Originally Posted by
Lizard
I am not terribly expert in analysing financial stocks and have made more than my share of investing mistakes. I also have a heap of respect for Xerof, Winner and Snoopy, who are all ringing the alarm bell on HNZ. So, since I recently acquired a few HNZ, am hoping someone can further outline the concerns in relation to the accounts.
My prior concerns were regarding liquidity, particularly in regard to the expiry of the govt guarantee. However, the accounts suggest that they have managed that quite well and the expiry in itself is unlikely to pose a threat at this point. Nor is there any sign of Marac raising rates to attract funds (although to some extent, they will have benefited from widening spread over bank deposits through a fall in bank rates).
The market is still looking more cautious though, with the MAR010 trading at 8.0% - considerably higher than the Heartland/Marac term deposit rate for similar maturities - but the yield on MAR010's is falling. This seems to suggest an "alert but not anxious" type approach from the market and is in line with the sort of rates being seen in GPG, IFT and NPX fixed interest securities.
So presumably, amongst the ST experts, credit risk is the main concern? How would you go about judging that versus, say, Kiwibank?
For instance, looking at equity relative to total lending, Kiwibank has $600m net equity and about $11,500m of non-bank lending (which doesn't seem to leave a lot of room for bad debts). Heartland-PWF combination looks to have about $400m of net equity for about $2,100m of lending. So I would take that to seem that HNZ could absorb a substantially greater % of bad debts, and could write off perhaps as much as $300m (about their entire property book) before they'd be down to Kiwibank-type equity as % of funding.
In impairments, Kiwibank had allowance for about $87m of individual and collective impairment at FY2011, while HNZ+PWF had about $50m. Kiwibank had a further $290m of overdue and impaired for which an impairment had not been provisioned. HNZ+PWF had about $212m, of which $74m came from PWF - and a good $53m was impaired but for which impairment had not been provisioned. i.e. overall, HNZ+PWF looks a little worse, but comes close to Kiwibank in terms of % of equity.
Not intending to defend HNZ, but am more just interested in specific comments as to where the risk in HNZ is coming from beyond the systemic risk affecting all lenders in the current environment?
(Also, I note re PGC potential sale of HNZ that the stuff article did not suggest PGC was in a hurry to quit HNZ, but more that their holding in it was not part of a long term strategy, and more to do with continuing to support HNZ transition to a stable business)