be that the finance arm would have the better operating margin. Until the next recession!

[macduffy]

Hi Snoopy.

Why wouldn't you expect that a finance company would have a higher operating margin than a retail bank? In relatively favourable economic conditions? After all, the finance company is lending to the higher risk end of the market - at higher interest rates. Certainly, their cost of funds is likely to be higher but its noticeable these days that UDC's debenture rates are very similar to ANZ's deposit rates for the same term. I don't know about relative overheads but UDC doesn't support an extensive branch network with the costs involved there.

My instinct would be that the finance arm would have the better operating margin. Until the next recession!

Apologies for the duplication!

[percy]

Macduffy;
I think your post was worth duplication.!

[percy]

Thanks to Belgarian for pointing me in the right place to uncover the equivalent figures for UDC. UDC is ANZ's wholly owned finance subsidiary and probably a better measuring stick for some of those other NZ listed finance companies.

https://www.udc.co.nz/pdf/UDC_Prospectus.pdf

The 'profit before tax' is listed as $59.664m (p35). But this includes a provision for credit impairment of $7.123m which I would remove to get the picture of ongoing operational performance. So I get EBT of $66.787m.

Now go to note 4 (p43) on interest expense. There is underlying interest over and above what is due to debenture holders of $16.623m.

So total underlying EBIT = $66.787m + $16.623m = $83.07m

Now turn to page 45 (note 8) and you will see total loans and advances of: $2,065.117m

So the operating margin based on the end of year loan balance book is:

$83.07/$2065.11 = 4.02%

That is almost twice the margin of the underlying ANZ bank in NZ, which is not what I was expecting. I will have to consider.

1/ whether I have made a mistake.
2/ what all this means for the likes of the potential of Heartland.

SNOOPY

The penny finally dropping.!!
Taken a long time.!!

[Snoopy]

The 'profit before tax' is listed as $59.664m (p35). But this includes a provision for credit impairment of $7.123m which I would remove to get the picture of ongoing operational performance. So I get EBT of $66.787m.

Now go to note 4 (p43) on interest expense. There is underlying interest over and above what is due to debenture holders of $16.623m.

So total underlying EBIT = $66.787m + $16.623m = $83.07m

Now turn to page 45 (note 8) and you will see total loans and advances of: $2,065.117m

So the operating margin based on the end of year loan balance book is:

$83.07/$2065.11 = 4.02%

That is almost twice the margin of the underlying ANZ bank in NZ, which is not what I was expecting. I will have to consider.

1/ whether I have made a mistake.
2/ what all this means for the likes of the potential of Heartland.


The above is from the December 2013 prospectus. From that document the figures are also supplied for the previous year (FY2012) for comparative purposes. So time to crunch those numbers too.

The 'profit before tax' is listed as $52.445m (p35). But this includes a provision for credit impairment of $6.031m which I would remove to get the picture of ongoing operational performance. So I get EBT of $58.476m.

Now go to note 4 (p43) on interest expense. There is underlying interest over and above what is due to debenture holders of $19.529m.

So total underlying EBIT = $58.476m + $19.529m = $78.01m

Now turn to page 45 (note 8) and you will see total loans and advances of: $2,014.473m

So the operating margin based on the end of year loan balance book is:

$78.01/$2014.47 = 3.87%

No quite as good as FY2013, but not bad.

SNOOPY

[Snoopy]

Hi Snoopy.

Why wouldn't you expect that a finance company would have a higher operating margin than a retail bank? In relatively favourable economic conditions? After all, the finance company is lending to the higher risk end of the market - at higher interest rates. Certainly, their cost of funds is likely to be higher but its noticeable these days that UDC's debenture rates are very similar to ANZ's deposit rates for the same term. I don't know about relative overheads but UDC doesn't support an extensive branch network with the costs involved there.

My instinct would be that the finance arm would have the better operating margin. Until the next recession!

Yes I agree that in a favourable environment, it is probably in line with expectations for a finance company to be earning a better return on assets than a bank.

Your point about the the relative overheads is an important one. Heartland in FY2013 had selling and administration expenses of $70.347m (Heartland FY2013 report, note 9). UDC had total operating expenses of $30.887m (UDC prospectus note4). That is a difference of $39.46m. The two are comparable in that they have a similarly sized loan book. If we add this figure onto the UDC cost structure, what would that do to the UDC operating margin on assets?

FY2013: ($83.07-$39.46)/$2065.11 = 2.11%

That is almost exactly the figure for the parent ANZ New Zealand and Westpac New Zealand! So looks like your hunch was right Macduffy. Add on the costs of operating a branch network and the operating margin on assets is right back in the ballpark that Heartland have set for FY2014.

SNOOPY

[macduffy]

Hi Snoopy/

Do your calculations factor in any transfer-priced amount that UDC pays to ANZ for services rendered via the latter's branch network?

[Snoopy]

Hi Snoopy/

Do your calculations factor in any transfer-priced amount that UDC pays to ANZ for services rendered via the latter's branch network?

Macduffy, note 4 (expenses) on the UDC prospectus has an item as follows:

'Fees paid to related parties' $9.715m

This is further explained as 'Fees paid to ANZ NZ for information technology, property and other services all of which are charged on an arms length basis'.

When I imposed by 'virtual branch structure' on UDC this would be expected to include the above. So by doing that and leaving the $9.715m fees to related parties in the accounts I have effectively charged for those services twice. So yes, a very good point you have brought up. I should return the double charging of those fees to the bottom line, and I can do so as follows:

FY2013: ($83.07-$39.46+$9.72)/$2065.11 = 2.58%

That is a bit more encouraging 'operating margin on end of year assets' as a target for Heartland to aim at. I do need to add a disclaimer here. ANZ wholly own UDC. So they have total control as to what costs are passed through to their subsidiary. If UDC were to fully split from ANZ, to become a real equivalent of Heartland, they would almost certainly incur extra costs for a new independent board, sharemarket listing fees and all the associated costs of being a small(er) business. So 2.58% as a return on the end of year loan book as measured by assets is very likely a stretch target for the likes of Heartland.

SNOOPY

[Snoopy]

Snoopy, "operating" or "operating & one-off expensed developing cost"? Will it the same 70.3m next year?


OK we are talking Heartland bank now? The selling and administrative expenses" of $70.347m as summarized in note 9 of the HNZ FY2013 annual report include a $7.7m RECL termination fee. This is unlikely to be repeated. So you might conclude that Heartland selling and administration fees might reduce to:

$70.347m - $7.7m = $62.647m, plus an allowance for inflation of course.

SNOOPY

[Snoopy]

Today's homework from the UDC prospectus. I am trying to get a feel for the 'normal' level of business over the business cycle. All the information in the last 2013 prospectus relates to the post GFC era. But perhaps in today's financial environment that

The profit before provision for income tax and impairment is given on page 33 of the prospectus, as part of a five year summary. Likewise the corresponding loans and advances, part of the assets of the balance sheet

FY2009: $34.024m/ $1,829.156m= 1.86%
FY2010: $45.012m/ $1,968.771m= 2.29%
FY2011: $46.382m/ $1,948.522m= 2.38%
FY2012: $58.476m/ $2,014.473m= 2.90%
FY2013: $66.787m/ $2,065.117m= 3.23%

By contrast the equivalent figures for Heartland are as follows:

FY2012: $29.337m/ $2,078,276m= 1.41%
FY2013: $36.540m/ $2,010,376m= 1.82%

SNOOPY

[Snoopy]

Today's homework from the UDC prospectus. I am trying to get a feel for the 'normal' level of business over the business cycle. All the information in the last 2013 prospectus relates to the post GFC era. But perhaps in today's financial environment that

The profit before provision for income tax and impairment is given on page 33 of the prospectus, as part of a five year summary. Likewise the corresponding loans and advances, part of the assets of the balance sheet

FY2009: $34.024m/ $1,829.156m= 1.86%
FY2010: $45.012m/ $1,968.771m= 2.29%
FY2011: $46.382m/ $1,948.522m= 2.38%
FY2012: $58.476m/ $2,014.473m= 2.90%
FY2013: $66.787m/ $2,065.117m= 3.23%

By contrast the equivalent figures for Heartland are as follows:

FY2012: $29.337m/ $2,078,276m= 1.41%
FY2013: $36.540m/ $2,010,376m= 1.82%


The above are raw figures as found in the respective annual report or prospectus. We do know that Heartland has branch structure to service, whereas UDC piggybacks on the ANZ network. That means the above numbers are not strictly an apples with apples comparison.

We can adjust for this by adjusting the effects of an equivalent virtual ANZ imposed cost structure onto the equivalent Heartland profit. 'Fees paid to related parties', under explanatory note 4 'Expenses' represents fees paid to ANZ bank New Zealand for services supplied under an arms length basis [ $9.715m(2013) and $9.709m(2012) from p43 UDC prospectus 2013]. These have to be subtracted from operating expense difference to avoid double charging for the same services.

IMO a comparison between UDC and HNZ is fair because they have very close to the same size loan book. Thus I assume they have very similar 'inherent costs' in their operating structure.
The difference in selling and administration expenses (from Heartland AR2013 p21, and UDC prospectus 2013 p35), between the two entities is therefore:

FY2012: $65.567m - ($30.950m - $9.709m) = $44.326m
FY2013: $70.437m - ($30.877m - $9.715m ) = $49.275m

So removing this equivalent 'branch cost structure' from the Heartland result gives

FY2012: ($29.337m+$44.326m)/ $2,078,276m= 3.54%
FY2013: ($36.540m+$49.275m)/ $2,010,376m= 4.27%

By this measure, Heartland is already outperforming UDC on an underlying business basis

SNOOPY

[Snoopy]

Today I want to focus on the actual bad debt write offs in relation to the size of the loan book at the end of the year. Section 10 in the UDC 2013 prospectus is named "Provision for Credit Impairment on Loans and Advances". Bad debts actually written off were:

FY2013: $12.399m
FY2012: $10.164m

I note in both instances these exceed the 'provision for loan impairment' stated on page 33, the 'Summary Financial Statement', which were $7.123m (FY2013) and $6.031m (FY2012). I am reading between the lines when I say the actual write offs probably reflect the worse times immediately following the GFC. With a more benign business environment going forwards we might expect future write offs to be smaller, trending towards the current year write off figure.

Putting these actual write offs as a percentage of the end of year loan book gives them better context.

FY2013: $12.399m/$2,065.117m = 0.600%
FY2012: $10.164m/$2,014.473m = 0.505%

For comparative purposes, it is informative to look 'over the fence' to Heartland Bank. Note 10 details impaired asset expense as follows:

FY2013: $22.527m
FY2012: $5.642m

Normalize these against the total finance receivables

FY2013: $22.527m/ $2010.4m = 1.12%
FY2012: $5.642m/ $2078.3m = 0.271%

We know that last year was a particularly bad one for Heartland, regarding bad debts. Taken on a two year average performance though, the amount written off at UDC and Heartland was similar.

SNOOPY

[Snoopy]

Note 17d (page 53 UDC 2013 prospectus) lists the internal risk grading of the loan assets on a scale of 1 to 9. On this scale 1 is the lowest risk while 9 means a default. The grade 6 and below categories for EOY2013 add up as follows:

$1,157.111m + $83.790m + $24.814m = $1,265.765m.

These represents a fraction of the total loans outstanding as follows:

$1,265.765m / $2,198.653m = 57.6% of total loan assets.

Some impairment ($37.46m) has already been taken onto the book over the years. This impairment of $37.46m represents

$37.46m / $1,265,765m = 2.96% of the Grade 6 (monitor) and below grade assets.

For comparative purposes it is interesting to see what happens when we take the same statistics for Heartland bank. The situation is not strictly comparable because Heartland has a different credit risk system for so called 'Behavioral Loans'. Behavioral loans consist of consumer and retail receivables usually relating to the financing of a single asset.

OTOH 'Judgement Loans' are graded on the 1-9 system. A 'Judgement loan' within Heartland consists mainly of business and rural lending, including non-core property, where an ongoing and detailed working relationship has been developed.

The grade 6 and below categories of 'Judgement Loans' for Heartland EOY2013 add up as follows:

$198.370mm + $18.034m + $21.518m + $27.761m = $265.683m.

These represents a fraction of the total loans outstanding as follows:

$265.683m / $1,068.531m = 24.9% of total Judgement loan assets.

Some impairment ($15.96m) has already been taken onto the book over the years. This impairment of $15.96m represents

$15.96m / $265.683m = 6.00% of the Grade 6 (monitor) and below grade assets.

SNOOPY

[Snoopy]

Heartland are not so generous with their breakdown of sector business. So I will use the Heartland business categories, p36 Heartland AR2013 for comparison purposes. The UDC figures come from the 2013 prospectus Note 17c, page 53.



HNZUDC


Agriculture Forestry & Fishing: $529.507m (22.3%) $374.264m (17.3%)


Mining: $19.044m (0.8%) $5.224m (0.2%)


Manufacturing: $79.915m (3.4%) $108.477m (5.0%)


Finance & Insurance: $348.166m (14.7%) $100.994m (4.7%)


Retail & Wholesale Trade: $232.776m (9.8%) $247.856m (11.5%)


Households: $629.854m (26.5%) $443.089m (20.5%)


Property & Business Services $320.198m (13.5%) $113.745m (5.3%)


Transport & Storage: $25.267m (1.1%) $387.356m (17.9%)


Other Services: $189.028m (8.0%) $380.188m (17.6%)



Total for Heartland $2,373m (100%) , with the collectively impaired assets yet to be adjusted for.

Total for UDC $2,161m (100%), with credit impairment already adjusted for.

I am really surprised at the big difference between the two in 'Finance & Insurance'. However UDC has a category 'Construction' ($282.407m) which I grouped as 'other'. If this were included in 'finance & insurance' then the finance and insurance categories would be much more comparable, with UDC now having the higher percentage of funds in that area.

Despite HNZ seemingly lightening their 'household' business, it is still substantially bigger than UDC on a percentage basis (not unexpected).

The property and business services is also substantially greater at HNZ, although I presume this includes the non core property business that HNZ is exiting.

Very different is transport and storage. UDC has nearly 18% of its business in this category verses only 1% for Heartland.

SNOOPY

[blueswan]

I just got this rec for ANZ on my email from Oz and it reads
"Currency
TheNew Zealand division of the Australia and New Zealand Banking Group Limited(ANZ) accounted for 14% of the group’s profit in FY13, required 11% of thegroup’s capital at 30/9/13 and produced an average return on NTA (RoNTA) of 23%compared to a company average of 19%. So an increase in the NZ$ relative to theA$ is good for RoNTA, good for profits and good for the absolute amount ofcapital that the company has."

[Snoopy]

I just got this rec for ANZ on my email from Oz and it reads
"Currency
TheNew Zealand division of the Australia and New Zealand Banking Group Limited(ANZ) accounted for 14% of the group’s profit in FY13, required 11% of thegroup’s capital at 30/9/13 and produced an average return on NTA (RoNTA) of 23%compared to a company average of 19%. So an increase in the NZ$ relative to theA$ is good for RoNTA, good for profits and good for the absolute amount ofcapital that the company has."



Thanks for the update Blueswan.

Unfortunately that only applies if you live in Australia. In $NZ terms the value of the Australian profits are going down. So we can expect the NZX quoted value of ANZ shares to go down as a result of the appreciation of the NZ currency verses the OZ dollar.

SNOOPY

[Snoopy]

What is the difference between a bank and a finance company? The quick answer is, those that hold banking licences are banks. But this is not a very useful answer. I want to know how the underlying loan book differs. This is a question that is impossible to answer, because different finance companies have different areas of business expertise.

But what would happen if you were a bank (ANZ) that bought outright a finance company (UDC) as far back as 1980? That would be enough time to reorganize things. You could steer your bank style business towards "ANZ New Zealand", and steer the 'finance style business' towards "UDC". After 33 years, how does the respective break down over the business sectors look for both?

SNOOPY

[Snoopy]

What is the difference between a bank and a finance company? The quick answer is, those that hold banking licences are banks. But this is not a very useful answer. I want to know how the underlying loan book differs. This is a question that is impossible to answer, because different finance companies have different areas of business expertise.

But what would happen if you were a bank (ANZ) that bought outright a finance company (UDC) as far back as 1980? That would be enough time to reorganize things. You could steer your bank style business towards ANZ New Zealand, and steer the 'finance style business' towards UDC. After 33 years, how does the respective break down over the business sectors look?



From the ANZ New Zealand statement to the reserve bank on 30th September 2013, page 46, the loan book break down is like this:



ANZ (New Zealand) Loan Book FY2013


Agriculture$18,842m


Forestry, fishing and mining $1,850m


Business and property services$11,334m


Construction$1,748m


Entertainment, leisure and tourism$1,389m


Finance and insurance$18,412m


Government and local authority$9,910m


Manufacturing$5,051m


Personal lending$63,492m


Retail trade $2,859m


Transport and storage$2,147m


Wholesale trade$2,704m


Other$4,577m


Total$144,315m



UDC is a wholly owned subsidiary of ANZ New Zealand. So what we need to do is subtract out the UDC figures from those listed above. Then we can compare the loan book make up of 'Underlying ANZ New Zealand' with UDC.

SNOOPY

[Snoopy]

From the ANZ New Zealand statement to the reserve bank on 30th September 2013, page 46, the loan book break down is like this:


Agriculture $18,842m
Forestry, fishing and mining $1,850m
Business and property services $11,334m
Construction $1,748m
Entertainment, leisure and tourism $1,389
Finance and insurance $18,412m
Government and local authority $9,910m
Manufacturing $5,051m
Personal lending $63,492m
Retail trade $2,859m
Transport and storage $2,147m
Wholesale trade $2,704m
Other $4,577m

Total $144,315m

UDC is a wholly owned subsidiary of ANZ New Zealand. So what we need to do is subtract out the UDC figures from those listed above. Then we can compare the loan book make up of 'Underlying ANZ New Zealand' with UDC.


UDC and ANZ New Zealand have the same balance date. So it is legitimate to work out the distribution of loans on their respective books using 30th September end of year data. First I need to slightly rearrange the above categories so that they correspond to those listed in the December 2013 UDC prospectus. Then I need to subtract the UDC equivalent figures (page 53, December 2013 prospectus) to get the underlying ANZ bank figure.



All ANZ.NZUDCUnderlying ANZ.NZ


Agriculture forestry, fishing and mining:$20,674m- $379m = $20,295m


Business and property services:$11,334m-$114m= $11,220m


Construction:$1,748m- $282m= $1,466m


Entertainment, leisure and tourism:$1,389m-$19m= $1,370m


Finance and insurance:$18,412m- $101m= $18,311m


Government and local authority:$9,910m-$4m= $9,906m


Manufacturing:$5,051m- $108m= $4,943m


Personal & Other lending:$68,069m-($5.7m +$8.1m+$14m+$33m+$13m+$443m)= $67,552m


Retail and Wholesale: $5,563m-$248m= $5,315m


Transport and storage:$2,147m-$387m=$1,760m


Total:$144,315m - $2,161m = $142,514m

[Snoopy]

UDC and ANZ New Zealand have the same balance date. So it is legitimate to work out the distribution of loans on their respective books using 30th September end of year data. First I need to slightly rearrange the above categories so that they correspond to those listed in the December 2013 UDC prospectus. Then I need to subtract the UDC equivalent figures (page 53, December 2013 prospectus) to get the underlying ANZ bank figure.

Agriculture forestry, fishing and mining: $20,674m - $379m = $20,295m
Business and property services: $11,334m -$114m = $11,220m
Construction: $1,748m - $282m = $1,466m
Entertainment, leisure and tourism: $1,389m -$19m = $1,370m
Finance and insurance: $18,412m - $101m = $18,311m
Government and local authority: $9,910m -$4m= $9,906m
Manufacturing: $5,051m - $108m = $4,943m
Personal & Other lending: $68,069m -($5.7m +$8.1m+$14m+$33m+$13m+$443m)= $67,552m
Retail and Wholesale: $5,563m - $248m = $5,315m
Transport and storage: $2,147m -$387m =$1,760m

Total $144,315m - $2,161m = $142,514m

Rather than put too many figures in one table, the percentage of loan assets in the allocated asset categories are as follows:



UDCANZ


Agriculture forestry, fishing and mining:17.5%14.2%


Business and property services:5.3%7.9%


Construction:13.0%1.0%


Entertainment, leisure and tourism:0.9%1.0%


Finance and insurance:4.7%12.8%


Government and local authority:0.2%7.0%


Manufacturing:5.0%3.5%


Personal & Other lending:23.9%47.4%


Retail and Wholesale: 11.5%3.7%


Transport and storage:17.9%1.2%



Not all divergences are significant You can see the big divergences here. My observations on the above figures are listed below:

1/ UDC has over ten times their underlying loan book in construction, compared with underlying ANZ. Construction financing would be classed as higher risk lending.

2/ ANZ has three times the UDC finance and insurance quota. I believe the ANZ figure includes superannuation and kiwisaver funds which would explain that difference.

3/ The UDC relative share of the local government market is miniscule. That makes sense. Most local bodies have good credit ratings: why borrow at higher rates from a finance company when a bank will lend you those same funds at a lower rate?

4/ ANZ has double the percentage of loans under management in the personal category. Makes sense as UDC doesn't do house mortgages!

5/ Retail and wholesale much higher with UDC. I would guess that reflects the relative risk of small retail and wholesale businesses.

6/ Transport and Storage at UDC much higher. Possibly this reflects the greater funding of cars and trucks?

SNOOPY

[macduffy]

Hi Snoopy

Those relative percentages are pretty much as we would expect. As you note, finance companies aren't into house loans but are big financiers at the property development end of town - or at least were when that was a big thing! They also do a big business in financing the transport and logging industries, earth moving, farm machinery etc. Their personal loans cater to a generally lower security sector so we wouldn't expect them to compete directly with the banks.

What the figures don't tell us so clearly is the quality of the respective loan portfolios but of course a fair idea of this can be gleaned from write offs and provisioning from year to year.

[Snoopy]

Those relative percentages are pretty much as we would expect. As you note, finance companies aren't into house loans but are big financiers at the property development end of town - or at least were when that was a big thing! They also do a big business in financing the transport and logging industries, earth moving, farm machinery etc. Their personal loans cater to a generally lower security sector so we wouldn't expect them to compete directly with the banks.

What the figures don't tell us so clearly is the quality of the respective loan portfolios but of course a fair idea of this can be gleaned from write offs and provisioning from year to year.


Frankly I am surprised how high the provision for loan impairment is at UDC (page 33 UDC 2013 prospectus). Granted it has been reducing since the depths of the GFC.

From note 8, with reference to the whole EOFY2013 loan book:

$37.460m / ($2,241.110m+$37.460m+$131.094m+$7.439m) = 1.55% of gross value loans on issue

The figures for ANZ New Zealand, suitably disentangled from UDC are (using note 13: 'Net Loans and Advances' based on ANZ New Zealand's September 30th update to the Reserve Bank)

($826m-$37m)/ ($91,543m -$2,103m) = 0.88%

Compare that to Heartland (HNZ AR2013 p39)

$50.491m/ $2,060.867m = 2.45% of gross value of loans on issue.

Of course we all know that UDC isn't a 'real' finance company, even to the extent that they don't have to keep the Reserve Bank updated on their financial position. As long as the parent ANZ New Zealand (who have full control of the UDC purse strings) keeps their own disclosure up to date, the UDC are off the radar as far as the Reserve Bank of NZ is concerned. In practice UDC are simply a 'marketing arm' of the ANZ.

SNOOPY

[Snoopy]

Frankly I am surprised how high the provision for loan impairment is at UDC (page 33 UDC 2013 prospectus).


On page 40 of the ANZ NZ September 30th Reserve Bank disclosure, there is a table listing the class of loans (0-9) , along with their probability of default. '9' is default, so the probability for a grade 9 loan defaulting is 100%. However of more interest is the other grades of loan and their probability of default.



For retail mortgages:


Grades 0-3: 0.2%


Grades 4: 0.46%


Grade 5: 0.93%


Grade 6: 2.11%


Grade 7,8: 5.4%





For other retail:


Grades 0-2: 0.1%


Grades 3-4:0.29%


Grade 5:1.12%


Grade 6: 2.67%


Grade 7,8: 11.25%



Allowing for the fact that the grading groupings do not quite match up grades 0-6 are surprisingly similar. It is the loans in category 7 and 8 that are twice as likely to default in finance companies, given that in general finance companies have very low (or no) exposure to retail mortgages.


SNOOPY

[Snoopy]

On page 40 of the ANZ NZ September 30th Reserve Bank disclosure, there is a table listing the class of loans (0-9) , along with their probability of default. '9' is default, so the probability for a grade 9 loan defaulting is 100%. However of more interest is the other grades of loan and their probability of default.

For retail mortgages:

Grades 0-3: 0.2%
Grades 4: 0.46%
Grade 5: 0.93%
Grade 6: 2.11%
Grade 7,8: 5.4%

For other retail:

Grades 0-2: 0.1%
Grades 3-4: 0.29%
Grade 5: 1.12%
Grade 6: 2.67%
Grade 7,8: 11.25%

Allowing for the fact that the grading groupings do not quite match up grades 0-6 are surprisingly similar. It is the loans in category 7 and 8 that are twice as likely to default in finance companies, given that in general finance companies have very low (or no) exposure to retail mortgages.


The ANZ.NZ grading system is from 0 to 9, where '9' is defined as 'default'. The ANZ statement of position to RBNZ (30th September 2013) lists net loans and advances to be $90,489m. Bizarrely when you go to the IRB exposures by customer credit rating, the total credit risk exposure jumps to $125,679m. Something to do with 'off balance sheet credit exposure' I think. Maybe those 'grade 9' exposures are included as part of this figure? Anyone know?

Total impaired assets from note 15 amount to $894m. That is hardly material when total loan assets on the books are $90,489m.

The whole point of this observation is that at a pinch you can ignore the impaired assets in the ANZ.NZ report to the RBNZ. You can't do that when you are considering a bank like Heartland.

SNOOPY

[Snoopy]

Total impaired assets from note 15 amount to $894m. That is hardly material when total loan assets on the books are $90,489m.


Today I want to look at the ANZ New Zealand banking covenants for September 30th 2013 quarter (corresponding to the EOFY). ANZ New Zealand includes their wholly owned subsidiary UDC finance.

Once again the document I am referencing is the:

"ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2013, Number 71 issued November 2013"

Page 36, note 28 contains the information on capital adequacy.

The information supplied is as follows:

Common Equity Tier 1 ratio: 10.4% (vs RBNZ minimum of 4.5%)
Total Tier 1 ratio: 10.8% (vs RBNZ minimum of 6.0%)
Total Tier 1 & 2 ratio: 12.4% (vs RBNZ minimum of 8.0%)

Page 37 contains detailed notes on just how the ANZ NZ capital is made up. If you use that information and use it to calculate the above ratios, based on a loan book with net loans and advances of $90,489m (from the balance sheet) I calculate the above ratios as follows (total net loans and advances of broken down under Note 13 'Net Loans & Advances'):

Common Equity Tier 1 ratio: $7,523m/$90,489m = 8.3%
Total Tier 1 ratio: $7,823m/$90,489m = 8.6%
Total Tier 1 & 2 ratio: $8,957m/$90,489m = 9.9%

Those figures are a little different to those on the preceding page! So why the difference?

SNOOPY

PS Tabulated version of above results



30/09/2013 (risk adj)30/09/2013 (book value)RBNZ Required


Common Equity Tier 1 Ratio10.48.34.5


Total Tier 1 Ratio10.88.68.6


Total Tier 1&2 Ratio12.49.98.0

[Snoopy]

Those figures are a little different to those on the preceding page! So why the difference?


The figures that I have calculated are based on an end of year snapshot as at 30th September 2013. One day in the life of a bank is not always typical. I believe it is likely that the banks figures are based on a weighted average calculation over the reporting period.

I believe that the same banking rules apply for that three month period as applied to the previous period ending 30th September 2013.

Yet using the
"Pillar 3 Basel 3 Disclosure Quarter Ended 31st December 2013 APS 330 Public Disclosure"
as reported to the NZX

ratios have changed significantly:

Level 2 Common Equity Tier 1 ratio: 8.5% (Sept 30th) vs 7.9% (Dec 31st)
Level 2 Total Tier 1 ratio: 10.4% (Sept 30th) vs 9.6% (Dec 31st)
Level 2 Total Tier 1 & 2 ratio: 12.2% (Sept 30th) vs 11.2% (Dec 31st)

I note with annoyance that the September 30th figures have been slightly revised (not sure why). But the volatility between the September quarter and December quarter is still noticeable using like with like figures supplied. The December quarter is showing the bank's capital is a little more stretched

SNOOPY

[macduffy]

Hi Snoopy

The parent company paid its final dividend in December which would have depleted accumulated profits (capital) to some degree. Has there also been a "contributory" payment from the NZ arm to the parent in this quarter?

As an aside, but an important one, the market liked today's update from ANZ! Bodes well for tomorrow's CBA profit announcement.

[Snow Leopard]

...Those figures are a little different to those on the preceding page! So why the difference?

SNOOPY

So go back to your copy of "ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2013, Number 71 issued November 2013"

Then go back to Page 36 where Note 28 starts and then Read All of Note 28 (pages 36 to 43 inc).
If the term 'Risk Weighted' confuses you (I thought we had been through this a long time ago) then go read up about it (but not from wikipedia please!).

Best Wishes
Paper Tiger

[Snow Leopard]

The figures that I have calculated are based on an end of year snapshot as at 30th September 2013. One day in the life of a bank is not always typical. I believe it is likely that the banks figures are based on a weighted average calculation over the reporting period.

See previous reply: you are barking up the wrong tree.



I believe that the same banking rules apply for that three month period as applied to the previous period ending 30th September 2013. \

Score 1 point for being correct.



Yet using the
"Pillar 3 Basel 3 Disclosure Quarter Ended 31st December 2013 APS 330 Public Disclosure"
as reported to the NZX

ratios have changed significantly:

Level 2 Common Equity Tier 1 ratio: 8.5% (Sept 30th) vs 7.9% (Dec 31st)
Level 2 Total Tier 1 ratio: 10.4% (Sept 30th) vs 9.6% (Dec 31st)
Level 2 Total Tier 1 & 2 ratio: 12.2% (Sept 30th) vs 11.2% (Dec 31st)


If you read all the report you may gain an understanding of why the ratios have changed.



I note with annoyance that the September 30th figures have been slightly revised (not sure why). But the volatility between the September quarter and December quarter is still noticeable using like with like figures supplied. The December quarter is showing the bank's capital is a little more stretched

SNOOPY

I am not sure that you are aware that what you now referring to are the figures for the ANZ Bank in Australia. These are not figures for ANZ NZ.

Best Wishes
Paper Tiger

[BlackCross]

Interesting article from Lex in today's FT:

February 12, 2014 2:24 am


Australian banks: teacher’s pets


The big four are still straight-A students in market’s eyes
To listen to Commonwealth Bank of Australia present results is to recall what banking everywhere sounded like a decade ago: house prices rise, loan books grow, shame about low interest rates but still, management’s focus on productivity is helping deliver record profits and dividends. Bonuses are barely mentioned, bad loans are low and core capital is enviously strong. CBA embodies what regulators want banks to be. But whoever had the most fun hanging out with the teacher’s pet?


Australia’s four big banks – CBA, Westpac, ANZ and National Australia Bank – are all straight-A students in the market’s eyes. None trades below 1.8 times book value and CBA is top of the class at a whopping 2.7 times – a level more associated in Asia-Pacific with Indonesia’s fast-growing sector. Return on equity across the four has averaged about 15 per cent in recent years. The driver of this is Australian homes: three-fifths of CBA’s loan book is in Aussie mortgages. Even ANZ, the one of the four with ambitions to expand across Asia, has two-fifths of its loan book in houses back home. Predictions of a bubble about to burst have so far come to naught: house prices were rising at 9.3 per cent annually at the end of 2013, a rate that has caused twitches at the Reserve Bank of Australia, but no more as yet. For now growth is supporting lower loss provisions, which were never that high to begin with.


Even if the housing market doesn’t sour the question is this: where are future profits to come from? Rising interest rates (the RBA ended its easing bias last month) would improve net interest margins but weaken loan growth. Straight-A credit quality has nowhere to go but down, while productivity gains can only do so much – and operating costs are already near global banking lows. Suggestions are emerging. Last month there was speculation (yet again) that ANZ might scale up its Asian ambitions and bid for Standard Chartered. This month it was talk that National Australia Bank could spin off its UK operations. Teachers’ pets rarely make rash moves, but as crisis memories fade around the world, the pressure to do something just a little more exciting will grow.

http://www.ft.com/cms/s/3/d75bc222-9388-11e3-b07c-00144feab7de.html#axzz2t23WlYrz

[Snoopy]

Hi Snoopy

The parent company paid its final dividend in December which would have depleted accumulated profits (capital) to some degree. Has there also been a "contributory" payment from the NZ arm to the parent in this quarter?


'ANZ NZ' is a fully owned subsidiary of 'ANZ Australia' which is the entity we can all buy on the sharemarket. That means any contributory payment from ANZ NZ to ANZ Australia would be one subsidiary paying another. IOW it probably wouldn't even register in the published ANZ Annual Report to shareholders.

However your question is interesting in that it goes to the heart of whether ANZ NZ is really a New Zealand bank, or just a branch of ANZ Australia ripe for manipulation.

Inspection of page 7 of the ANZ NZ declared "30th September Results" shows a proceeds of sales of loans to the NZ Branch (I presume from the parent in Australia) of $3,114m over the past year. Add this to the $3,781m change in NZ "deposits and other borrowings" (more cash in) and I get $6,895m. That is fairly close to the negative $7,071m offsetting cashflow entry of changes in loans and advances. I imagine the tie in of those totals is no co-incidence.

If anything on my simple analysis of the cashflow statement of the NZ operations, it looks like cash has net come across the ditch to New Zealand from Australia. But I find these bank financials notoriously difficult to pick apart and I may have missed something.

SNOOPY

EDIT: Thinking about it again, if the cash is coming into ANZ NZ, and so the loans must have been sold to ANZ Australia, then the ANZ NZ branch has exchanged the ultimate ownership of new loans for cash. This is good because it means they now have more cash to loan out on their growing loan book. But it is also bad because it means that the ultimate ownership of those loans has passed to the parent in Australia. I guess it now follows that more NZ customer interest payments will now head offshore to Australia.

[macduffy]

Yes, it's all too convoluted for me, Snoopy!

But I would think that if ANZ NZ's loan book is growing, which it is, then its capital will have to grow commensurately - the RBNZ will see to that. I'm not sure where you see the scope for manipulation of the NZ subsidiary by the Australian parent? Other than in some subtle tweaking of transfer payments for administrative and other services provided by the parent -and that's more a tax matter for the IRD.

[Snow Leopard]

Australia and New Zealand Banking Group Ltd (Australian registered) "OZ Bank"

owns

ANZ Funds Pty Limited (Australian Registered)

owns (except for 0.23% which is owned by a different bit of ANZ)

ANZ Holdings (New Zealand) Limited (New Zealand registered)

owns

ANZ Bank New Zealand Limited (New Zealand registered) "NZ Bank"

owns

UDC Finance Limited (New Zealand registered) and more?

Transactions between NZ Bank and related parties are detailed in Note 25, the major one being the $3,144M sale of mortgages to other New Zealand bits of the empire (and then from there to where?)

Additionally there is a flow of dividends from NZ Bank to it shareholder ANZ Holdings (New Zealand) Limited (and then from there to where?)

All pretty straight forward really.

Best Wishes
Paper Tiger

Disc: Have no shares in ANZ but bank with OZ Bank and NZ Bank and use cash machines of other bits of the ANZ pyramid.

[Snoopy]

So go back to your copy of "ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2013, Number 71 issued November 2013"

Then go back to Page 36 where Note 28 starts and then Read All of Note 28 (pages 36 to 43 inc).
If the term 'Risk Weighted' confuses you (I thought we had been through this a long time ago) then go read up about it (but not from wikipedia please!).



AH, IC. ANZ have 'risk weighted' some of the assets on the loan book, according to the accepted IRB approach for evaluating capital adequacy. The numbers that I calculated were on the book value of the assets, and that doesn't include the IRB adjustments for assets values.

The exposure rated LGD (Loss Given Default) on page 39 represents the amount of capital that the IRB considers will be lost should that class of loan go into default. This risk adjustment must be done because the risk on the different classes of loan (Corporate, Sovereign, Bank, Retail Mortgages and Other Retail) is not equal.

It should follow then, that IF the value of the loans at risk is less than that declared on the balance sheet, THEN an IRB risk calculation based on adjusted capital should show the balance sheet is less stretched than just using the raw asset values

Reprise of my calculations:

Common Equity Tier 1 ratio: $7,523m/$90,489m = 8.3%
Total Tier 1 ratio: $7,823m/$90,489m = 8.6%
Total Tier 1 & 2 ratio: $8,957m/$90,489m = 9.9%

Reprise of report published figures (using IRB assumptions)

Common Equity Tier 1 ratio: 10.4%
Total Tier 1 ratio: 10.8%
Total Tier 1 & 2 ratio: 12.4%

And so it proves to be.....

SNOOPY

[winner69]

Snoopy ....biggest issue with any analysis of financial institutions is no one knows whats off balance sheet

[Snoopy]

Snoopy wrote:

-------

Ratios have changed significantly:

Level 2 Common Equity Tier 1 ratio: 8.5% (Sept 30th) vs 7.9% (Dec 31st)
Level 2 Total Tier 1 ratio: 10.4% (Sept 30th) vs 9.6% (Dec 31st)
Level 2 Total Tier 1 & 2 ratio: 12.2% (Sept 30th) vs 11.2% (Dec 31st)

I note with annoyance that the September 30th figures have been slightly revised (not sure why). But the volatility between the September quarter and December quarter is still noticeable using like with like figures supplied. The December quarter is showing the bank's capital is a little more stretched

-------

I am not sure that you are aware that what you now referring to are the figures for the ANZ Bank in Australia. These are not figures for ANZ NZ.


Ah yes thanks for correcting that PT. Must make a mental note to myself that just because I have retrieved figures from the NZX website for ANZ bank, that doesn't mean those figures apply to ANZ in NZ!

However, that doesn't invalidate my point because the figures I have quoted are like with like. The quarterly variation in asset cover can be significant across the seasons. One might expect the December quarter to carry less cover because:

1/ Farmers will be maxed out on their borrowings while the cashflow from the farmed product has yet to hit their bank statements.
2/ Retailers will be maxed out on their borrowings because the cashflow from the Christmas season has not yet come on stream.

I wonder if the same might also apply to Heartland? IOW the December half year might actually be a 'worst case' as far as the books of Heartland bank are concerned?

SNOOPY

[robbo24]

Hi all,

New member here (and recent arrival to these shores).. and I wanted to know if anyone else here has any holdings in ANZ? I bought in a couple of weeks ago and am since already down 8%... but I cannot figure out why the price has been dropping. There hasn't been any news that I have seen or any particular reason for the price to decline.

Any opinions would be appreciated.

Thanks.

How you feeling now champ?

[blueswan]

ANZ ASX just reported higher Cash Profits up by 11%. And it is the typical sell on news after a good profit report. Next week NAB and WBC reports and most likely a sell off will occur after the announcement .ANZ just made 3.5B 1H profir and looks like another bumper year for Australian Banks.

[Schrodinger]

Love all that hard earned NZ money flying out of the country to bolster the Aus economy. Keep it up folks.

[macduffy]

Well, if you can't beat 'em, think about buying a few.

The Aussie banks, held over the years have proven to be the best of my income stocks, despite offering little by way of dividend imputation for NZ taxpayers. Steadily increasing dividends along with strong capital gains. Not all that money flies over to the Aussie economy!

[blueswan]

Wow, always sell on news when tey announce bumper profits. I bought some ANZ today (ASX ones) and I should have bought some MQG Macquaire as well when it dropped more than a dollar with a 49% increase in profits. ANZ only up small but MQG has recovered to up 61 cents.

[macduffy]

Yes, the ANZ raw numbers were good but there's a caveat there - boosted by lower provisions and trading profits that may or may not be repeated. Some concern too that the DRP wasn't offset by equivalent on-market buyback of shares so there's a dilution effect there.

My own view is that the market is priced for anticipated growth which will take some doing in current conditions. Priced for perfection - or disappointment, perhaps?

I hold.

[Snoopy]

From the ANZ New Zealand statement to the reserve bank on 30th September 2013, page 46, the loan book break down is like this:



ANZ (New Zealand) Loan Book FY2013


Agriculture$18,842m


Forestry, fishing and mining $1,850m


Business and property services$11,334m


Construction$1,748m


Entertainment, leisure and tourism$1,389m


Finance and insurance$18,412m


Government and local authority$9,910m


Manufacturing$5,051m


Personal lending$63,492m


Retail trade$2,859m


Transport and storage$2,147m


Wholesale trade$2,704m


Other$4,577m


Total$144,315m



UDC is a wholly owned subsidiary of ANZ New Zealand. So what we need to do is subtract out the UDC figures from those listed above. Then we can compare the loan book make up of 'Underlying ANZ New Zealand' with UDC.


One year later (30th September 2014) we compare the break down of the loan book. From the ANZ New Zealand statement to the reserve bank on 30th September 2014, page 48, the loan book break down is like this:



ANZ (New Zealand) Loan Book FY2014


Agriculture$18,811m (+0%)


Forestry, fishing and mining $2,049m (+10.8%)


Business and property services$12,051m (+6.3%)


Construction$2,154m (+23.2%)


Entertainment, leisure and tourism$1,294m (-6.9%)


Finance and insurance$20,254m (+10.0%)


Government and local authority$11,363m (+14.6%)


Manufacturing$5,312m (+5.2%)


Personal lending$70,098m (+10.4%)


Retail trade $3,026m (+5.8%)


Transport and storage$2,264m (+5.4%)


Wholesale trade$2,695m (+0%)


Other$4,093m (-11.6%)


Total$155,174m (+7.5%)



SNOOPY

[Snoopy]

On page 40 of the ANZ NZ September 30th Reserve Bank disclosure, there is a table listing the class of loans (0-9) , along with their probability of default. '9' is default, so the probability for a grade 9 loan defaulting is 100%. However of more interest is the other grades of loan and their probability of default.



For retail mortgages: 30-09-2013


Grades 0-3: 0.2%


Grades 4: 0.46%


Grade 5: 0.93%


Grade 6: 2.11%


Grade 7,8: 5.4%





For other retail: 30-09-2013


Grades 0-2: 0.1%


Grades 3-4:0.29%


Grade 5:1.12%


Grade 6: 2.67%


Grade 7,8: 11.25%



Allowing for the fact that the grading groupings do not quite match up grades 0-6 are surprisingly similar. It is the loans in category 7 and 8 that are twice as likely to default in finance companies, given that in general finance companies have very low (or no) exposure to retail mortgages.


One year on and we look at the chances of default for ANZ.NZ mortgages and ANZ.NZ other retail loans. (page 41 of the ANZ NZ September 30th 2014 Reserve Bank disclosure).



For retail mortgages: 30-09-2014


Grades 0-3: 0.2%


Grades 4: 0.46%


Grade 5: 0.93%


Grade 6: 2.04%


Grade 7,8: 5.24%





For other retail: 30-09-2014


Grades 0-2: 0.1%


Grades 3-4:0.30%


Grade 5:1.13%


Grade 6:2.60%


Grade 7,8:9.56%



Overall observation? A small risk reduction from year to year in the higher risk categories (Grade 6 and above).

SNOOPY

[Snoopy]

UDC is ANZ's wholly owned finance subsidiary and probably a better measuring stick for some of those other NZ listed finance companies.

https://www.udc.co.nz/pdf/UDC_Prospectus.pdf

The 'profit before tax' is listed as $59.664m (p35). But this includes a provision for credit impairment of $7.123m which I would remove to get the picture of ongoing operational performance. So I get EBT of $66.787m.

Now go to note 4 (p43) on interest expense. There is underlying interest over and above what is due to debenture holders of $16.623m.

So total underlying EBIT = $66.787m + $16.623m = $83.07m

Now turn to page 45 (note 8) and you will see total loans and advances of: $2,065.117m

So the operating margin based on the end of year loan balance book is:

$83.07/$2065.11 = 4.02%

That is almost twice the margin of the underlying ANZ bank in NZ.


The December 16th 2014 UDC Prospectus release, at last gets the details of what happened at UDC during FY2014 out into the public arena.

https://www.udc.co.nz/pdf/udc-prospectus-2014.pdf

The 'profit before tax' is listed as $71.768m (p35). But this includes a provision for credit impairment of $11.733m which I would remove to get the picture of ongoing operational performance. So I get EBT of $83.501m.

Now go to note 4 (p44) on interest expense. There is underlying interest over and above what is due to debenture holders of $16.783m.

So total underlying EBIT = $83.501m + $16.783m = $100.28m

Now turn to page 46 (note 8) and you will see total loans and advances of: $2,272.281m

So the operating margin based on the end of year loan balance book is:

$100.28m/$2272.281m = 4.41%

A significant improvement on FY2013 and it continues the improvement from a 3.87% margin in FY2012

SNOOPY

[Snoopy]

I agree that in a favourable environment, it is probably in line with expectations for a finance company to be earning a better return on assets than a bank.

Your point about the the relative overheads is an important one. Heartland in FY2013 had selling and administration expenses of $70.347m (Heartland FY2013 report, note 9). UDC had total operating expenses of $30.887m (UDC prospectus note 4). That is a difference of $39.46m. The two are comparable in that they have a similarly sized loan book. If we add this figure onto the UDC cost structure, what would that do to the UDC operating margin on assets?

FY2013: ($83.07-$39.46+$9.72)/$2065.11 = 2.58%

Note: The $9.72m added back represents the adding back of 'fees paid to related parties' (ANZ). These are part of the $39.46m 'extra operating expenses and would have been double charged if not added back.

That is almost exactly the figure for the parent ANZ New Zealand and Westpac New Zealand! So looks like your hunch was right Macduffy. Add on the costs of operating a branch network and the operating margin on assets is right back in the ballpark that Heartland have set for FY2014.


Time to normalise the UDC figures for 2014 so they can be compared more directly with the likes of Heartland Bank.

Heartland in FY2014 had selling and administration expenses of $64.739m (Heartland FY2014 report 'Selling & Administration Expenses', note 11). UDC had total operating expenses of $31.306m (UDC prospectus note 4). That is a difference of $33.433m. The two are comparable in that they have a similarly sized loan book (UDC:$2,272.081m, Heartland $2,607.393m). If we add the operating cost difference figure onto the UDC cost structure, what would that do to the UDC operating margin on assets?

FY2014: ($100.28-$33.433+ $9.79)/$2,272.08 = 3.37%

Note: The $9.79m added back represents the adding back of 'fees paid to related parties' (ANZ). These are part of the $33.433m 'extra operating expenses and would have been double charged if not added back

This calculation shows the underlying margin at UDC to be significantly improved from FY2013's 2.58%.

SNOOPY

[Snoopy]

OK we are talking Heartland bank now? The selling and administrative expenses" of $70.347m as summarized in note 9 of the HNZ FY2013 annual report include a $7.7m RECL termination fee. This is unlikely to be repeated. So you might conclude that Heartland selling and administration fees might reduce to:

$70.347m - $7.7m = $62.647m, plus an allowance for inflation of course.


Note 11 of the HNZ Annual Report for FY2014 shows selling and administration fees of $64.739m. This is an increase of 3.3% from FY2013 on an underlying basis.

SNOOPY

[Snoopy]

Today's homework from the UDC prospectus. I am trying to get a feel for the 'normal' level of business over the business cycle. All the information in the last 2013 prospectus relates to the post GFC era. But perhaps in today's financial environment that

The profit before provision for income tax and impairment is given on page 33 of the prospectus, as part of a five year summary. Likewise the corresponding loans and advances, part of the assets of the balance sheet

FY2009: $34.024m/ $1,829.156m= 1.86%
FY2010: $45.012m/ $1,968.771m= 2.29%
FY2011: $46.382m/ $1,948.522m= 2.38%
FY2012: $58.476m/ $2,014.473m= 2.90%
FY2013: $66.787m/ $2,065.117m= 3.23%

By contrast the equivalent figures for Heartland are as follows:

FY2012: $29.337m/ $2,078,276m= 1.41%
FY2013: $36.540m/ $2,010,376m= 1.82%


An update on the post financial crisis profitability trends. The Heartland comparative figures only start from FY2012, because that is when Heartland started to exist in its current form.



UDCHeartland


EBTLoan BookEBT/Loan BookEBTLoan BookEBT/Loan Book


FY2009$34.024m$1,829.156m1.86%


FY2010$45.012m$1,968.771m2.29%


FY2011$46.382m$1,948.552m2.38%


FY2012$58.476m$2,014.473m2.90%$29.377m$2,078.276m1 .41%


FY2013$66.787m$2,065.117m3.23%$36.540m$2,010.376m1 .82%


FY2014$83.501m$2,272.081m3.68%$57.416m$2,607.393m2 .20%



Reference for data (UDC): p33 of 2014 prospectus (profit, loans and advances)
Reference for data (Heartland): AR2014 Statement of Comprehensive Income Operating profit, Statements of Financial Position)

SNOOPY

[Snoopy]

An update on the post financial crisis profitability trends. The Heartland comparative figures only start from FY2012, because that is when Heartland started to exist in its current form.



UDCHeartland


EBTLoan BookEBT/Loan BookEBTLoan BookEBT/Loan Book


FY2009$34.024m$1,829.156m1.86%


FY2010$45.012m$1,968.771m2.29%


FY2011$46.382m$1,948.552m2.38%


FY2012$58.476m$2,014.473m2.90%$29.377m$2,078.276m1 .41%


FY2013$66.787m$2,065.117m3.23%$36.540m$2,010.376m1 .82%


FY2014$83.501m$2,272.081m3.68%$57.416m$2,607.393m2 .20%



Reference for data (UDC): p33 of 2014 prospectus (profit, loans and advances)
Reference for data (Heartland): AR2014 Statement of Comprehensive Income Operating profit, Statements of Financial Position)



The above are raw figures as found in the respective annual report or prospectus. We do know that Heartland has branch structure to service, whereas UDC piggybacks on the ANZ network. That means the above numbers are not strictly an apples with apples comparison.

We can adjust for this by adjusting the effects of an equivalent virtual ANZ imposed cost structure onto the equivalent Heartland profit. 'Fees paid to related parties', under explanatory note 4 UDC prospectus 'Expenses' represents fees paid to ANZ bank New Zealand for services supplied under an arms length basis [ $9.979m(2014) and $9.870m(2013) from p44 UDC prospectus 2014]. These have to be subtracted from operating expense difference to avoid double charging for the same services.

IMO a comparison between UDC and HNZ is fair because they have very close to the same size loan book. Thus I assume they have very similar 'inherent costs' in their operating structure.
The difference in selling and administration expenses (from Heartland AR2014 'Statements of Comprehensive Income'), and UDC (prospectus 2014 p35), between the two entities is therefore:

FY2013: $70.347m - ($30.887m - $9.870m ) = $49.330m
FY2014: $64.739m - ($31.306m - $9.979m) = $43.412m

So removing this equivalent 'branch cost structure' from the Heartland result gives:

FY2013: ($36.540m+$49.330m)/ $2,010,376m= 4.27%
FY2014: ($57.416m+$43.412m)/ $2,607,393m= 4.88%

By this measure, Heartland is still outperforming UDC on an underlying business basis. However the relative improvement year to year:

UDC: a gain from a 3.23% margin to a 3.68% margin is a 13.9% lift.
Heartland: a gain from a 4.27% margin to a 4.88% margin is a 14.2% lift.

The improvement is very similar.

SNOOPY

[Snoopy]

Today I want to focus on the actual bad debt write offs in relation to the size of the loan book at the end of the year. Section 10 in the UDC 2013 prospectus is named "Provision for Credit Impairment on Loans and Advances". Bad debts actually written off were:

FY2013: $12.399m
FY2012: $10.164m

I note in both instances these exceed the 'provision for loan impairment' stated on page 33, the 'Summary Financial Statement', which were $7.123m (FY2013) and $6.031m (FY2012). I am reading between the lines when I say the actual write offs probably reflect the worse times immediately following the GFC. With a more benign business environment going forwards we might expect future write offs to be smaller, trending towards the current year write off figure.

Putting these actual write offs as a percentage of the end of year loan book gives them better context.

FY2013: $12.399m/$2,065.117m = 0.600%
FY2012: $10.164m/$2,014.473m = 0.505%

For comparative purposes, it is informative to look 'over the fence' to Heartland Bank. Note 10 details impaired asset expense as follows:

FY2013: $22.527m
FY2012: $5.642m

Normalize these against the total finance receivables

FY2013: $22.527m/ $2010.4m = 1.12%
FY2012: $5.642m/ $2078.3m = 0.271%

We know that last year was a particularly bad one for Heartland, regarding bad debts. Taken on a two year average performance though, the amount written off at UDC and Heartland was similar.


Updating the actual bad debt write offs in relation to the size of the loan book at the end of the year. Section 10 in the UDC 2014 prospectus is named "Provision for Credit Impairment on Loans and Advances". Bad debts actually written off are compared against the 'provision for loan impairment' stated on page 33, the 'Summary Financial Statement', which were $7.123m (FY2013) and $6.031m (FY2012).



UDCBad Debt Write OffNew Bad Debt Provision


FY2010$17.343m


FY2011$4.891m


FY2012$10.164m$6.031m


FY2013$12.399m$7.123m


FY2014$18.633m$11.733m



"I am reading between the lines when I say the actual write offs probably reflect the worse times immediately following the GFC. With a more benign business environment going forwards we might expect future write offs to be smaller, trending towards the current year write off figure."

I wrote the above in relation to the FY2013 results. Looks like I was wrong though. Write offs are getting larger, back up towards GFC levels!

Putting these actual write offs as a percentage of the end of year loan book gives them better context.

FY2012: $10.164m/$2,014.473m = 0.505%
FY2013: $12.399m/$2,065.117m = 0.600%
FY2014: $18.633m/$2,272.081m = 0.820%

But it doesn't change the interpretation. Annual write offs at UDC are getting bigger in relation to the size of the loan book as well!

For comparative purposes, it is informative to look 'over the fence' to Heartland Bank. Note 12 (AR2014) details impaired asset expense as follows:

FY2012: $5.642m
FY2013: $22.527m
FY2014: $5.895m

Normalize these against the total finance receivables

FY2012: $5.642m/ $2078.3m = 0.271%
FY2013: $22.527m/ $2010.4m = 1.12%
FY2014: $5.895m/ $2607.4m = 0.226%

We know that 2014 year was a particularly bad one for Heartland, regarding bad debts. But look how Heartland have bounced back, relative to UDC in FY2014.



UDC Debt Write OffHeartland Debt Write Off


FY20120.505%0.271%


FY20130.600%1.12%


FY20140.820%0.226%



SNOOPY

[Snoopy]

Note 17d (page 53 UDC 2013 prospectus) lists the internal risk grading of the loan assets on a scale of 1 to 9. On this scale 1 is the lowest risk while 9 means a default. The grade 6 and below categories for EOY2013 add up as follows:

$1,157.111m + $83.790m + $24.814m = $1,265.765m.

These represents a fraction of the total loans outstanding as follows:

$1,265.765m / $2,198.653m = 57.6% of total loan assets.

Some impairment ($37.46m) has already been taken onto the book over the years. This impairment of $37.46m represents

$37.46m / $1,265,765m = 2.96% of the Grade 6 (monitor) and below grade assets.

For comparative purposes it is interesting to see what happens when we take the same statistics for Heartland Bank. The situation is not strictly comparable because Heartland has a different credit risk system for so called 'Behavioral Loans'. Behavioral loans consist of consumer and retail receivables usually relating to the financing of a single asset.

OTOH 'Judgement Loans' are graded on the 1-9 system. A 'Judgement loan' within Heartland consists mainly of business and rural lending, including non-core property, where an ongoing and detailed working relationship has been developed.

The grade 6 and below categories of 'Judgement Loans' for Heartland EOY2013 add up as follows:

$198.370mm + $18.034m + $21.518m + $27.761m = $265.683m.

These represents a fraction of the total loans outstanding as follows:

$265.683m / $1,068.531m = 24.9% of total Judgement loan assets.

Some impairment ($15.96m) has already been taken onto the book over the years. This impairment of $15.96m represents

$15.96m / $265.683m = 6.00% of the Grade 6 (monitor) and below grade assets.


Note 17d (page 54 UDC 2014 prospectus) lists the internal risk grading of the loan assets on a scale of 1 to 9. On this scale 1 is the lowest risk while 9 means a default. The grade 6 and below categories for EOY2014 add up as follows:

$811,700m + $92,366m + $34,833m = $938,899m.

These represents a fraction of the total loans outstanding as follows:

$938,899m / $2,375.936m = 39.5% of total loan assets.

Some impairment ($31,805m) has already been taken onto the book over the years. This impairment of $31,805m represents

$31,805m / $938,899m = 3.38% of the Grade 6 (monitor) and below grade assets.

For comparative purposes it is interesting to see what happens when we take the same statistics for Heartland bank. The situation is not strictly comparable because Heartland has a different credit risk system for so called 'Behavioral Loans'. Behavioral loans consist of consumer and retail receivables usually relating to the financing of a single asset.

OTOH 'Judgement Loans' are graded on the 1-9 system. A 'Judgement loan' within Heartland consists mainly of business and rural lending, including non-core property, where an ongoing and detailed working relationship has been developed.

The grade 6 and below categories of 'Judgement Loans' for Heartland EOY2014 add up as follows:

$115,776m + $14,833m + $13,520m + $3,412m = $147,541m.

These represents a fraction of the total loans outstanding as follows:

$147,541m / $979,354m = 15.1% of total Judgement loan assets.


The grade 6 and below categories of 'Judgement Loans' for Heartland EOY2013 add up as follows:

$198.370mm + $18.034m + $21.518m + $27.761m = $265.683m.

These represents a fraction of the total loans outstanding as follows:

$265.683m / $1,068.531m = 24.9% of total Judgement loan assets.

Some impairment ($6,999m) has already been taken onto the book over the years. Add to this a reverse mortgage fair value adjustment of $8.000m This total impairment of $14.999m represents

$14.999m / $147.596m = 10.1% of the Grade 6 (monitor) and below grade assets.

SNOOPY

[Snoopy]

Heartland are not so generous with their breakdown of sector business. So I will use the Heartland business categories, p36 Heartland AR2013 for comparison purposes. The UDC figures come from the 2013 prospectus Note 17c, page 53.



HNZUDC


Agriculture Forestry & Fishing: $529.507m (22.3%) $374.264m (17.3%)


Mining: $19.044m (0.8%) $5.224m (0.2%)


Manufacturing: $79.915m (3.4%) $108.477m (5.0%)


Finance & Insurance: $348.166m (14.7%) $100.994m (4.7%)


Retail & Wholesale Trade: $232.776m (9.8%) $247.856m (11.5%)


Households: $629.854m (26.5%) $443.089m (20.5%)


Property & Business Services $320.198m (13.5%) $113.745m (5.3%)


Transport & Storage: $25.267m (1.1%) $387.356m (17.9%)


Other Services: $189.028m (8.0%) $380.188m (17.6%)



Total for Heartland $2,373m (100%) , with the collectively impaired assets yet to be adjusted for.

Total for UDC $2,161m (100%), with credit impairment already adjusted for.

I am really surprised at the big difference between the two in 'Finance & Insurance'. However UDC has a category 'Construction' ($282.407m) which I grouped as 'other'. If this were included in 'finance & insurance' then the finance and insurance categories would be much more comparable, with UDC now having the higher percentage of funds in that area.

Despite HNZ seemingly lightening their 'household' business, it is still substantially bigger than UDC on a percentage basis (not unexpected).

The property and business services is also substantially greater at HNZ, although I presume this includes the non core property business that HNZ is exiting.

Very different is transport and storage. UDC has nearly 18% of its business in this category verses only 1% for Heartland.



I am using the Heartland business categories, Table 37c Heartland AR2014 for comparison purposes. The UDC figures come from the 2014 prospectus Note 17c, page 54.



HNZUDC


Agriculture Forestry & Fishing: $491.321m (16.90%) $445.299m (19.0%)


Mining: $11.148m (0.38%) $11.000m (0.5%)


Manufacturing: $77.321m (2.66%) $90.962m (3.9%)


Finance & Insurance: $291.223m (10.02%) $76.220m (3.3%)


Retail & Wholesale Trade: $251.903m (8.67%) $277.662m (11.8%)


Households: $1,313.977m (45.20%) $510.484m (21.8%)


Property & Business Services $330.860m (11.38%) $120.881m (5.2%)


Transport & Storage: $15.873m (0.55%) $412.633m (17.6%)


Other Services: $123.070m (4.23%) $398.984m (17.0%)



Total for Heartland $2,906.6m (100%) , with the collectively impaired assets yet to be adjusted for. This equates to a loan book YOY growth of 22.6%.

Total for UDC $2,344.1m (100%), with credit impairment already adjusted for. This equates to a loan book YOY growth of 8.5%.

So how good a measuring stick is UDC for Heartland? Heartland has grown a lot more with the purchase of the Seniors Money International home equity release business during the year. These are likely to be classified as 'household' loans. That accounts for the big jump in household category loans (from 26.5% to 45.2%) of the total Heartland loan book. It looks like it has been lumped in with the residual mortgage business for risk category classiication purposes. Total 'household' loans are substantially higher at Heartland.

The fact that UDC has a much higher percentage rating of loans in Transport and Storage is another long standing difference.

'Construction' ($340.228m) is a category that UDC breaks down, that I have included in 'Other'. If instead I had included this in 'Finance & Investment' then the 'Finance and Investment' comparison would have been a lot more even.

On balance though, I believe the comparison between the two is still useful.

SNOOPY

[noodles]

Aussie banks misbehaving
http://pickeringpost.com/story/bastard-banks/4237

[Snoopy]

UDC and ANZ New Zealand have the same balance date. So it is legitimate to work out the distribution of loans on their respective books using 30th September end of year data. First I need to slightly rearrange the above categories so that they correspond to those listed in the December 2013 UDC prospectus. Then I need to subtract the UDC equivalent figures (page 53, December 2013 prospectus) to get the underlying ANZ bank figure.



All ANZ.NZUDCUnderlying ANZ.NZ


Agriculture forestry, fishing and mining:$20,674m(14.3%)$379m(17.5%)$20,295m(14.3%)


Business and property services:$11,334m(7.9%)$114m(5.3%)$11,220m(7.9%)


Construction:$1,748m(1.2%)$282m(13.0%)$1,466m(1.0% )


Entertainment, leisure and tourism:$1,389m(1.0%)$19m(0.9%)$1,370m(1.0%)


Finance and insurance:$18,412m(12.8%)$101m(4.7%)$18,311m(12.9% )


Government and local authority:$9,910m(6.9%)$4m(0.2%)$9,906m(7.0%)


Manufacturing:$5,051m(3.5%)$108m(5.0%)$4,943m(3.5% )


Personal & Other lending:$68,069m(47.2%)$517m(23.9%)$67,552m(47.5%)


Retail and Wholesale: $5,563m(3.9%)$248m(11.5%)$5,315m(3.7%)


Transport and storage:$2,147m(1.5%)$387m(17.9%)$1,760m(1.2%)


Total:$144,315m(100%)$2,161m(100%)$142,514m(100%)



UDC and ANZ New Zealand have the same balance date. So it is legitimate to work out the distribution of loans on their respective books using 30th September end of year data. First I need to slightly rearrange the ANZ (NZ) categories (ANZ September 30th 2014 Bank Disclosure Statement, p48) so that they correspond to those listed in the December 2014 UDC prospectus. Then I need to subtract the UDC equivalent figures (page 54, December 2014 prospectus) to get the underlying ANZ bank figure. The results are below:



All ANZ.NZUDCUnderlying ANZ.NZ


Agriculture forestry, fishing and mining:$20,860m(13.4%)
$456m(19.5%)
$20,404m(13.3%)


Business and property services:$12,061m(7.8%)
$121m(5.2%)
$11,940m(7.8%)



Construction:$2,154m(1.4%)
$340m(14.5%)
$1,814m(1.2%)


Entertainment, leisure and tourism:$1,294m(0.8%)
$11m(0.5%)
$1,283m(0.8%)



Finance and insurance:$20,254m(13.0%)
$76m(3.3%)
$20,178m(13.2%)


Government and local authority:$11,363m(7.3%)
$3m(0.1%)
$11,360m(7.4%)


Manufacturing:$5,312m(3.4%)
$91m(3.9%)
$5,221m(3.4%)


Personal & Other lending:$74,191m(47.7%)
$555m(23.7%)
$73,636m(48.1%)


Retail and Wholesale:
$5,721m(3.7%)
$278m(11.8%)
$5,443m(3.6%)


Transport and storage:$2,264m(1.5%)
$412m(17.6%)
$1,851m(1.2%)


Total:$155,474m(100%)$2,344m(100%)$153,130m(100%)



We have to remember that UDC is roughly equivalent to Heartland in size. Heartland is an NZX top 50 company. So it is quite a surprise to me when UDC are removed from the New Zealand division of ANZ (which in itself is only a fraction of the total ANZ) and the result is not much different. This highlights what an extremely large company just the New Zealand division of ANZ has become in its own right.

In a slight change to funding, ANZ has strengthed the equity position of UDC with shareholders funds now supporting 17% of the loan book, up from 15% in FY2013. Consumately the debenture funding from the public has decreased from 70% to 68% (p8 UDC prospectus for 2013 and 2014).

SNOOPY

[Snoopy]

Frankly I am surprised how high the provision for loan impairment is at UDC (page 33 UDC 2013 prospectus). Granted it has been reducing since the depths of the GFC.

From note 8, with reference to the whole EOFY2013 loan book:

$37.460m / ($2,241.110m+$37.460m+$131.094m+$7.439m) = 1.55% of gross value loans on issue

The figures for ANZ New Zealand, suitably disentangled from UDC are (using note 13: 'Net Loans and Advances' based on ANZ New Zealand's September 30th 2013 update to the Reserve Bank)

($826m-$37m)/ ($91,543m -$2,103m) = 0.88%

Compare that to Heartland (HNZ AR2013 p39)

$50.491m/ $2,060.867m = 2.45% of gross value of loans on issue.

Of course we all know that UDC isn't a 'real' finance company, even to the extent that they don't have to keep the Reserve Bank updated on their financial position. As long as the parent ANZ New Zealand (who have full control of the UDC purse strings) keeps their own disclosure up to date, the UDC are off the radar as far as the Reserve Bank of NZ is concerned. In practice UDC are simply a 'marketing arm' of the ANZ.


I am surprised how high the provision for loan impairment is at UDC (page 33 UDC 2014 prospectus) has increased ($7,123m to $11,733m up 65%) since FY2013 . Granted it is still much less since the depths of the GFC.

From note 8 the resultant provisions on the books without bad debts already written off, with reference to the whole EOFY2014 loan book:

$31.805m /($2,272.081m+$31.805m+$115.310m+$8.964m) = 1.31% of gross value loans on issue

The figures for ANZ New Zealand, suitably disentangled from UDC are (using note 12: 'Net Loans and Advances' based on ANZ New Zealand's September 30th 2014 update to the Reserve Bank)

($666m-$31.8m)/ ($96,902m -$2,148m) = 0.67%

Compare that to Heartland (HNZ AR2014, Note 20 'Finance Receivables' )

($16.361m+$8.000m)/ $2,613.754m = 0.93% of gross value of loans on issue.

Of course we all know that UDC isn't a 'real' finance company, even to the extent that they don't have to keep the Reserve Bank updated on their financial position. As long as the parent ANZ New Zealand (who have full control of the UDC purse strings) keeps their own disclosure up to date, the UDC are off the radar as far as the Reserve Bank of NZ is concerned. In practice UDC are simply a 'marketing arm' of the ANZ. If anything that might make UDC potentially more 'reckless' than fully independently owned finance companies. That's because they know that ANZ Bank will bail them out if they get into trouble. So I think it is interesting that in practice UDC are less reckless with their lending policies (hold a lower relative provision for credit impairment on the balance sheet) than Heartland.

SNOOPY

[Snoopy]

Aussie banks misbehaving
http://pickeringpost.com/story/bastard-banks/4237

This article relates to the Australian arm of ANZ. Kiwi bankers would never behave like this. Please supply your full address noodles. The re-education department of the ANZ would like to supply three burly souls to visit you for your exclusive benefit ;-P

SNOOPY

[percy]

Aussie banks misbehaving
http://pickeringpost.com/story/bastard-banks/4237

Thanks for posting that article.
If ANZ do that to their own countrymen,it is easy to see why New Zealanders prefer to bank with a New Zealand owned and operated bank.

[BlackPeter]

Aussie banks misbehaving
http://pickeringpost.com/story/bastard-banks/4237

A heart breaking story - and yes, I believe that the situation of many farmers in drought stricken regions (not just Winton) is quite hopeless. Not sure, though whether it is fair to blame the banks for this situation ... and certainly not one particular bank (ANZ).

Winton has an arid climate with in average something like half of the Canterbury rainfall, just less even distributed. If you look at the weather chart - a mean annual rainfall of 400 mm, but than there are weather events with more than 600 mm in one month - meaning that after a devastating flood they might get next to nothing for more than a year after that.

Leveraging a farm in such a climate without a reliable source of irrigation is just like playing roulette with one's livelihood. Is this really just the fault of the bank?

I think this is something the (Australian) politicians and people need to sort ... just bashing banks or throwing (public) money at the problem is unlikely to help. They either need to find a reliable water supply, help farmers to move to crops and livestock which can deal with the conditions (cows might not be optimal adapted for living in a desert), or help them to relocate ... another loan, just hoping the rain might come back next year is unlikely to be of long term help.

[Snoopy]

Today I want to look at the ANZ New Zealand banking covenants for September 30th 2013 quarter (corresponding to the EOFY). ANZ New Zealand includes their wholly owned subsidiary UDC finance.

Once again the document I am referencing is the:

"ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2013, Number 71 issued November 2013"

Page 36, note 28 contains the information on capital adequacy.

The information supplied is as follows:

Common Equity Tier 1 ratio: 10.4% (vs RBNZ minimum of 4.5%)
Total Tier 1 ratio: 10.8% (vs RBNZ minimum of 6.0%)
Total Tier 1 & 2 ratio: 12.4% (vs RBNZ minimum of 8.0%)

Page 37 contains detailed notes on just how the ANZ NZ capital is made up. If you use that information and use it to calculate the above ratios, based on a loan book with net loans and advances of $90,489m (from the balance sheet) I calculate the above ratios as follows (total net loans and advances of broken down under Note 13 'Net Loans & Advances'):

Common Equity Tier 1 ratio: $7,523m/$90,489m = 8.3%
Total Tier 1 ratio: $7,823m/$90,489m = 8.6%
Total Tier 1 & 2 ratio: $8,957m/$90,489m = 9.9%

Those figures are a little different to those on the preceding page! So why the difference?

SNOOPY

PS Tabulated version of above results



30/09/2013 (risk adj)30/09/2013 (book value)RBNZ Required


Common Equity Tier 1 Ratio10.48.34.5


Total Tier 1 Ratio10.88.66.0


Total Tier 1&2 Ratio12.49.98.0



Today I want to update the ANZ New Zealand banking covenants for September 30th 2014 quarter (corresponding to the EOFY). ANZ New Zealand includes their wholly owned subsidiary UDC finance.

Once again the document I am referencing is the:

"ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2014, Number 75 issued November 2014"

Page 37, note 26 contains the information on capital adequacy.

The information supplied is as follows:

Common Equity Tier 1 ratio: 10.7% (vs RBNZ minimum of 4.5% + 2.5% buffer)
Total Tier 1 ratio: 11.1% (vs RBNZ minimum of 6.0% + 2.5% buffer)
Total Tier 1 & 2 ratio: 12.3% (vs RBNZ minimum of 8.0% + 2.5% buffer)

Page 38 contains detailed notes on just how the ANZ NZ capital is made up. If you use that information and use it to calculate the above ratios, based on a loan book with net loans and advances of $96,299m (from the balance sheet) I calculate the above ratios as follows (total net loans and advances of broken down under Note 12 'Net Loans & Advances'):

Common Equity Tier 1 ratio: $7,826m/$96,299m = 8.1%
Total Tier 1 ratio: $8,126m/$96,299m = 8.4%
Total Tier 1 & 2 ratio: $9,062m/$96,299m = 9.4%

Those figures are a different to those on the preceding page. That is because the Tier 1 and Tier 2 capital figures have been 'risk adjusted' before they went into my calculation. The risk adjustment is done because the expected capital recovery from loans should they go bad is different among the different classes of loans (corporate, sovereign, bank, retail mortgages and other retail)

SNOOPY

PS Tabulated version of above results



30/09/2014 (risk adj)30/09/2014 (book value)RBNZ Required


Common Equity Tier 1 Ratio10.78.14.5+2.5


Total Tier 1 Ratio11.18.46.0+2.5


Total Tier 1&2 Ratio12.39.48.0+2.5

[macduffy]

Hi, Snoopy.

Reports in the AFR today reckon that ANZ is readying its finance arm, Esanda, for sale - all $16.2b in assets. Will be interesting to see who's interested in buying and whether the urge to divest extends to its NZ equivalent, UDC.

[Snoopy]

I have been looking at the operating performance of ANZ in the New Zealand marketplace. It makes an interesting yardstick with that local bank Heartland.

The problem with comparisons is that banks to not report their performance in an identical way. My particular measuring stick of choice at the moment is 'Operating Margin'. This is 'Operating Profit' divided by assets under management. I regard 'Operating Profit' as the same as Earnings Before Interest and Tax (EBIT).

If you turn to page 156 of AR2013, the 'Segment Result Before Tax' (EBT) for NZ operations is listed at $A1,219m. ( I will work in $A for the NZ operation because this is the currency used in in the Annual Report.) To get EBIT I have to add back an allowance for the core underlying bank debt.

Total interest expense is shown in note 4 as $15,869m. But this includes interest payable to depositors. The underlying interest bill is only $4,789m.

Where the allocation of corporate interest between segments is not specified, I prefer to allocate this in proportion to divisional revenue. Again using the information on page 156, New Zealand revenue is:

$2,208m / $18,446m = 12% of the total.

12% of $4,789m comes out to $574m

Adding this to the NZ segment result gives me my EBIT figure.

$1,219m + $579m = $1,793m

Total NZ 'external assets' are listed on p156 as $85,229m.

So the 'operating margin' based on assets in loans is:

$1,793m / $85,229m = 2.104%

I note that this is the operating margin, looking at the NZ business in its entireity.


I made the calculation for FY2013. Now it is time to update that and tabulate the result all the way back to GFC days (FY2008). ANZ is the largest banking sector operator in New Zealand by a good margin. So to some extent looking at ANZ is a proxy for the whole market.

'Operating margin' in this sense is EBIT divided by loans under managment at the end of the year. Raw figures supplied in the annual report are EBT. The interest paid component I have added back to get EBIT is based on the total company interest bill, apportioned out by the fraction revenue turned over in New Zealand. This method eliminates one potential source of transfer pricing that could distort underlying EBIT. The interest calculated is the underlying interest applicable to corporate debt inherent in ANZ, and does not include interest paid to depositor customers.

Dollar figures are in $A, despite those figures relating to NZ operations. This is because the parent reporting currency is $A. The final ratio calculation is independent of currency choice.



EBTUnderlying IEBITNZ Loan AssetsNZ Loan AssetsOperating Margin


2014$1,486m$562m$2,048m$89,443m$NZ100,228m2.290%


2013$1,219m$574m$1,796m$85,229m$NZ95.666m2.104%


2012$1,028m$645m$1,673m$71,816m$NZ89,736m2.330%


2011$978m$804m$1,782m$70,273m$NZ88,639m2.536%


2010$967m$971m$1,938m$93,074m$NZ122,209m2.082%


2009$503m$1170m$1,673m$101,445m$NZ123,427m1.650%

]
2008$1,061m$1938m$2,999m$100,270m$NZ120,851m2.999%



I will comment on the blip in FY2011 later. But one thing is clear. Operating margin has not improved to pre GFC levels. Nor would I necessarily expect it to do so.

SNOOPY

[percy]

Aussie banks misbehaving
http://pickeringpost.com/story/bastard-banks/4237

Hope they don't start the same practices with NZ farmers.
I note ANZ have been reducing its lending to the NZ dairy sector from $13.1 billion in 2010 to $11.3 billion at @ 31-03-2015.
Positive.?

[percy]

Thanks Roger,but I think I was wrong to ask you to post it here.Until we know which bank it is, it should have been posted in Off Market discussions Cows etc.
Yet, I would think if history does in fact repeat itself, it would be one of the Aussie Banks, and ANZ would be my first pick.

[macduffy]

Couldn't possibly be HNZ, could it percy!

;)

[percy]

Couldn't possibly be HNZ, could it percy!

;)

No,offcourse not..!! lol.
What I think is wrong, is first of all posting it on HNZ,and then I was at fault asking Roger to post on ANZ thread.
Like all mis information, damage is done until the bank responsible is identified.
Too much mis information has been ending up on the wrong threads.I have now pointed this out to the sharetrader moderator,,so hopefully this practice will stop.
I did start a thread on Off Market Discussions; Cows etc so posters had a thread to post this sort of article.

[Biscuit]

Can't have been much interest in the bookbuilding, the placement appears to have gone through at the underwriting price?

[macduffy]

Can't have been much interest in the bookbuilding, the placement appears to have gone through at the underwriting price?

Enough interest for the $2.5b to be subscribed "overnight". Comment from Aussie is along the lines of small shareholders being shortchanged by the "placement followed by SSP" format. But that's the way they do things these days!

[HRM]

Last week ANZ raised more cash selling new shares. The share price dropped. What does this mean for the company? Is ANZ still a hold?

[nextbigthing]

Last week ANZ raised more cash selling new shares. The share price dropped. What does this mean for the company? Is ANZ still a hold?

Jebus mate don't act on what someone on here tells you to do. Some people have some terrible agendas!

If you don't know, perhaps chat to a broker, whose agenda may at least be less terrible!

Cheers

NBT

[HRM]

Haha cheers NBT just interested.

[percy]

Last week ANZ raised more cash selling new shares. The share price dropped. What does this mean for the company? Is ANZ still a hold?

Banks have been a fantastic investment.
ANZ will continue to be a fantastic investment.
So yes hold.

[nextbigthing]

Haha cheers NBT just interested.

That might have come across harsh, wasn't meant that way, good call to fish for info.

[iceman]

A trading halt this morning pending an announcement !!

[trader_jackson]

Any speculators as to what it could be? My very long shot that probably isn't going to happen today (but may in the future): they are buying Heartland at a big premium

[Nasi Goreng]

I thought it was just because they are giving a Q3 trading update at 11.30am.

[trader_jackson]

Oh yes this is probably it... buying Heartland will be in the future, probably when it is closer to $3-4 a share

[Corleone]

Newbie here and... total mook :) learning much from the forum and very grateful to have found it. I have been hoping ANZ dipped below 33 again since it got close a few months ago. Im a novice investor and have taken a bath when following my brokers advice (my fault also didnt do my own research, didnt follow the market when overseas for many years), now I usually make small plays of around 5K, but the ANZ price neccesitates a much larger spend. Opinions very welcomed on whether now is a good time to buy.

[percy]

Newbie here and... total mook :) learning much from the forum and very grateful to have found it. I have been hoping ANZ dipped below 33 again since it got close a few months ago. Im a novice investor and have taken a bath when following my brokers advice (my fault also didnt do my own research, didnt follow the market when overseas for many years), now I usually make small plays of around 5K, but the ANZ price neccesitates a much larger spend. Opinions very welcomed on whether now is a good time to buy.
Welcome Corleone.
This is a chat site where we share our thoughts.None of us are financial advisers.So you can get ideas from posters,but acting on what is posted, could cost you a lot of money.You must do your own research.Just take your time working out who knows what they are talking about.t.

[Corleone]

Thanx for the welcome Percy, I know its informal banter on the forum and some posters have specialised areas and some are serial rampers if they are holders etc. I have been doing some ANZ research the last 2 days (reading financial op ed pieces). Seems half think its a great time to buy and half say tread very carefully.

[macduffy]

I thought it was just because they are giving a Q3 trading update at 11.30am.

Yes, that's it.

http://www.asx.com.au/asxpdf/20150818/pdf/430ks6v5652863.pdf

[macduffy]

Newbie here and... total mook :) learning much from the forum and very grateful to have found it. I have been hoping ANZ dipped below 33 again since it got close a few months ago. Im a novice investor and have taken a bath when following my brokers advice (my fault also didnt do my own research, didnt follow the market when overseas for many years), now I usually make small plays of around 5K, but the ANZ price neccesitates a much larger spend. Opinions very welcomed on whether now is a good time to buy.

Percy's on the money there, Corleone!

You'll be aware that ANZ are raising additional capital, partly through a Share Purchase Plan whereby shareholders get to apply for up to $15,000 worth of shares, subject to scaling in the event of oversubscription. The issue has already gone "ex" so purchases on market now won't qualify. The issue price will be the lesser of $A30.95 or the weighted average market price over the 5 days prior to the issue closing in early Sept, less a small discount, 2% from memory. The current market price is less than $A30.95 and there is a theory that buyers will keep it that way to depress the issue price. Maybe, maybe not. Just a point to bear in mind if weighing whether or not now is a good time to buy.

[Bjauck]

I am a long time holder of ANZ shares and remain in two minds as to whether I will participate in the SPP.

From memory, the last SPP in 2009 (height of the credit crunch) was at about $AU14. That had something like 45% of retail shareholders taking up the maximum amount ($15000). I am not so sure that this SPP will be so popular as I am not so certain that the share price is at such a nadir. DYOR.

[macduffy]

Comment on yesterday's trading update.

http://www.sharecafe.com.au/sharecafe.asp?a=AV&ai=36102

[Nasi Goreng]

I'm warming to the idea of the capital raise. The more the SP falls, the warmer I am getting. If SP remains suppressed and 2% discount can get price around $28, I think I will buy in.

[macduffy]

Yes, I'd probably settle for $28 too. The problem is that the final price won't be known until after the issue closes.

[2mac]

Is anyone holding? I'm already down 6% :( it just keeps going down

[theace]

Wondering what a good entry point will be? .... or will the decline be in for a while, and best to stay away!

[macduffy]

Wondering what a good entry point will be? .... or will the decline be in for a while, and best to stay away!

I'd expect the SP to remain around these levels until the SPP has closed, subject of course to what world market gyrations may throw at local markets in the meantime!

[Nasi Goreng]

Wondering what a good entry point will be? .... or will the decline be in for a while, and best to stay away!

All I can tell you is, today is a better entry point than it was 2 weeks ago. Apart from that, I don't think anyone knows.

I'm holding and considering the capital raise.

[Beagle]

Technically its looks broken with a clear break well below the 200 day MA. Fundamentally its starting to look like a value play but I can't help but wonder if the tide isn't turning. Losses from their exposure to small miners could be substantial. PE is currently 10.5 which looks cheap but a guy I know holds HSBC and that's on a PE of 7.5 and has been going down steadily for two years :eek2: Oversold or value trap ?, you be the judge. Disc: I don't hold.

[macduffy]

I can't see the SPP failing. It's for $.5b, at a price which will be lower, in all probability, than the $2.5b raised in the institutional placement which was at $30.95. If it's not, it will mean that the shareprice has recovered to the placement price!

1 September is the first of 8 trading days over which the SPP price will be calculated. ( weighted average sale price over this period minus 2%).

[BlackCross]

Technically its looks broken with a clear break well below the 200 day MA. Fundamentally its starting to look like a value play but I can't help but wonder if the tide isn't turning. Losses from their exposure to small miners could be substantial. PE is currently 10.5 which looks cheap but a guy I know holds HSBC and that's on a PE of 7.5 and has been going down steadily for two years :eek2: Oversold or value trap ?, you be the judge. Disc: I don't hold.

Not just HSBC but Standard Chartered ,the other UK bank with major interests in the Far East, which has fallen even faster and further. Not surprising really when you read some of the scare stories regarding China and other EMs which are being published in the UK. Try http://ftalphaville.ft.com/ and the FT itself.

Personally I don't see how the Aussie banks can be immune.

[macduffy]

Not specifically ANZ but a comment on the Aussie banks generally and on the recent trend there for yields on leading "income" stocks to converge around the 4-4.5% mark.

https://www.livewiremarkets.com/wires/28661?utm_source=Trending+on+Livewire+%22The+Morni ng+Wire%22&utm_campaign=3bfe14ef09-Trending+on+Livewire&utm_medium=email&utm_term=0_1911ffeed5-3bfe14ef09-82636925&mc_cid=3bfe14ef09&mc_eid=9f402457b0

[Winston001]

Now at $26.86. I'm thinking of passing up the share issue and buying on the market.

[theace]

What's the price for the 'share issue'?

[arc]

Now at $26.86. I'm thinking of passing up the share issue and buying on the market.

I suggest you have a long look at the history of the share price. It is presently lower than it was in 2013... and it is still falling !.
Overseas banks are also still falling.

The global event that happened August 7 appears to have hit almost Every Large company on most of the stock exchanges.
Looking at the last 14 days the price has tried to rally from 29 to 32, failed and fallen back.. and continues to do so...

Red flag territory

[macduffy]

Now at $26.86. I'm thinking of passing up the share issue and buying on the market.

The price will be set on the volume-weighted average price of ANZ shares traded on the ASX during the 5 trading days up to, and including, the scheduled closing day (Tues 8 Sept), less a 2% discount. Seems a better deal to me, almost certainly, than paying brokerage to buy on market - and forgoing the 2% discount.

Disc: I've applied for a chunk.

[Nasi Goreng]

I bought mine on ASX and they didn't make it easy to take advantage of the offer. I would have had to get a bank cheque and pay retail on exchange rate plus then mail in with application form.

You would think that they would have made it easier given they have branches over here but oh well, I can now choose to buy on market and they don't get my capital.

I think we may see a bit of buying after this is closed. There can't be too many buyers right now, it's in most retail investors interests to drive price as low as possible during this cap raise period.

[Nasi Goreng]

I wasn't familar with BPAY so thanks for the heads up. I will still hold off on capital raise. We may see a bump after capital raise and if so great, if not, I have penciled in $24AUD as a price where I may top up. If we get there, I may revise that to $23 lol.

[Tomtom]

Just at a glance I notice ANZ banks shareprice is back at '06 levels. So obviously it's been returning steady dividends to shareholders over that time so why has the banks shareprice ended up the same place it was about a decade ago? Is there more going on here than meets the eye? Taken at face value the price looks attractive but if this was such a steal I'm sure the PE would be pushed out further.

[macduffy]

The short answer is that the market (a) doesn't think that past growth will be maintained and (b) that a recession in Aust/NZ will impact, particularly through lower house valuations and subsequent loan problems. All Aust and NZ bank shareprices are being affected to some degree.

[BlackCross]

ANZ have been very aggressive in lending to business over the last few years....perhaps too aggressive if there's any sort of recession.

[macduffy]

ANZ have been very aggressive in lending to business over the last few years....perhaps too aggressive if there's any sort of recession.

I didn't know that! The usual comment is that the banks neglect lending to business in favour of the more "plain vanilla" housing lending, thus restraining the economy and inflating property prices. Until recently, capital ratio rules have fostered this bias by favouring lending for housing.

So ANZ have been more accommodating towards business than the other majors?

[Bjauck]

I didn't know that! The usual comment is that the banks neglect lending to business in favour of the more "plain vanilla" housing lending, thus restraining the economy and inflating property prices. Until recently, capital ratio rules have fostered this bias by favouring lending for housing.

So ANZ have been more accommodating towards business than the other majors?

I must admit, compared with the other banks, I thought that ANZ was more exposed to residential mortgages and Asia.

Disc: Despite being a long-term ANZ shareholder, I admit to only looking at the photos in the annual report and perusing the Newspaper headlines concerning ANZ!

[macduffy]

There's not a lot in it though. ANZ down about 27% from highs in the last 6 months. All the others down 23-25%. The dilution effect of the capital raising also partly to blame.

[Nasi Goreng]

ANZ financial year ends in September, I am not across all of the ex dividend dates but if you think about those, some of the ANZ dividend for full year will be built into share price while others if gone ex div will be discounted. Either way, there is very little between the banks, they are all around 25% from recent highs and have led the fall in ASX20 along with the miners.

[macduffy]

ANZ financial year ends in September, I am not across all of the ex dividend dates but if you think about those, some of the ANZ dividend for full year will be built into share price while others if gone ex div will be discounted. Either way, there is very little between the banks, they are all around 25% from recent highs and have led the fall in ASX20 along with the miners.

CBA year/half year ends June and December. The other three are September/March, final divs paid in December. I doubt that this has much influence except perhaps when CBA is cum div and the others aren't.

[macduffy]

Now that the SPP price determination date has passed ANZ has taken a nice 61.5c move up (ASX). Just a matter now of waiting to see what the SPP price comes out as - and how much applications are scaled back.

[macduffy]

Duplicate.

[macduffy]

SPP shares issued at $26.50. The amount was oversubscribed but all applications accepted without scaling back.

http://www.asx.com.au/asxpdf/20150910/pdf/4317gmz0tg7530.pdf

[Bjauck]

SPP shares issued at $26.50. The amount was oversubscribed but all applications accepted without scaling back.

http://www.asx.com.au/asxpdf/20150910/pdf/4317gmz0tg7530.pdf

It would be interesting to know what percentage of shareholders participated. A further break down to see what percentage of NZ shareholders participated would be interesting too - as for a start, it would take more of an effort for NZ based shareholder to participate. You'd think they would cater for the NZ part of ANZ, after all we comprise 2/3's of the name! Renounceable rights issues are fairer especially for non-residents and those who do not/ are not able to participate.

Disc: I did not participate.

[macduffy]

Yes, 2/3's of the name but probably only about 15% of the business these days. Investors in Aust shares need to have an AUD account to utilise BPay for cash issues etc, IMO.

[Nasi Goreng]

You make a good point and it is something to bear in mind for the future. The facts are though, I was only ever luke warm about this raise.

I know now it looks like we might have missed out on an opportunity but it was never my intention to trade it, and I feel it won't be the last time we see $26.50. Its hard sitting on your hands but if it can get to around $24, I might not be able to resist a decent stake.

[Bjauck]

Yes, 2/3's of the name but probably only about 15% of the business these days. Investors in Aust shares need to have an AUD account to utilise BPay for cash issues etc, IMO.


I agree it is definitely advisable to have an Australian bank account when investing in Aus shares - especially if you have quite a few. However, ANZ is one of the largest if not the largest NZ Bank and one of the largest Australian companies. Being a bank and with extensive NZ operations, of all companies one would think they could organise a facility for its NZ shareholders to make payment in NZ dollars.

I suspect they did not consider the numbers of its (smaller) individual NZ shareholders warranted the effort of enabling payment in NZ dollars. Similarly they did not consider a Rights issue as being fairer to those individual shareholders who could not / would not participate in the capital raising. Indicative of a different attitude compared to the other Australasian banks who undertook rights issues?

And the shareholders resident outside Australasia? With a rights issue they can at least participate in the automatic sale of entitlements.

[RRR]

I don't have an Australian bank account either. ASB did the work form me since I have a nominee account with them - one of the few advantages of having a nominee account.

Disc- Applied for a few

[Onion]

I agree it is definitely advisable to have an Australian bank account when investing in Aus shares - especially if you have quite a few.

The only Aus shares I have dealt with are AMP and WBC - both were quite happy to pay $NZD into a NZ bank account. These are the NZX listed flavour of the shares however. It might be a different story if bought on the ASX directly.

[Bjauck]

ANZ are happy to pay dividends in NZD directly into the NZ bank accounts of their NZ resident shareholders. NZ residents can also make use of any NZD imputation credits attached to dividends too. All the more reason to enable payment for a SPP to be made in NZD, I would have thought...

[macduffy]

In principle I'd agree that renounceable rights issue are fairest to shareholders. Interestingly though, on this occasion it would have resulted in small shareholders paying the same price as the institutional placement, $30.95, rather than the SPP price of $26.50. As the "old" shares traded below $30.95 during the issue period the rights wouldn't have had any value.

ANZ management's claim that a rights issue would have resulted in a lot of small entitlements seems to be correct. Something like 1 for 35, if my maths are anywhere near the mark!

[Tomtom]

ANZ have been very aggressive in lending to business over the last few years....perhaps too aggressive if there's any sort of recession.
There was a little blurb on Reuters the other day explaining:

ANZ has a return on risk weighted assets (RoRW) of 2.84 percent in Australia compared with 0.81 percent in Asia, excluding its minority partnerships which it is looking to exit. The Asian RoRW translates to a level of profitability below the cost of capital, meaning the bank is destroying value.
Its cost-to-income ratio is 44.7 percent, higher than its three main rivals - CBA, National Australia Bank and Westpac - and compared with 36.7 percent at its Australian franchise, reflecting high costs in Asia.


I'd imagine they'll be getting back to their knitting soon.

[Bjauck]

There was a little blurb on Reuters the other day explaining:

I'd imagine they'll be getting back to their knitting soon. I always thought that their investment in Asian tigers was high risk - nice purring kitty cats bringing in comparatively good returns when times were good but wild cats showing claws and teeth when times became bad. At least for those who participated, the sp is still above the spp price.

[BlackCross]

This seems relevant:

The five macro forces driving bank equity flows
1. Quantitative Easing (QE) initially feels good as low interest rates reduce loan losses
and is expected to stimulate loan growth. After a while, however, ultra-low rates
destroy the profitability of deposit gathering business (eg, look at China now) and
excess liquidity has too flow into some type of lending and it destroys trade financespreads (eg, look at STAN and ANZ). As a lot of Asia enters this bad QE phase the
US is exiting with higher US interest rates to restore banks deposit businesses.
That’s good news for US banks.
2. Tighter global bank regulation and the imposition of mechanical liquidity constraints
slows credit growth. It becomes hard to grow loans faster than high-quality deposit.
Further the looming imposition of the Net Stable Funding Ratio reduces the ability
of banks to mismatch duration of loan assets and funding liabilities. Finally bank
regulatory capital intensity rises. That’s feels very bad for Australia whereas
countries like India and the Philippines still have structurally strong deposit and
high system credit growth.
3. Low system credit growth forces banks to pull cost lever through
outsourcing/offshoring/digitisation/robotics/branch rationalisation. That’s likely
good for high labour cost countries like Australia but ironically cost out initiatives
require investment.
4. Rising bank regulatory capital intensity is bad for bank dividends, particularly in
Australia where regulatory capital arbitrage activity has been high. The opposite
holds true in the US where banks are already re-capitalised and capital generation
will surge given restored deposit businesses, the eventual end of the
litigation/penalty cycle and cost restructuring. In short global PMs should beswitching from still expensive Australian banks to high quality US banks. For
example switch from CBA to Wells Fargo, WBC to JPM etc etc.
5. Currency and interest rates will drive a reversal of global bank equity flows. The
end of the artificial QE drag on the USD is profound as USD investor benchmarks
created significant carry trades for investors.

cut from todays http://ftalphaville.ft.com/marketslive/2015-09-29/

[Tomtom]

I always thought that their investment in Asian tigers was high risk - nice purring kitty cats bringing in comparatively good returns when times were good but wild cats showing claws and teeth when times became bad. At least for those who participated, the sp is still above the spp price. The more you hear about the Asian operations (http://www.smh.com.au/business/banking-and-finance/anz-had-3pc-of-workforce-breach-code-of-conduct-in-2014-20151005-gk1gqw.html) the higher the level of risk taken appears for that diminishing return. That said the incoming CEO has indicated they're doubling down on the dabbling in Asia.

[peat]

The more you hear about the Asian operations (http://www.smh.com.au/business/banking-and-finance/anz-had-3pc-of-workforce-breach-code-of-conduct-in-2014-20151005-gk1gqw.html) the higher the level of risk taken appears for that diminishing return. That said the incoming CEO has indicated they're doubling down on the dabbling in Asia.
its the growth possibilities of course. Especially when you consider how growth gets harder and harder to find as globalism spreads everywhere.

[Lewylewylewy]

Can anyone explain the sudden drop today? There was upwards preasure that suddenly reversed.

Is that just a response to the NZD?

[Joshuatree]

Have a read of KW's Big Short thread

[Lewylewylewy]

Thanks. Essentially the banks look like there's no room to grow, despite performing well and also there are fears they could drop...

But it sure does look like a good buy at the moment, at least in terms or a long term investment imo

[huxley]

Don't worry Morningstar still rates it a buy ;)

[Bobdn]

Can anyone explain the sudden drop today? There was upwards preasure that suddenly reversed.

Is that just a response to the NZD?

If you're in the DRP it's not all bad news, infact the lower the better for the 10 days from 13 November.

The Acquisition Price to be used in determining the number of shares to be provided under the DRP and BOP in connection with the 2015 Final Dividend will be the arithmetic average of the daily volume weighted average sale price of all fully paid ANZ ordinary shares sold on the ASX during the ten trading days commencing 13 November 2015, and then rounded to the nearest whole cent. - See more at: https://www.shareholder.anz.com/pages/dividends#sthash.RUkgu4x2.dpuf

[Lewylewylewy]

Don't worry Morningstar still rates it a buy ;) tbh, I usually do the opposite of what morningstar says...

[Baa_Baa]

tbh, I usually do the opposite of what morningstar says...

Sometimes though you have to look through the recommendation to see relevance, ANZ's SP has declined to an almost 3 year low which is also the price highs going back to 2009 after the recovery from the GFC. Some might think that's good buying, but even then it's a falling knife with no obvious fundamental price support amidst increasing headwinds for the Aus Banking sector.

[macduffy]

It's not just the banks though. BHP hit a 6 year low today and the ASX "lost" $27b in the day! Commentators are blaming the failure of the RBA to lower interest rates coupled with the prospect of higher USD rates.

[Baa_Baa]

It's not just the banks though. BHP hit a 6 year low today and the ASX "lost" $27b in the day! Commentators are blaming the failure of the RBA to lower interest rates coupled with the prospect of higher USD rates.

Yes! the ASX is getting hammered, it's the worst performing bourse. I wonder why, not, it's exposures to key sector weaknesses are alarming and a delayed GFC effect seems to be taking a firm grip.

[Lewylewylewy]

I just feel like there must be some good long term investments there, or at least some diverse investing...

[huxley]

Morningstar jokes aside I'm very tempted to start purchasing if it keeps falling

[stevevai1983]

My bank friend said ANZ's china business was in a really really bad situation. bad debt is about 4.5%. (CBA is even worse but it's has less exposure)
I am not surprised at all... if you know china's overall bad debt situation..

[Bobdn]

Yes, hopefully a good buy. Bought a further 600 last week before it went xd at 28.20. Up 3% today and a 95 cent per share dividend being paid out in December.

Let's hope the NZD reteats back to 80 cents AUS. Amazing to think that ANZ is bigger than all the companies on the NZX combined.

[huxley]

Yes, hopefully a good buy. Bought a further 600 last week before it went xd at 28.20. Up 3% today and a 95 cent per share dividend being paid out in December.

Let's hope the NZD reteats back to 80 cents AUS. Amazing to think that ANZ is bigger than all the companies on the NZX combined.


Agreed, I actually did pick up a few before it went ex dividend as well - seems like a good stock to be long on and buy on weakness over time...

[Bobdn]

Let the good times roll, Huxley

[Corleone]

Really happy I didn't buy when it dipped to 33.50 a few months ago lol. Thankfully I bought HNZ for 1.09 instead. I don't see this stabilizing anytime soon.

[Bobdn]

Really happy I didn't buy when it dipped to 33.50 a few months ago lol. Thankfully I bought HNZ for 1.09 instead. I don't see this stabilizing anytime soon.

I feel the same way about BHP which i tried to buy at $27 but didn't realize that I had to have first completed a CHESS securities application so the sale never happened. And now look what's happened. Still, buying at that price might have worked out really well over the next 10-15 years. We just don't know.

I have both HNZ and ANZ. As I say from time to time: HNZ is assessed as having a 1 in 30 probabilityof default over 5years with it's BBB rating and ANZ 1 in 300 with it's AA-. Never hurts to spread the love around.

http://www.rbnz.govt.nz/regulation_and_supervision/banks/3498179.pdf

[Bobdn]

Nice rally for the Australian banks this week. Great to see the NZD dropping as well. Some interesting points from the SMH, with a note of caution about ANZ. Still, I'm keeping them ;)

"Stocks in the big four banks have rallied hard over the past week - harder than the sharemarket in general - prompting analysts to suggest the sector has bottomed.
The reason for the bank rally was that the stocks were beginning to look irresistible after the falls, said Watermark Funds Management analyst Omkar Joshi.
"There's been a lot of bad news that's been out there for a while - most of this year, in fact about capital and bad debt - and most of that has played out now," Mr Joshi said on Friday.
Here are the main reasons Mr Joshi lists for the banking recovery:
Capital raising done
"Capital was one of the key concerns that was overhanging the stocks for most of the year. Now all four have gone ahead and done their capital raisings. That's finished now and the capital raising is out of the way."
Raising rates has helped banks deal with holding more capital
Each of the banks has recently raised their lending rates independent of the cash rate, and there's been little fallout from that, said Mr Joshi.
Good asset quality - bad debts under control
"We haven't seen a sudden uptick in bad debts," said Mr Joshi. "That's another thing that's comforted people, with the exception of ANZ. The other three are doing ok - bad debts are falling away." Having said that, "bad debts are probably going up."
Shares cheap
"When you look at both valuation multiples and the 7 per cent dividend yield for NAB and ANZ, they start to look pretty bloody cheap."
​... but be wary of ANZ
ANZ's Asian investments were not going well, said Mr Joshi.

Read more: http://www.smh.com.au/business/markets-live/markets-live-rally-fizzles-dollar-sizzles-20151119-gl3i77.html#ixzz3s4QHONt7
Follow us: @smh on Twitter (http://ec.tynt.com/b/rw?id=aBfWCmwwCr37XTadbiUzgI&u=smh) | sydneymorningherald on Facebook (http://ec.tynt.com/b/rf?id=aBfWCmwwCr37XTadbiUzgI&u=sydneymorningherald)

[huxley]

Hey bobdn quick question regarding dividends from ANZ - do they pay rwt for you or do they put the gross amount into your account and leave you to pay tax? No problems if you don't wana give tax advice on here I'm just keen to get general info! Cheers

[Bobdn]

Looks like I got the gross amount and no RWT was taken out. I borrowed to buy my ANZ shares so will be submitting a tax return anyway. I need to clear up a few things like what exchange rate do I use when working out the value of dividends in NZ dollars.

[huxley]

Looks like I got the gross amount and no RWT was taken out. I borrowed to buy my ANZ shares so will be submitting a tax return anyway. I need to clear up a few things like what exchange rate do I use when working out the value of dividends in NZ dollars.


Thanks mate

[macduffy]

Looks like I got the gross amount and no RWT was taken out. I borrowed to buy my ANZ shares so will be submitting a tax return anyway. I need to clear up a few things like what exchange rate do I use when working out the value of dividends in NZ dollars.

The IRD produce a list of various currencies exchange rates, including NZD/AUD - mid-month rates as supplied by Bloombergs. Usually available on IRD website around April/May.

[BlackPeter]

The IRD produce a list of various currencies exchange rates, including NZD/AUD - mid-month rates as supplied by Bloombergs. Usually available on IRD website around April/May.

more information about this is here:

http://www.ird.govt.nz/business-income-tax/overseas-currency-convert-nz.html

From personal experience - the IRD is happy if you use their tables, but they seem to be happy as well if you use the "official" exchange rates as published by the dividend payer (e.g. ANZ would publish their exchange rate for NZ paid dividends). Important is just that you use for the whole tax year the same method - i.e. you are not allowed to use one method for one dividend payment and the other method for the other dividend payment.

Still easier obviously if you own NZX listed ANZ shares ... you are paid in NZD (typically including some NZ imputation credits), and this are the data you give IRD.

Discl: not a tax expert, but it worked so far for me (using the exchange rate announced by the respective Australian company when paying dividends) ....

[Bobdn]

Thanks BlackPeter and macduffy, really helpful.

[Snoopy]

Hey bobdn quick question regarding dividends from ANZ - do they pay rwt for you or do they put the gross amount into your account and leave you to pay tax? No problems if you don't wana give tax advice on here I'm just keen to get general info! Cheers


Huxley, ANZ pay dividends with both Australian Franking Credits and New Zealand Imputation credits attached. If you are a New Zealand Taxpayer, you must disregard the Australian franking credits. The cheque ANZ put into your account is a net amount.

For a New Zealand taxpayer you must calculate your gross income by adding the net amount deposited in your bank account to the New Zealand imputation credits paid. (Note this means that in general for a fixed number of shares, the gross income for a New Zealand taxpayer is not the same as the gross income for an Australian taxpayer).

In an IR3 form (FY2015), The NZ imputation credits should be claimed under question 14 (Did you have any New Zealand dividends paid..?). The gross income however should be declared under question 17 (Did you receive any overseas income?)

Because the income for New Zealand shareholders is not fully imputed, you will generally have a 'wash up' amount of extra tax on your ANZ dividends to pay at a later date.

HTH

SNOOPY

discl: ANZ Shareholder

[macduffy]

Just to add to Snoopy's post, ANZ's dividend advice states "... your NZ gross income will include the aggregate of the Dividend Amount and the NZ Imputation Credit which should be included in your income tax return." Both amounts are expressed in the dividend advice in NZD.

However, ANZ dividends subject to the Dividend Reinvestment Plan don't show the Dividend Amount in NZD, but in AUD - this amount is subject to reinvestment based on the AUD shareprice - as defined. The NZ Imputation Credit is shown in NZD and the advice includes details of forex rates applicable to the dividend - AUD/NZD and AUD/GBP. Definition of NZ gross income is as above.

Disc: Holding both

[huxley]

Huxley, ANZ pay dividends with both Australian Franking Credits and New Zealand Imputation credits attached. If you are a New Zealand Taxpayer, you must disregard the Australian franking credits. The cheque ANZ put into your account is a net amount.

For a New Zealand taxpayer you must calculate your gross income by adding the net amount deposited in your bank account to the New Zealand imputation credits paid. (Note this means that in general for a fixed number of shares, the gross income for a New Zealand taxpayer is not the same as the gross income for an Australian taxpayer).

In an IR3 form (FY2015), The NZ imputation credits should be claimed under question 14 (Did you have any New Zealand dividends paid..?). The gross income however should be declared under question 17 (Did you receive any overseas income?)

Because the income for New Zealand shareholders is not fully imputed, you will generally have a 'wash up' amount of extra tax on your ANZ dividends to pay at a later date.

HTH

SNOOPY

discl: ANZ Shareholder

Thanks very much for this info Snoopy. I assume the same would apply if you choose to take your dividend as shares through the drp.

[Snoopy]

Thanks very much for this info Snoopy. I assume the same would apply if you choose to take your dividend as shares through the drp.


As Macduffy has said, the amounts printed on your dividend statements (currency expression aside), are the same whether you take the dividend as cash or whether you choose to reinvest in more shares via the drp. Thus the tax consequences, depending on which path you choose, are also the same.

SNOOPY

[Bobdn]

Great thanks Snoopy. One last question (maybe not:) - in the interim dividend I received in July for my nzx.anz shares, there was no mention of imputation credits. At that stage, I had 1227 shares. The payment rate was .86 cents as you know, and the total gross/net amount was listed as $1,055 The franking credit is listed (no good to us I guess) at $452.

I think I might be missing something here, but how do I know what the imputation credits are? Thanks in anticipation.

[Bjauck]

Great thanks Snoopy. One last question (maybe not:) - in the interim dividend I received in July for my nzx.anz shares, there was no mention of imputation credits. At that stage, I had 1227 shares. The payment rate was .86 cents as you know, and the total gross/net amount was listed as $1,055 The franking credit is listed (no good to us I guess) at $452.

I think I might be missing something here, but how do I know what the imputation credits are? Thanks in anticipation.

Looking on the NZX site you should have received 86c ps (AUD) dividend with a 10c per share imputation credit.
https://www.nzx.com/markets/NZSX/securities/ANZ/dividends

[Bobdn]

cool thanks, that's how I'll calculate it then.

[macduffy]

Great thanks Snoopy. One last question (maybe not:) - in the interim dividend I received in July for my nzx.anz shares, there was no mention of imputation credits. At that stage, I had 1227 shares. The payment rate was .86 cents as you know, and the total gross/net amount was listed as $1,055 The franking credit is listed (no good to us I guess) at $452.

I think I might be missing something here, but how do I know what the imputation credits are? Thanks in anticipation.

Presumably the shares aren't held in an Australian- domiciled nominee account?

[Bobdn]

No, held in NZ.

[Snoopy]

Great thanks Snoopy. One last question (maybe not:) - in the interim dividend I received in July for my nzx.anz shares, there was no mention of imputation credits. At that stage, I had 1227 shares. The payment rate was .86 cents as you know, and the total gross/net amount was listed as $1,055 The franking credit is listed (no good to us I guess) at $452.

I think I might be missing something here, but how do I know what the imputation credits are? Thanks in anticipation.

Bobdn, I just had a look at my 2015 interim dividend statement dated 1st July 2015. There were seven 'headers' spread out across the page as follows:



Class of ShareDividend per ShareNumber of SharesFranked Amount
Dividend AmountFranking GreditNZ Imputation Credit



All amounts are listed in Australian dollars except for the imputation credits. These are listed under the furthermost column to the right, in $NZ. My ANZ shares are listed on the NZX, as I believe are yours. So our interim dividend statements should be both printed in the same format.

SNOOPY

[winner69]

Bobdn, I just had a look at my 2015 interim dividend statement dated 1st July 2015. There were seven 'headers' spread out across the page as follows:



Class of ShareDividend per ShareNumber of SharesFranked Amount
Dividend AmountFranking GreditNZ Imputation Credit



The Dividend Amount is in A$ so needs to be converted and the NZ Imputation is in NZ$

If paid in Cash (no DRP) don't you get NZ$ so no need to convert.

Seems pretty clear to me

[Bobdn]

Thanks both. My shares are nz listed, however my statement doesn't have the imputation header. I'm in the drp but i assume that would not mean a different statement

I'll check in with computershare and report back in due course.

[Tomtom]

If panic sets in about Asia and the Australian business starts to trade at an irrational discount I still think some will be tempted. The core business is still performing and it seems to me that the "super-regional" business could eventually be shirked which would streamline the business towards investor returns. Perhaps a little wishful and/or premature in my part however.

Given the companies performance over the last decade the remuneration issues also appears poignant.

[huxley]

If panic sets in about Asia and the Australian business starts to trade at an irrational discount I still think some will be tempted. The core business is still performing and it seems to me that the "super-regional" business could eventually be shirked which would streamline the business towards investor returns. Perhaps a little wishful and/or premature in my part however.

Given the companies performance over the last decade the remuneration issues also appears poignant.


Core business seems just fine...

http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11574244&ref=NZH_FBpage

[Tomtom]

Only if writing scripts to sequels becomes a core business activity...

Anyway if it where as well run as the other 3 it would trade at a similar premium.

[Yeshiva]

My broker is raving about the dividends from the Australian banks, as well as their relative cheapness. I picked up some ANZ the other day, though I felt it better to do it on our own NZX rather than buying in Australian dollars. I suppose though that the NZX price will ultimately take into account any swings in currency?

[macduffy]

My broker is raving about the dividends from the Australian banks, as well as their relative cheapness. I picked up some ANZ the other day, though I felt it better to do it on our own NZX rather than buying in Australian dollars. I suppose though that the NZX price will ultimately take into account any swings in currency?

Yes, indeed!

Any "discrepancies"- currency adjusted - are quickly arbitraged away by traders. There is an argument that buying/selling Aust stocks on the ASX is preferable due to the greater depth of that market but I doubt that's an issue for us retail investors for a widely traded stock such as ANZ.

[GTM 3442]

My broker is raving about the dividends from the Australian banks, as well as their relative cheapness. I picked up some ANZ the other day, though I felt it better to do it on our own NZX rather than buying in Australian dollars. I suppose though that the NZX price will ultimately take into account any swings in currency?

And the dividend yield will improve each time the price goes down too!

Until you buy some, of course.

[JBmurc]

Just remember ANZ have the largest chunk of loans in the ASX Mining sector of the Big Aussie banks some 12-13 billion outstanding ..how much of this will default will be interesting with very few miners making a profit currently ..

[JBmurc]

http://www.bbc.com/news/business-35320678

[JBmurc]

http://www.barrons.com/articles/dont-be-tempted-by-australian-bank-stocks-1452579741

Yes we will find out on 17 Feb what the fwd guidance is for the half yr result due out in early May.......

I actually would like to BUY a position in ANZ ,,,but not yet more round Tax loss selling MAY-JUNE (low 20's NZX) ...good yield ....and a good play on AUD weakness that will rebound on better AUS economy going forward .....

And also very interested to see how ANZ would value themselves when I borrowing funds from them ?

IMHO ANZ the best of the Big four ...using P/E ratio /divi payout ratio/Yield and personal banking experience
but they may have more risky a loan book

[macduffy]

Citi rates ANZ a "Buy".

"Citi rates ANZ as Buy (1) - Citi analysts note how investors have started to price Australian banks differently with CommBank leading the pack in terms of relative valuation. The analysts argue this sector bifurcation doesn't appear justified. In their view, current circumstances are making operational performances more uniform across the sector.
Negative capital generation is driving CET1 ratios lower for all banks with little or no buffer, point out the analysts. They believe share price falls add to valuation support for the sector in general.
Citi's Major Bank order of preference has ANZ Bank (Buy) first, then National Australia Bank (Buy), then Westpac (Neutral) and finally CBA (Neutral); in complete opposite order of current market pricing.
Target price is $33.25 Current Price is $24.41 Difference: $8.84 If ANZ meets the Citi target it will return approximately 36% (excluding dividends, fees and charges). Current consensus price target is $30.90, suggesting upside of 26.6%(ex-dividends)The company's fiscal year ends in September.
Forecast for FY16:
Citi forecasts a full year FY16 dividend of 184.00 cents and EPS of 257.50 cents . At the last closing share price the estimated dividend yield is 7.54%. At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 9.48. How do these forecasts compare to market consensus projections?
Current consensus EPS estimate is 254.2, implying annual growth of -6.4%.Current consensus DPS estimate is 182.9, implying a prospective dividend yield of 7.5%.Current consensus EPS estimate suggests the PER is 9.6.Forecast for FY17:
Citi forecasts a full year FY17 dividend of 0.00 cents and EPS of 256.90 cents . At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 9.50. How do these forecasts compare to market consensus projections?
Current consensus EPS estimate is 261.9, implying annual growth of 3.0%.Current consensus DPS estimate is 185.5, implying a prospective dividend yield of 7.6%.Current consensus EPS estimate suggests the PER is 9.3."

[Tomtom]

There was an odd story (http://www.stuff.co.nz/business/76052361/ANZ-among-several-large-businesses-still-using-outdated-Windows-XP) on Stuff suggesting ANZ New Zealand might still using Windows XP and Office 2003? More importantly while Citi are ranking ANZ a buy but Morgan Stanley think they will cut second half dividends.

[Snoopy]

The December 16th 2014 UDC Prospectus release, at last gets the details of what happened at UDC during FY2014 out into the public arena.

https://www.udc.co.nz/pdf/udc-prospectus-2014.pdf

The 'profit before tax' is listed as $71.768m (p35). But this includes a provision for credit impairment of $11.733m which I would remove to get the picture of ongoing operational performance. So I get EBT of $83.501m.

Now go to note 4 (p44) on interest expense. There is underlying interest over and above what is due to debenture holders of $16.783m.

So total underlying EBIT = $83.501m + $16.783m = $100.28m

Now turn to page 46 (note 8) and you will see total loans and advances of: $2,272.281m

So the operating margin based on the end of year loan balance book is:

$100.28m/$2272.281m = 4.41%

A significant improvement on FY2013 and it continues the improvement from a 3.87% margin in FY2012



The December 15th 2015 UDC Prospectus release, at last gets the details of what happened at UDC during FY2015 out into the public arena.

https://www.udc.co.nz/pdf/UDC_Prospectus_69.pdf

The 'profit before tax' is listed as $79.323m (p34). But this includes a provision for credit impairment of $10.427m which I would remove to get the picture of ongoing operational performance. So I get EBT of $89.750m.

Now go to note 4 (p43) on interest expense. There is underlying interest over and above what is due to debenture holders of $18.951m.

So total underlying EBIT = $89.750m + $18.951m = $108.701m

Now turn to page 45 (note 6) and you will see total net loans and advances of: $2,347.163m

So the operating margin based on the end of year loan balance book is:

$108.701m/$2,347.163m = 4.63%

A significant improvement on FY2014 and it continues the improvement from a 3.87% margin in FY2012

SNOOPY

[Snoopy]

Time to normalise the UDC figures for 2014 so they can be compared more directly with the likes of Heartland Bank.

Heartland in FY2014 had selling and administration expenses of $64.739m (Heartland FY2014 report 'Selling & Administration Expenses', note 11). UDC had total operating expenses of $31.306m (UDC prospectus note 4). That is a difference of $33.433m. The two are comparable in that they have a similarly sized loan book (UDC:$2,272.081m, Heartland $2,607.393m). If we add the operating cost difference figure onto the UDC cost structure, what would that do to the UDC operating margin (see previous post) on assets?

FY2014: ($100.28-$33.433+ $9.79)/$2272.08 = 3.37%

Note: The $9.79m added back represents the adding back of 'fees paid to related parties' (ANZ). These are part of the $33.433m 'extra operating expenses and would have been double charged if not added back

This calculation shows the underlying margin at UDC to be significantly improved from FY2013's 2.58%.


Time to normalise the UDC figures for 2015 so they can be compared more directly with the likes of Heartland Bank.

Heartland in FY2015 had selling and administration expenses of $68.403m (Heartland FY2015 report 'Selling & Administration Expenses', note 5). UDC had total operating expenses of $32.278m (UDC prospectus note 4). That is a difference of $36.125m. The two are comparable in that they have a similarly sized loan book (UDC:$2,347.183m, Heartland $2,862.070m). If we add the operating cost difference figure onto the UDC cost structure, what would that do to the UDC operating margin on assets?

FY2015: ($108.701-$36.125+ $10.464)/$2,347.183 = 3.53%

Note: UDC do not have a branch network of their own, but operate through ANZ bank branches in New Zealand. The $10.464m added back represents the adding back of 'fees paid to related parties' (ANZ). These are part of the $36.125m 'extra operating expenses (p43 note 4). The $10.464m could be thought of as a contribution to the ANZ branch network that allows UDC to carry on business as normal. But what I am interested in is the difference in operating cost of a finance company with and without a branch network. So this $10.464m which largely reflects a branch network allowance must be removed from my comparison.

This calculation shows the underlying margin at UDC to be slightly improved from FY2014's 3.37%.

SNOOPY

[Snoopy]

An update on the post financial crisis profitability trends. The Heartland comparative figures only start from FY2012, because that is when Heartland started to exist in its current form.



UDCHeartland


EBTLoan BookEBT/Loan BookEBTLoan BookEBT/Loan Book


FY2009$34.024m$1,829.156m1.86%


FY2010$45.012m$1,968.771m2.29%


FY2011$46.382m$1,948.552m2.38%


FY2012$58.476m$2,014.473m2.90%$29.377m$2,078.276m1 .41%


FY2013$66.787m$2,065.117m3.23%$36.540m$2,010.376m1 .82%


FY2014$83.501m$2,272.081m3.68%$57.416m$2,607.393m2 .20%



Reference for data (UDC): p33 of 2014 prospectus (profit, loans and advances)
Reference for data (Heartland): AR2014 Statement of Comprehensive Income Operating profit, Statements of Financial Position)


An update on the post financial crisis profitability trends. The Heartland comparative figures only start from FY2012, because that is when Heartland started to exist in its current form.



UDCHeartland


EBTLoan BookEBT/Loan BookEBTLoan BookEBT/Loan Book


FY2009$34.024m$1,829.156m1.86%


FY2010$45.012m$1,968.771m2.29%


FY2011$46.382m$1,948.552m2.38%


FY2012$58.476m$2,014.473m2.90%$29.377m$2,078.276m1 .41%


FY2013$66.787m$2,065.117m3.23%$36.540m$2,010.376m1 .82%


FY2014$83.501m$2,272.081m3.68%$57.416m$2,607.393m2 .20%


FY2015$89.750m$2,347.163m3.82%$76.304m$2,862.070m2 .67%



Reference for data (UDC): (p32 of 2015 prospectus (No.69) , p33 of 2014 prospectus) (Profit before Income tax & Credit Impairment, Net loans and advances)
Reference for data (Heartland): AR2015, AR2014 Statement of Comprehensive Income Operating profit, Statements of Financial Position)

SNOOPY

[Snoopy]

Updating the actual bad debt write offs in relation to the size of the loan book at the end of the year. Section 10 in the UDC 2014 prospectus is named "Provision for Credit Impairment on Loans and Advances". Bad debts actually written off are compared against the 'provision for loan impairment' stated on page 33, the 'Summary Financial Statement', which were $7.123m (FY2013) and $6.031m (FY2012).



UDCBad Debt Write OffNew Bad Debt Provision


FY2010$17.343m


FY2011$4.891m


FY2012$10.164m$6.031m


FY2013$12.399m$7.123m


FY2014$18.633m$11.733m



"I am reading between the lines when I say the actual write offs probably reflect the worse times immediately following the GFC. With a more benign business environment going forwards we might expect future write offs to be smaller, trending towards the current year write off figure."

I wrote the above in relation to the FY2013 results. Looks like I was wrong though. Write offs are getting larger, back up towards GFC levels!

Putting these actual write offs as a percentage of the end of year loan book gives them better context.

FY2012: $10.164m/$2,014.473m = 0.505%
FY2013: $12.399m/$2,065.117m = 0.600%
FY2014: $18.633m/$2,272.081m = 0.820%

But it doesn't change the interpretation. Annual write offs at UDC are getting bigger in relation to the size of the loan book as well!

For comparative purposes, it is informative to look 'over the fence' to Heartland Bank. Note 12 (AR2014) details impaired asset expense as follows:

FY2012: $5.642m
FY2013: $22.527m
FY2014: $5.895m

Normalize these against the total finance receivables

FY2012: $5.642m/ $2078.3m = 0.271%
FY2013: $22.527m/ $2010.4m = 1.12%
FY2014: $5.895m/ $2607.4m = 0.226%

We know that 2014 year was a particularly bad one for Heartland, regarding bad debts. But look how Heartland have bounced back, relative to UDC in FY2014.



UDC Debt Write OffHeartland Debt Write Off


FY20120.505%0.271%


FY20130.600%1.12%


FY20140.820%0.226%




Updating the actual bad debt write offs in relation to the size of the loan book at the end of FY2015. Section 7 in the UDC 2015 prospectus is named "Provision for Credit Impairment". Bad debts actually written off are compared against the 'provision for loan impairment' stated on page 32, the 'Summary Financial Statement', which were $10.427m (FY2015) and $11.733m (FY2014).



UDCBad Debt Write OffNew Bad Debt Provision


FY2010$17.343m


FY2011$4.891m


FY2012$10.164m$6.031m


FY2013$12.399m$7.123m


FY2014$18.633m$11.733m


FY2015$12.162m$10.427m



Actual write offs are down, coming off a spike from FY2014

Putting these actual write offs as a percentage of the end of year loan book gives them better context.

FY2012: $10.164m/$2,014.473m = 0.505%
FY2013: $12.399m/$2,065.117m = 0.600%
FY2014: $18.633m/$2,272.081m = 0.820%
FY2015: $12.162m/$2,347.163m = 0.518%

This is an improvement back towards FY2012 values.

For comparative purposes, it is informative to look 'over the fence' to Heartland Bank. Note 6 (AR2015) details impaired asset expense as follows:

FY2012: $5.642m
FY2013: $22.527m
FY2014: $5.895m
FY2015: $12.105m

Normalize these against the total finance receivables

FY2012: $5.642m/ $2078.3m = 0.271%
FY2013: $22.527m/ $2010.4m = 1.12%
FY2014: $5.895m/ $2607.4m = 0.226%
FY2015: $12.105m/ $2862.1m = 0.423%

It is interesting to see that Heartland's write offs are increasing whereas UDC write offs are decreasing. The overall write offs for Heartland are nevertheless still less in percentage terms than UDC.



UDC Debt Write OffHeartland Debt Write Off


FY20120.505%0.271%


FY20130.600%1.12%


FY20140.820%0.226%


FY20150.518%0.423%



SNOOPY

[Snoopy]

Note 17d (page 54 UDC 2014 prospectus) lists the internal risk grading of the loan assets on a scale of 1 to 9. On this scale 1 is the lowest risk while 9 means a default. The grade 6 and below categories for EOY2014 add up as follows:

$811,700m + $92,366m + $34,833m = $938,899m.

These represents a fraction of the total loans outstanding as follows:

$938,899m / $2,375.936m = 39.5% of total loan assets.

Impairment of $31,805m has been accumulated on the books over the years. This impairment of $31,805m represents

$31,805m / $938,899m = 3.38% of the Grade 6 (monitor) and below grade assets.

For comparative purposes it is interesting to see what happens when we take the same statistics for Heartland bank. The situation is not strictly comparable because Heartland has a different credit risk system for so called 'Behavioral Loans' and separately categorized 'Judgement Loans'. Heartland Behavioral loans consist of consumer and retail receivables usually relating to the financing of a single asset. I have added the three vulnerable categories of behavioural loans separately.

OTOH Heartland 'Judgement Loans' are graded on the 1-9 system. A 'Judgement loan' within Heartland consists mainly of business and rural lending, including non-core property, where an ongoing and detailed working relationship has been developed.

The grade 6 and below categories of 'Judgement Loans' for Heartland EOY2014 add up as follows:

$115,776m + $14,833m + $13,520m + $3,412m = $147,541m.

These represents a fraction of the total loans outstanding as follows:

$147,541m / $979,354m = 15.1% of total Judgement loan assets.




Some impairment ($6,999m) has already been taken onto the book over the years. Add to this a reverse mortgage fair value adjustment of $8.000m This total impairment of $14.999m represents

$14.999m / $147.596m = 10.1% of the Grade 6 (monitor) and below grade assets.


Note 11d (page 50 UDC for 2015 prospectus (No.69)) lists the internal risk grading of the loan assets on a scale of 0 to 9. On this scale 0 is the lowest risk while 9 means a default.



[TH]UDC Vulnerable Loans


JudgementTotal


Grade 6+


2012$975.744m +$80.745m +$55.403m$1,111.892m


2013$1,157.111m +$83.790m +$24.814m$1,265.715m


2014$811.700m +$92.366m +$34.883m$938.949m


2015$904.338m +$81.156m +$32.640m$1,018.134m



The grade 6 and below categories for EOY2015 added up represents a fraction of the total loans outstanding as follows:

$1,018,134m / $2,461.224m = 41.4% of total loan assets.

Credit impairment is noted as $31.529m (note 11d)

========

For comparative purposes it is interesting to see what happens when we take the same statistics for Heartland bank. The situation is not strictly comparable because Heartland has a different credit risk system for so called 'Behavioral Loans'. Behavioral loans consist of consumer and retail receivables usually relating to the financing of a single asset.

OTOH 'Judgement Loans' are graded on the 1-9 system. Grade 1 represents a 'Very Strong' loan. Grade 9 represents a loan 'At Risk of Loss'. Grade 6 represents a loan that should be monitored. A 'Judgement loan' within Heartland consists mainly of business and rural lending, including non-core property, where an ongoing and detailed working relationship has been developed.

The grade 6 and below categories of 'Judgement Loans' plus the equivalently vulnerable 'Behavioural Loans' sum up to a total amount of Heartland Vulnerable Loans'. represent a fraction of the total loans outstanding as follows:

$149,011m / $2,878,513m = 5.18% of total loan assets.

Some impairment ($10,201m) (Note 18b) has already been taken onto the book over the years. Add to this a reverse mortgage fair value adjustment of ($6.242m) This total impairment of $16.433m represents

$16.433m / $126.382m = 13.0% of the Grade 6 (monitor) and below grade assets.



Heartland Vulnerable Loans


BehaviouralJudgementTotal


ArrangementNon Performing RepossessionRecoveryGrade 6+


2012$13.750m$4.386m$2.740m$185.315m +$53.360m +$14.036m +$13.741m$287.118m


2013$8.416m$2.226m$1.936m$198.370m +$18.034m +$21.518m +$27.761m$278.051m


2014$7.571m$2.113m$2.113m$165.776m +$14.833m +$13.520m +$3.412m$159.338m


2015$15.855m$3.087m$3.687m$99.849m +$14.937m +$4.514m +$7.082m$149.011m



A summarized comparative table between UDC (Year ending 30th September) and Heartland (Year ending 30th June) is below:



UDCHeartland


Impaired Loans (A)Grade 6+ Loans [total Vulnerable](B)(A)/(B)Total Loans (C)(A)/(C)Impaired Loans (A)Total Vulnerable Loans (B)(A)/(B)Total Loans (C)(A)/(C)


2012$38.481m$1,111.892m3.46%$2,141,780m1.79%$8.032 m$287.118m2.80%$2,086.303m0.785%


2013$37.460m$1,265.765m2.95%$2,198,653m1.70%$15.96 1m$278.051m5.74%$2,026.337m0.788%


2014$31.805m$938,899m3.38%$2,375.936m1.34%$14.999m $159.338m9.41%$2,622,392m0.571%


2015$31.529m$1,018,134m3.10%$2,461.224m1.28%$16.43 3m$149.011m11.0%$2,878,513m0.571%




SNOOPY

[Snoopy]

UDC and ANZ New Zealand have the same balance date. So it is legitimate to work out the distribution of loans on their respective books using 30th September end of year data. First I need to slightly rearrange the ANZ (NZ) categories (ANZ September 30th 2014 Bank Disclosure Statement, p48) so that they correspond to those listed in the December 2014 UDC prospectus. Then I need to subtract the UDC equivalent figures (page 54, December 2014 prospectus) to get the underlying ANZ bank figure. The results are below:



All ANZ.NZUDCUnderlying ANZ.NZ


Agriculture forestry, fishing and mining:$20,860m(13.4%)
$456m(19.5%)
$20,404m(13.3%)


Business and property services:$12,061m(7.8%)
$121m(5.2%)
$11,940m(7.8%)



Construction:$2,154m(1.4%)
$340m(14.5%)
$1,814m(1.2%)


Entertainment, leisure and tourism:$1,294m(0.8%)
$11m(0.5%)
$1,283m(0.8%)



Finance and insurance:$20,254m(13.0%)
$76m(3.3%)
$20,178m(13.2%)


Government and local authority:$11,363m(7.3%)
$3m(0.1%)
$11,360m(7.4%)


Manufacturing:$5,312m(3.4%)
$91m(3.9%)
$5,221m(3.4%)


Personal & Other lending:$74,191m(47.7%)
$555m(23.7%)
$73,636m(48.1%)


Retail and Wholesale:
$5,721m(3.7%)
$278m(11.8%)
$5,443m(3.6%)


Transport and storage:$2,264m(1.5%)
$412m(17.6%)
$1,851m(1.2%)


Total:$155,474m(100%)$2,344m(100%)$153,130m(100%)



We have to remember that UDC is roughly equivalent to Heartland in size. Heartland is an NZX top 50 company. So it is quite a surprise to me when UDC are removed from the New Zealand division of ANZ (which in itself is only a fraction of the total ANZ) and the result is not much different. This highlights what an extremely large company just the New Zealand division of ANZ has become in its own right.

In a slight change to funding, ANZ has strengthed the equity position of UDC with shareholders funds now supporting 17% of the loan book, up from 15% in FY2013. Consumately the debenture funding from the public has decreased from 70% to 68% (p8 UDC prospectus for 2013 and 2014).


UDC and ANZ New Zealand have the same balance date. So it is legitimate to work out the distribution of loans on their respective books using 30th September end of year data. First I need to slightly rearrange the ANZ (NZ) categories (ANZ September 30th 2015 Bank Disclosure Statement, p29) so that they correspond to those listed in the December 2015 UDC prospectus. Then I need to subtract the UDC equivalent figures (page 50, December 2015 prospectus) to get the underlying ANZ bank figure. The results are below:



All ANZ.NZUDCUnderlying ANZ.NZ


Agriculture forestry, fishing and mining:$21,731m(12.2%)
$465m(19.5%)
$21,266m(12.1%)



Business and property services:$13,681m(7.7%)
$130m(5.4%)
$13,551m(7.7%)



Construction:$2,170m(1.2%)
$344m(14.2%)
$1,826m(1.0%)



Entertainment, leisure and tourism:$1,386m(0.8%)
$8m(0.3%)
$1,378m(7.8%)



Finance and insurance:$27,569m(15.5%)
$87m(3.6%)
$27,482m(15.6%)



Government and local authority:$12,229m(6.9%)
$0.5m(0.0%)
$12,229m(7.0%)



Manufacturing:$5,925m(3.3%)
$78m(3.2%)
$5,847m(3.3%)



Personal & Other lending:$85,202m(47.6%)
$597m(24.6%)
$84,605m(48.2%)



Retail and Wholesale:
$5,785m(3.2%)
$293m(12.0%)
$5,492m(3.1%)



Transport and storage:$2,264m(1.4%)
$425m(17.5%)
$1,851m(1.2%)



Total:$178,148m(100%)$2,430m(100%)$175,718m(100%)



In a slight change to funding (ref p7 UDC FY2015 propectus), ANZ has weakened the equity position of UDC with shareholders funds now supporting 15% of the loan book, down from 17% in FY2014. Consumately the debenture funding from the public has increased from 70% to 73% (p8 UDC prospectus for 2014 and 2015). (The balance to 100% is made up from the ANZ committed Credit facility).

The following table may help calculate the above numbers, but exactly how I'm not sure.



FY2014FY2015


UDC Shareholder Capital$341.412m$365.462m


ANZ Committed Credit Facility$280.000m$395.000m


Debenture Investments From Public$1,569.247m$1,736.026m




SNOOPY

[Snoopy]

I am using the Heartland business categories, Table 37c Heartland AR2014 for comparison purposes. The UDC figures come from the 2014 prospectus Note 17c, page 54.



HNZUDC


Agriculture Forestry & Fishing: $491.321m (16.90%) $445.299m (19.0%)


Mining: $11.148m (0.38%) $11.000m (0.5%)


Manufacturing: $77.321m (2.66%) $90.962m (3.9%)


Finance & Insurance: $291.223m (10.02%) $76.220m (3.3%)


Retail & Wholesale Trade: $251.903m (8.67%) $277.662m (11.8%)


Households: $1,313.977m (45.20%) $510.484m (21.8%)


Property & Business Services $330.860m (11.38%) $120.881m (5.2%)


Transport & Storage: $15.873m (0.55%) $412.633m (17.6%)


Other Services: $123.070m (4.23%) $398.984m (17.0%)



Total for Heartland $2,906.6m (100%) , with the collectively impaired assets yet to be adjusted for. This equates to a loan book YOY growth of 22.6%.

Total for UDC $2,344.1m (100%), with credit impairment already adjusted for. This equates to a loan book YOY growth of 8.5%.

So how good a measuring stick is UDC for Heartland? Heartland has grown a lot more with the purchase of the Seniors Money International home equity release business during the year. These are likely to be classified as 'household' loans. That accounts for the big jump in household category loans (from 26.5% to 45.2%) of the total Heartland loan book. It looks like it has been lumped in with the residual mortgage business for risk category classiication purposes. Total 'household' loans are substantially higher at Heartland.

The fact that UDC has a much higher percentage rating of loans in Transport and Storage is another long standing difference.

'Construction' ($340.228m) is a category that UDC breaks down, that I have included in 'Other'. If instead I had included this in 'Finance & Investment' then the 'Finance and Investment' comparison would have been a lot more even.

On balance though, I believe the comparison between the two is still useful.


I am using the Heartland business categories, Table 18c Heartland AR2015 for comparison purposes. The UDC figures come from the 2015 prospectus (No.69) Note 11c, page 50.



HNZUDC


Agriculture Forestry & Fishing: $572.412m (17.6%) $456.195m (18.8%)


Mining: $14.105m (0.4%) $9.183m (0.4%)


Manufacturing: $93.779m (2.9%) $78.327m (3.2%)


Finance & Insurance: $377.318m (11.6%) $87.179m (3.6%)


Retail & Wholesale Trade: $276.527m (8.5%) $292.686m (12.0%)


Households: $1,397.003m (43.0%) $552.061m (22.7%)


Property & Business Services $396.939m (12.2%) $130.419m (5.4%)


Transport & Storage: $20.068m (0.6%) $425.302m (17.5%)


Other Services: $102.317m (3.1%) $398.984m (16.4%)



Total for Heartland $3,250.2m (100%) , with the collectively impaired assets yet to be adjusted for. This equates to a loan book YOY growth of 11.8%.

Total for UDC $2,429.7m (100%), with credit impairment already adjusted for. This equates to a loan book YOY growth of 3.7%.

So how good a measuring stick -still- is UDC for Heartland? Both companies have grown mostly organically as opposed to making big new acquisitions. Heartland has grown through a shareholding in P2P platform Harmony during the year. More significant in strategic than absolute terms at this stage. The Heartland non core residential mortgage business has been reduced. The Heartland non core legacy property portfolio is down to $27.0m.

The fact that UDC has a much higher percentage rating of loans in Transport and Storage is another long standing difference.

The rural lending book for UDC has grown by 2.4% YOY. The Heartland rural lending book has grown by 16.5% YOY. One interpretaion of this is that Heartland are 'helping' more of their customers by capitalising more interest payments.

'Construction' ($344.072m) is a category that UDC breaks down, that I have included in 'Other'. If instead I had included this in 'Finance & Investment' then the 'Finance and Investment' comparison would have been a lot more even.

On balance though, I believe the comparison between the two is still useful.

SNOOPY

[Snoopy]

I am surprised how high the provision for loan impairment is at UDC (page 33 UDC 2014 prospectus) has increased ($7,123m to $11,733m up 65%) since FY2013 . Granted it is still much less since the depths of the GFC.

From note 8 the resultant provisions on the books without bad debts already written off, with reference to the whole EOFY2014 loan book:

$31.805m /($2,272.081m+$31.805m+$115.310m+$8.964m) = 1.31% of gross value loans on issue

The figures for ANZ New Zealand, suitably disentangled from UDC are (using note 12: 'Net Loans and Advances' based on ANZ New Zealand's September 30th 2014 update to the Reserve Bank)

($666m-$31.8m)/ ($96,902m -$2,148m) = 0.67%

Compare that to Heartland (HNZ AR2014, Note 20 'Finance Receivables' )

($16.361m+$8.000m)/ $2,631.754m = 0.93% of gross value of loans on issue.

Of course we all know that UDC isn't a 'real' finance company, even to the extent that they don't have to keep the Reserve Bank updated on their financial position. As long as the parent ANZ New Zealand (who have full control of the UDC purse strings) keeps their own disclosure up to date, the UDC are off the radar as far as the Reserve Bank of NZ is concerned. In practice UDC are simply a 'marketing arm' of the ANZ. If anything that might make UDC potentially more 'reckless' than fully independently owned finance companies. That's because they know that ANZ Bank will bail them out if they get into trouble. So I think it is interesting that in practice UDC are less reckless with their lending policies (hold a lower relative provision for credit impairment on the balance sheet) than Heartland.


The annual provision for loan impairment at UDC (page 32 'Summary Financial Statements' UDC 2015 prospectus) is still high: $10,427m down 11% on the high previous year figure $11,733m from FY2014 . Granted it is still much less since the depths of the GFC.

From note 6 (Net Loans & Advances) the resultant provisions on the books without bad debts already written off, with reference to the whole EOFY2015 loan book is:

$31.529m /($2,347.163m+$31.529m+$129.586m+$8.849m) = 1.25% of gross value loans on issue

------

The figures for ANZ New Zealand, suitably disentangled from UDC are (using note 12: 'Net Loans and Advances' based on ANZ New Zealand's September 30th 2015 update to the Reserve Bank)

($611m-$31.529m)/ ($106,357m -$2,347m)= 0.56%

-------

Compare that to Heartland (HNZ AR2015, Note 11 'Finance Receivables' )

($25.412m+$6.242m)/ $2,893.724m = 1.09% of gross value of loans on issue.

Of course we all know that UDC isn't a 'real' finance company, even to the extent that they don't have to keep the Reserve Bank updated on their financial position. As long as the parent ANZ New Zealand (who have full control of the UDC purse strings) keeps their own disclosure up to date, the UDC are off the radar as far as the Reserve Bank of NZ is concerned. In practice UDC are simply a 'marketing arm' of the ANZ. If anything that might make UDC potentially more 'reckless' than fully independently owned finance companies. That's because they know that ANZ Bank will bail them out if they get into trouble. So I think it is interesting that in practice UDC are less reckless with their lending policies (hold a lower relative provision for credit impairment on the balance sheet) than Heartland.

SNOOPY

P.S. Refer back to my post 205.

UDC: For FY2015:

Impaired Loans = $31.529m, Vulnerable Loans $1,018.134m
=> Impaired Loans as a percentage of Vulnerable Loans: 3.1%

Heartland: For FY2015:

Impaired Loans = $16.433m, Vulnerable Loans $149,011m
=> Impaired Loans as a percentage of Vulnerable Loans: 11.0%

I use the term 'less reckless' for UDC, because:

1/ They understand risk is important SO
2/ they are keeping an eye on more loans AND
3/ of the loans they keep a careful eye on, a smaller percentage go bad.

However, this is opposite conclusion you might come to if you just look at the impaired loans to total loans, the numbers I was quoting in the pre PS body of this post.

The questions that come up becasue of this that I am not sure about are:

1/ Why does UDC class such a large percentage of their loans as vulnerable (my term)?
2/ Since vulnerable is really a judgement call, what does this say about the relative judgement calls made by UDC and Heartland?

[Snoopy]

One year on and we look at the chances of default for ANZ.NZ mortgages and ANZ.NZ other retail loans.

(page 41 of the ANZ NZ September 30th 2014 Reserve Bank disclosure).



For retail mortgages: 30-09-2014


Grades 0-3: 0.2%


Grades 4: 0.46%


Grade 5: 0.93%


Grade 6: 2.04%


Grade 7,8: 5.24%





For other retail: 30-09-2014


Grades 0-2: 0.1%


Grades 3-4:0.30%


Grade 5:1.13%


Grade 6:2.60%


Grade 7,8:9.56%



Overall observation? A small risk reduction from year to year in the higher risk categories (Grade 6 and above).


One year on and we look at the chances of default for ANZ.NZ mortgages and ANZ.NZ other retail loans.

http://www.anz.co.nz/about-us/media-centre/investor-information/


(page 53 of the ANZ NZ September 30th 2015 Reserve Bank disclosure).



For retail mortgages: 30-09-2013For retail mortgages: 30-09-2014For retail mortgages: 30-09-2015


Grades 0-3:0.2%0.2% 0.2%


Grades 4: 0.46% 0.46% 0.46%


Grade 5: 0.93% 0.93% 0.92%


Grade 6: 2.11% 2.04% 2.02%


Grade 7,8: 5.40% 5.24% 5.27%





For other retail: 30-09-2013For other retail: 30-09-2014For other retail: 30-09-2015


Grades 0-2: 0.1% 0.1% 0.1%


Grades 3-4:0.29%0.30%0.26%


Grade 5:1.12%1.13%1.00%


Grade 6:2.67%2.60%2.39%


Grade 7,8:11.25%9.56%8.79%



Overall observation? A continuing small risk reduction from year to year in the higher risk categories (mostly Grade 6 and above).

SNOOPY

[Snoopy]

One year later (30th September 2014) we compare the break down of the loan book. From the ANZ New Zealand statement to the reserve bank on 30th September 2014, page 48, the loan book break down is like this:



ANZ (New Zealand) Loan Book FY2014


Agriculture$18,811m (+0%)


Forestry, fishing and mining $2,049m (+10.8%)


Business and property services$12,051m (+6.3%)


Construction$2,154m (+23.2%)


Entertainment, leisure and tourism$1,294m (-6.9%)


Finance and insurance$20,254m (+10.0%)


Government and local authority$11,363m (+14.6%)


Manufacturing$5,312m (+5.2%)


Personal lending$70,098m (+10.4%)


Retail trade $3,026m (+5.8%)


Transport and storage$2,264m (+5.4%)


Wholesale trade$2,695m (+0%)


Other$4,093m (-5.6%)


Total$155,174m (+7.5%)




One year later (30th September 2015) we compare the break down of the loan book. From the ANZ New Zealand statement to the reserve bank on 30th September 2015, page 29, the loan book break down is like this:



ANZ (New Zealand) Loan BookFY2012FY2013FY2014FY2015


Agriculture$19,071m$18,842m (-1.2%)$18,811m (-0%)$19,717m (+4.8%)


Forestry, fishing and mining$1,260m$1,850m (+46.8%)$2,049m (+10.8%) $2,014m (-2.0%)


Business and property services$11,706m$11,334m (-3.2%)$12,051m (+6.3%)$13,681m (+13.5%)


Construction$2,059m$2,154m (+4.6%)$2,154m (+23.2%) $2,170m (+0.7%)


Entertainment, leisure and tourism$1,697m$1,389m (-18.1%)$1,294m (-6.9%)$1,386m (+7.1%)


Finance and insurance$19,245m$18,412m (-4.3%)$20,254m (+10%)$27,569m (+36.1%)


Government and local authority$13,433m$9,910m (-26.2%)$11,363m (+14.6%)$12,229m (+7.6%)


Manufacturing$5,591m$5,051m (-9.6%)$5,312m (+5.2%)$5,925m (+11.5%)


Personal lending$58,664m$63,492m (+8.2%)$70,098m (+10.4%)$80,935m (+15.5%)


Retail trade $2,964m $2,859m (-3.5.%) $3,026m (+0.5.8%) $3,046m (+0.7%)


Transport and storage$2,416m$2,147m (-11.1%)$2,264m (+5.4%)$2,470m (+9.1%)


Wholesale trade$2,653m$2,704m (+1.9%)$2,695m (-0%)$2,739m (+1.6%)


Other$4,792m$4,577m (-4.5%)$4,093m (-5.6%)$4,267m (+4.3%)


Total$145.551m$144.315m (-0.8%)$155,174m (+7.5%)$178,148m (+15%)



Finance and Insurance and Personal loans are the two categories that are driving loan portfolio growth!

SNOOPY

[macduffy]

Thanks, Snoopy, but no surprises there. Personal lending, aka housing mortgage loans, remains the biggest growth category!

[Snoopy]

Today I want to update the ANZ New Zealand banking covenants for September 30th 2014 quarter (corresponding to the EOFY). ANZ New Zealand includes their wholly owned subsidiary UDC finance.

Once again the document I am referencing is the:

"ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2014, Number 75 issued November 2014"

Page 37, note 26 contains the information on capital adequacy.

The information supplied is as follows:

Common Equity Tier 1 ratio: 10.7% (vs RBNZ minimum of 4.5% + 2.5% buffer)
Total Tier 1 ratio: 11.1% (vs RBNZ minimum of 6.0% + 2.5% buffer)
Total Tier 1 & 2 ratio: 12.3% (vs RBNZ minimum of 8.0% + 2.5% buffer)

Page 38 contains detailed notes on just how the ANZ NZ capital is made up. If you use that information and use it to calculate the above ratios, based on a loan book with net loans and advances of $96,299m (from the balance sheet) I calculate the above ratios as follows (total net loans and advances of broken down under Note 12 'Net Loans & Advances'):

Common Equity Tier 1 ratio: $7,826m/$96,299m = 8.1%
Total Tier 1 ratio: $8,126m/$96,299m = 8.4%
Total Tier 1 & 2 ratio: $9,062m/$96,299m = 9.4%

Those figures are a different to those on the preceding page. That is because the Tier 1 and Tier 2 capital figures have been 'risk adjusted' before they went into my calculation. The risk adjustment is done because the expected capital recovery from loans should they go bad is different among the different classes of loans (corporate, sovereign, bank, retail mortgages and other retail)

SNOOPY

PS Tabulated version of above results



30/09/2014 (risk adj)30/09/2014 (book value)RBNZ Required


Common Equity Tier 1 Ratio10.78.14.5+2.5


Total Tier 1 Ratio11.18.46.0+2.5


Total Tier 1&2 Ratio12.39.48.0+2.5



Today I want to update the ANZ New Zealand banking covenants for September 30th 2015 quarter (corresponding to the EOFY). ANZ New Zealand includes their wholly owned subsidiary UDC finance.

Once again the document I am referencing is the:

"ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2015, Number 79 issued November 2015"

Page 49, note 28 contains the information on capital adequacy.

The information supplied is as follows:

Common Equity Tier 1 ratio: 10.5% (vs RBNZ minimum of 4.5% + 2.5% buffer)
Total Tier 1 ratio: 12.7% (vs RBNZ minimum of 6.0% + 2.5% buffer)
Total Tier 1 & 2 ratio: 13.6% (vs RBNZ minimum of 8.0% + 2.5% buffer)

The improvement in these ratios could have benefittted from the $3.2b capital raising by institutional placement and subsequent share purchase plan offer to shareholders made during the financial year. However the ANZ.NZ Tier 1 capital ratio has gone down in New Zealand over the year, and no new share capital injection is apparent from the accounts. Additional capital requirements recently announced by the Australian Prudential Regulation Authority (APRA), in particular the increase in average credit risk weights for major bank Australian mortgage portfolios to 25% taking effect from 1 July 2016. So it looks like all the capital raising monies were ear marked for Australia, and the ANZ.NZ subsidiary operations have not benefitted at all.

Instead, the ANZ New Zealand operation has been shored up by the issue of two new tranches of ANZ convertible notes.

• On 5 March 2015, the Bank issued 10.0 million convertible notes (ANZ NZ ICN) to the NZ Branch at NZ$100 each, raising NZ$1,003 million.
• On 31 March 2015, the Bank issued 500 million convertible notes (ANZ NZ CN) at NZ$1 each, raising NZ$500 million before issue costs.

Both of these issues are structured as additional Tier 1 capital for ANZ.NZ.

Page 50 contains detailed notes on just how the ANZ NZ capital is made up. If you use that information and use it to calculate the above ratios, based on a loan book with net loans and advances of $106,357m (from the balance sheet) I calculate the above ratios as follows (total net loans and advances of broken down under Note 12 'Net Loans & Advances'):

Common Equity Tier 1 ratio: $8,441m/$106,357m = 7.9%
Total Tier 1 ratio: $10,282m/$106,357m = 9.7%
Total Tier 1 & 2 ratio: $10,984m/$106,357m = 10.3%

Those figures are a different to those on the preceding referenced page. That is because the Tier 1 and Tier 2 capital figures have been 'risk adjusted' before they went into my calculation. The risk adjustment is done because the expected capital recovery from loans should they go bad is different among the different classes of loans (corporate, sovereign, bank, retail mortgages and other retail)

SNOOPY

PS Tabulated version of above results



30/09/2015 (risk adj)30/09/2015 (book value)RBNZ Required


Common Equity Tier 1 Ratio10.57.94.5+2.5


Total Tier 1 Ratio12.79.76.0+2.5


Total Tier 1&2 Ratio13.610.38.0+2.5

[Buffett Jr]

I'm eyeing up ANZ is it is getting very close to my calculated buy price.

However, I'm wondering how to factor in the exchange rate. The AUD/NZD exchange rate is approximately 94cents. However, looking at a long term trend over the past 10 years, it hovers around the 80-90cent mark.

Would one therefore be willing to pay a higher price in NZD because if the exchange rate works in your favour and gets down to say 88cents, you would pay 6.8% more for the company (100*0.94)/(0.88).

Or do you just take the exchange rate conversion completely out of the calculation and just assume the exchange rate now will be the exchange rate when you get twice yearly dividends or go to sell the company at a later date?

[stoploss]

B Jr best of luck , just checking you are aware of the following ?

http://www.smh.com.au/business/banking-and-finance/anz-cooperating-with-asic-raterigging-probe-20160208-gmo76l.html

[Beagle]

And if that doesn't scare you bring up the chart for the last six months. What did KW say about not buying in a down-trend...

[stoploss]

B Jr , post # 93 on the SGH thread. Just trying to help here .....what exactly is it about companies facing uncertain legal action and in a downtrend you are attracted to ?

[Buffett Jr]

B Jr , post # 93 on the SGH thread. Just trying to help here .....what exactly is it about companies facing uncertain legal action and in a downtrend you are attracted to ?

That they are cheap and unloved and undervalued.

[BIRMANBOY]

LOL what are you ...a gambler or an investor?
That they are cheap and unloved and undervalued.

[stoploss]

That they are cheap and unloved and undervalued.

They often become cheaper ......totally unloved and extremely undervalued .Remember markets have a habit of over shooting on the upside and downside .

[macduffy]

That they are cheap and unloved and undervalued.

Not a great idea - in my 50 something years of trying - to buy in a downtrend. Plenty of time once the SP bottoms.

But I wouldn't be concerned about whether to buy in NZD or AUD. The market finesses any arbitrage advantage away pretty accurately these days!

[Buffett Jr]

Not a great idea - in my 50 something years of trying - to buy in a downtrend. Plenty of time once the SP bottoms.

But I wouldn't be concerned about whether to buy in NZD or AUD. The market finesses any arbitrage advantage away pretty accurately these days!

Thanks for the advice. I seem to have a habit of jumping in a bit quick to invest in downtrends but will be keeping a closer eye on ANZ.

However, my original question was meaning, since the exchange rate is currently 94cents and I'm buying in NZD, should I factor in and therefore pay a premium for the company for the longer term average exchange rate, e.g. 88cents?

[macduffy]

Thanks for the advice. I seem to have a habit of jumping in a bit quick to invest in downtrends but will be keeping a closer eye on ANZ.

However, my original question was meaning, since the exchange rate is currently 94cents and I'm buying in NZD, should I factor in and therefore pay a premium for the company for the longer term average exchange rate, e.g. 88cents?

Personally, I wouldn't complicate an investment decision with a punt on an exchange rate reverting to an historical average. Too many ifs and buts there for my conservative liking!

[winner69]

Warren jnr - buy Heartland instead

Cheap as and no currency risk

[Beagle]

Not a great idea - in my 50 something years of trying - to buy in a downtrend. Plenty of time once the SP bottoms.

But I wouldn't be concerned about whether to buy in NZD or AUD. The market finesses any arbitrage advantage away pretty accurately these days!

Agree 100%. The speed and steadfastness of the decline is alarming, falling steadily and swiftly from $36.50 to $24.50 since August 2015, losing a full third of its value. ANZ have massive exposure to junior mining companies and dairy and many of their customers are really struggling with commodity prices in the toilet. With little or no sign of any recovery anywhere on the horizon It seems clear to me the degree of ANZ's bad and doubtful debts is clearly worrying the market. How many years do you carry customers that can't pay their bills ?

[macduffy]

Plus a big dose of contagion from European banks' problems. Confidence is a delicate flower!

[Buffett Jr]

Personally, I wouldn't complicate an investment decision with a punt on an exchange rate reverting to an historical average. Too many ifs and buts there for my conservative liking!

Ok thanks, appreciate the reply.

[trader_jackson]

I haven't seen ANZ this undervalued in a long, long time...

[Beagle]

Agree that forward PE looks very cheap based on broker estimates but what's the real earnings if they provide for all problematic loans properly as and when they should over the next few years...I believe that's the real issue. Can you trust the bankers estimates of provisioning...that's another issue. In my opinion catching a rapidly falling knife is fraught with a LOT of risk.

[axe]

I haven't seen ANZ this undervalued in a long, long time...


How do you know it's undervalued???? Market is pricing in risks to future earnings - vs last year earnings it may look undervalued. What is your EPS and DPS estimates for next year??

[stevevai1983]

How do you know it's undervalued???? Market is pricing in risks to future earnings - vs last year earnings it may look undervalued. What is your EPS and DPS estimates for next year??

PB is a better tool to value banks.
Currently ANZ has 1.2PB, WBC has 1.8PB, CBA has 2.36PB.
So ANZ is relatively "cheap" compare to other banks.
However ANZ is more exposed to Chinese market.
They invested lots of money in Chinese banks, and they are not looking good at all atm.
Chinese banks are facing biggest crisis since 1998.

[trader_jackson]

How do you know it's undervalued???? Market is pricing in risks to future earnings - vs last year earnings it may look undervalued. What is your EPS and DPS estimates for next year??

I also look at the price to NTA, 74% of ANZ's share price is backed by NTA (far higher than all the other banks), not to mention lowest PE, and highest dividend yield compared to the other major banks (I am comparing their ASX listings)... I also think while things might not be great for ANZ, the risks are already well priced in... this stock is now cheaper than it was in 2012, yet I believe they are in a better posotion

[BlackCross]

This mornings FT video is VERY negative on US and European banks:

http://video.ft.com/4745075317001/Banks-bear-market/editorschoice

I doubt that the rest of the worlds banks are much better off.

[BlackPeter]

This mornings FT video is VERY negative on US and European banks:

http://video.ft.com/4745075317001/Banks-bear-market/editorschoice

I doubt that the rest of the worlds banks are much better off.

Useful link - cheers for posting! And yes - while the situation does not yet seem to have reached GFC levels ... it sort of looks like we might be on this slippery slope again. Certainly a good idea to be careful.

Discl: sold out some days ago.

[macduffy]

An interesting article from last week's AFR on the relative "values" of the big four Aussie banks and some of their overseas counterparts.

http://www.afr.com/business/banking-and-finance/anz-and-nab-could-be-cheap-20160204-gmmak1?&utm_source=social&utm_medium=twitter&utm_campaign=nc&eid=socialn:twi-14omn0055-optim-nnn:nonpaid-27062014-social_traffic-all-organicpost-nnn-afr-o&campaign_code=nocode&promote_channel=social_twitter

[skid]

With all this talk of banks it may be relevant to bring up the subject of ''cover bonds'' again---Those who have bought them (mostly Europeans)are actually ahead of depositors in the cue for payout if things did (god forbid)get serious.

Hard to believe they could actually sell rights over your money in the bank.

If my term deposit matured now instead of a month ago -I think I would have kept the dosh on call or maybe even Kiwi bonds.

Im starting to toy with the idea of shifting to smaller banks like TSB or Co operative,with less overseas exposer--less assets though----any thoughts anyone?

[winner69]

An interesting article from last week's AFR on the relative "values" of the big four Aussie banks and some of their overseas counterparts.

http://www.afr.com/business/banking-and-finance/anz-and-nab-could-be-cheap-20160204-gmmak1?&utm_source=social&utm_medium=twitter&utm_campaign=nc&eid=socialn:twi-14omn0055-optim-nnn:nonpaid-27062014-social_traffic-all-organicpost-nnn-afr-o&campaign_code=nocode&promote_channel=social_twitter

Good article

Good question as well - Underlying this analysis is a crucial question: why should a bank trade at a premium to book at all?

[macduffy]

Good article

Good question as well - Underlying this analysis is a crucial question: why should a bank trade at a premium to book at all?

Yes, good question indeed!

I suppose the answer lies in perceptions of how effectively management can work those assets to earn future income. I think that a wider question is : how relevant is "book value" in valuing many companies in 2016 when "assets" increasingly comprise intellectual properties which might be superseded and quickly made obsolete, leaving "hard assets" less relevant to a company's value?

[Beagle]

With all this talk of banks it may be relevant to bring up the subject of ''cover bonds'' again---Those who have bought them (mostly Europeans)are actually ahead of depositors in the cue for payout if things did (god forbid)get serious.

Hard to believe they could actually sell rights over your money in the bank.

If my term deposit matured now instead of a month ago -I think I would have kept the dosh on call or maybe even Kiwi bonds.

Im starting to toy with the idea of shifting to smaller banks like TSB or Co operative,with less overseas exposer--less assets though----any thoughts anyone?

I honestly believe Kiwi bonds for the retail investor give a far better risk adjusted return than term deposits in any bank which are ALL subject to the Reserve Bank's open bank resolution which in itself of course is a separate and additional risk to the specific risk of any bank you choose put your funds with. FWIW I think TSB are likely to be one of the safest bank's.

[Bobdn]

Trading update: I see ANZ has more bad loans but overall profit up a little. Seems OK to me I guess. What do others think?

[macduffy]

Trading update: I see ANZ has more bad loans but overall profit up a little. Seems OK to me I guess. What do others think?

Well, the market wasn't impressed initially but I see that the SP is now up 2% in NZ and 1.2% in Aus - where it matters really. Current economic conditions have lowered market expectations so I wouldn't think there were any surprises there.

[kiwitrev]

And today SP continues to gain ground throughout the session currntly 2.5%.
Well, the market wasn't impressed initially but I see that the SP is now up 2% in NZ and 1.2% in Aus - where it matters really. Current economic conditions have lowered market expectations so I wouldn't think there were any surprises there.

[macduffy]

And today SP continues to gain ground throughout the session currntly 2.5%.

Pretty much in line with the Aussie market - which followed the Dow - which firmed on optimism that that darned oil price might recover a little!

[Tomtom]

Australia's markets watchdog has begun legal action against ANZ bank over accusations it fixed the benchmark inter-bank interest rate.
Source: http://www.bbc.com/news/business-35723357

[macduffy]

"Aussie banks screaming cheap"

http://www.theage.com.au/business/markets/banks-screaming-cheap-says-t-rowe-price-20160305-gnbmr6.html

[Aaron]

"Aussie banks screaming cheap"

http://www.theage.com.au/business/markets/banks-screaming-cheap-says-t-rowe-price-20160305-gnbmr6.html
If Randal Jenneke also said that he personally was mortgaging his house to fill his boots with bank shares it would hold a lot more weight with me. It is easy to have an opinion but how many of these guys actually invest their own money.

[macduffy]

If Randal Jenneke also said that he personally was mortgaging his house to fill his boots with bank shares it would hold a lot more weight with me. It is easy to have an opinion but how many of these guys actually invest their own money.

They usually invest their own money before they make the call!

;)

[Hmm]

Down 6.5% off no real news?

[sb9]

Down 6.5% off no real news?

Check this out from this morning...

https://nzx.com/companies/ANZ/announcements/279828

[winner69]

Hedge funds around the world continue to short aussie banks

Do they know more than the banks.

Betcha if ANZ 'own up' to another $100m to make bad debts $1 billion for 1/2 year the situation is worse than that

[macduffy]

Even so, with over 2.9b shares on issue another $100m - about 3.5cps - isn't going to break the bank.

[Tomtom]

Betcha if ANZ 'own up' to another $100m to make bad debts $1 billion for 1/2 year the situation is worse than that To be fair to ANZ they did say "at least" $100m.

They seem to have been caught in a slightly compromising position regarding exposure when the tide went out mining and their Asian adventure. That said it will probably give Shayne Elliot a licence to really take ANZ to a size and structure that can deliver value to shareholders. I've been trying to find out more about ANZ and it seems in New Zealand they still have a lot of duplication even years after the National Bank merger started. They have two call centers for example, quite a sprawl of offices/branches and they've not yet fully merged databases or IT infrastructure (which is why when customers change address for example post can end up going to multiple addresses). You have to be optimistic that a more active leadership team could sort out issues like that fairly quickly.

[babymonster]

Likely will be lower in the coming weeks

[winner69]

Next problem coming up for ANZ and other banks are the 35,000 owner operated long haul truckies in Australia as the prices set by the Road Safety Remuneration Tribunal take effect soon

Makes these guys totally uncompetitive and probably forced out business

The Australian says $15 billion outstanding on loans for these rigs

[Beagle]

Next problem coming up for ANZ and other banks are the 35,000 owner operated long haul truckies in Australia as the prices set by the Road Safety Remuneration Tribunal take effect soon

Makes these guys totally uncompetitive and probably forced out business

The Australian says $15 billion outstanding on loans for these rigs

Ouch..as if they don't have enough concerns over asset quality already :eek2: