Did I read somewhere that even TSB were interested??
At this rate of interest, we could have Flexigroup come out and do what they did to F & P Finance :t_up:
Printable View
Did I read somewhere that even TSB were interested??
At this rate of interest, we could have Flexigroup come out and do what they did to F & P Finance :t_up:
My mate cam with good news
@ANZ_cambagrie: Global dairy trade prices up 3.8%. Whole milk powder up 7.5%. A nice bounce but nzdusd at 0.70.
Expect another boost to heartland share price, their strategy of hoping that potential problems will just go away is working
Percy, your $855m
Guru analysts often use price book ratio to value banks (read your Craigs report)
UDC at $855m is 2.3 times book value
Same multiple for heartland makes them worth $1.1 billion
Share price then $2.40
As you say mate no matter what happens Heartland wins - even if it just a rerating when the market unlocks the intrinsic value embedded in heartland
Maybe not $2.40 but that $1.60 by xmas looks a cert now
Fonterra's pay-out is still well below the level needed for dairy farmers with over 50% gearing to get anywhere near break even. Most independent experts say we need $5.30 a Kg for breakeven for the average dairy famer, much more for those with, (by my calculations), 70% gearing which is approximately where HBL's average loan stands based on today's land and herd values (taking into account steep falls over the last year).
Banks are a very long way from being out of the woods with their dairy loans.
All gloom and dismay over on the Harmoney thread
Dodgy loans, writeoffs, Harmoney not vettingbthings thatvwell, fraud and all sort of stuff.
Those punters just don't get it - all part and parcel of being a lender
They also don't realise they don't really matter - Harmoney just a shop front for Hesrtland and others.
Heartland with their $50m plus (wonder how much it is now) of lending through Harmoney must be creaming it - average RAR of at least 13% they say
And i wonder what Heartlands share of Harmoney is going to be worth when they float - heaps
Wonder if Heartland management are working out why the Seniors acquisition hasn't been EPS accretive?
But then again EPS accretive is a warm fuzzy term that post acquisition seems to be forgotten anyway.
http://www.stuff.co.nz/business/7932...ortgage-scheme
Could affect HBL... although I doubt the government would do it...
As always, thoughts appreciated
Question time for Winner69 and Grunter.
What formula [if any] did FPF [Fisher Paykel Finance] use when they brought The Farmers finance company?
Possibly a helpful guide;60% of the loan book????
Maybe could also look at a more recent example when Flexigroup brought F&P as well?
On another topic...
http://www.stuff.co.nz/business/7931...verse-mortgage
Heartland helping fuel senior's dreams :t_up:
He lost a bit of credibility with this:
He just wants another hand out because (worst reason ever) he is asset rich!Quote:
Rayner says. "You could draw down on a loan with an interest rate of say two per cent."
The Government's ten-year borrowing rate is just under 3 per cent, but Rayner says, one option would be for the Government to provide the loans interest-free to superannuitants.
He he had said 3.5% (being 0.5% above the governments borrowing rate), he could have got a tiny bit more support.
Heartland into this disruptive stuff and the use of technology. That's good in these changing times
Read this article about make of Boards in these changing times
Main points were 'Board members know that there company will either embrace technological change or go out of business' and 'At the Board level, there is a need for "geeks", independent directors who can put technology to use'
Heartland passes on the first point ....but who is the geek amongst this lot?
FXL paid A$275 MILLION, NZ$294 MILLION for F&P Finance in Late October 2015
The acquisition price of F&P Finance represents:
- acquisition multiple of 8.8x pro-forma FY15 Cash NPAT (taking into account expected synergies under FXL ownership), 9.9x not taking into account expected synergies
- 2.9x book value
- 44% of receivables
hopefully that helps..
Though these days from a reputational point of view being a bank is often a liability
Even in this part of the world
Yes very helpful.
I think it gives a clear picture of what a "trade buyer" who is experienced in the sector, will pay for a very good business,which FPF is.
Now I wonder where we are with UDC,which is also a very good business.?
The difference will be in the untangling of UDC's ANZ relationship.
That will be interesting.
Looks like HBL has gone into hibernation for the winter, bit like watching paint dry waiting for the shareprice to pickup. Unlike all the excitement over at AIR!
Most of those nasty Aussie owned banks have reported lower NIMs (net interest margin) from their NZ operations. A competitive market being the most quoted reason
Just as well Heartland with their niche positions wont be suffering the same fate. A lot of their growth coming from the higher margin (niche positions) segments i reckon.
Must be making more than $55m this year but like BNZ Heartland probably will take a 'proactive approach to provisioning' to keep earnings down to just a reasonably acceptable level
winner69 is very optimistic at the mo,in fact too optimistic as they come in on guidence,they have prudent management so over guidence I think would tell you that the extra earnings would be a surprise,I think that a surprise being positive or otherwise would say they havn't got a grasp of whats happening. Just my opinion you know.
We should be able to see how HBL are tracking later this month, when they announce their 3rd quarter disclosure statement for the nine months ending 31/3/2016.
Still no judgement in the MTF Sportzone case.Must be due/overdue.
I did warn you folks months ago those supreme court judges would take their time. Personally I think ditching the Privvy Council was a mistake, gives a useful counter influence to judges that can sometimes get myopic vision based on N.Z. centric factors.
Anyway...as many will have noticed, most of the Australian banks recently reporting have been ramping up provisioning for bad and doubtful debts because of the protracted downturn in dairy. By way of example
Extract from NBR regarding BNZUp to people to decide for themselves if HBL can swim against the outgoing tide this sector exposure represents, effectively or not.Quote:
BNZ’s statutory net profit in the six months fell 10.2% to $451 million, largely because its charges for bad loans rose to $79 million from $47 million in the previous first half, although operating expenses also rose 2.3%. The big jump in bad loan charges was mainly due to BNZ’s increased collective provisions for dairy lending.
I know Turners is not a bank, however I thought their result was encouraging for Heartland.
Even though in a short term uptrend the year chart still seems to heading from the top left corner to the bottom left corner
Below 200MA and 100MA not a good sign either
Think best strategy is to hold and hope like hell somebody takes them over soon at a huge premium. (Only way to get to 160 by xmas nextbigthing)
Respected Massey banking expert David Tripe says current low dairy prices are probably the new norm - staying low for longer than most expect
Won't worry HBL directors, their rural lending team will presently be hard at work refinancing most of their overdue dairy loans (except for a few really toxic ones which they might bite the bullet on), just before balance date and clean their balance sheet up and then they can tell shareholders how good they are and what a low percentage of their customers are in arrears and how good they are in supporting their clients through this...spread the losses over many, many, many years and nobody will notice eh, and senior management will still get most of their juicy bonus's, cunning plan ! Suppose they will talk about acquisitions again at the next annual meeting to gee-up shareholders yet again.
The real problem is management are usually rewarded with generous bonus's for meeting defined profit targets so they're incentivised to take a liberal view of which loans are totally toxic with no possibility of recovery, heavily in arrears with some possibility of recovery, (often some bankers refinance these sort of loans just prior to balance date to make them look better), doubtful with a moderate probability of recovery and simply overdue for reasons other than systemic issues like dairy being too low.
One of the issues you need to watch for is the real loan to value ratio's of the average loan to the dairy sector. By real I mean that the values used in the original loan applications will no longer be valid unless they've undertaken fresh valuations in the period between about March 2016 to June 2016 after the huge fall in dairy land, stock and machinery prices in February 2016. I think from a practical perspective its unlikely that a significant part of their dairy loan portfolio would have had fresh valuations unless the loan is actively under review. If HBL are using old valuations their stated loan to value ratio is highly debateable.
Investors need to look at how the other banks are faring with their loan provisioning and the substantial additional provisioning they're applying and ask themselves is it really realistic for HBL to be trying to claim their situation is so much better. Questions over asset quality are by no means unique to HBL, in fact we're seeing a very wide range of banking stocks around the world have their share prices come under serious pressure.
The question people might like to ask themselves is why would it be any different for HBL ? Yes they have a better capital ratio than many other banks and as such are in a better position to withstand write-off's but that doesn't change the position in regard to questions over asset quality and while that remains its hard to see the SP gaining momentum. With balance date just around the corner and work by the accountants and auditors soon to get underway this is a good time of year for shareholders to be pondering whether HBL will be forced to take a more realistic look at their dairy loan provisioning in light of the extended drop and especially in the context that there is no discernable light at the end of the tunnel. Around 8% of the bank's loan portfolio.
As always folks, DYOR and this post is not intended to be a recommendation. Just food for thought.
Disc: I don't hold and am not looking to buy on any decline.
You are spot on.HBL have very low exposure to dairying.[Under 8%;,other banks over 10%+].
You can rest assured there are no incompetent's working at HBL.
Of all Australasian Banks, Heartland Bank's directors and management have the largest % ownership.
As per everything in life,you look after your own very carefully,and avoid incompetent's.
Hey nextbigthing - whats the word on the street about Heartlands capital restructure - have the bonds idea been canned or something?
Surely they would announce it to the market if they had?
Hey nextbigthing, where the hell are you
Like to know one way or the other whether this bond issue is on or not - or even if the return of 'excess' capital is canned as well.
What's the word on your street
I found Roger's post very helpful in general terms, and I think I understand his position as:
There are self interested reasons for HBL managers and assessors to take a rosy view of the current situation.
Many of the properties securing the loans are worth less than they were when the loan was taken out and will be worth an awful lot less when/if the dairy industry gets less profitable. HBL's LVRs are inaccurate and optimistic.
This situation poses real risks to HBL profitability in the medium term and even more immediate risk to the SP as HBL is forced to take a more pessimistic provision for impairment and investors take fright.
Other people have different ideas - but how much difference will it make to the likely future profitability of HBL? Help please!
I have started to think about it but haven't got very far. Just for a first stab - there is $240M out. Some one will know how much HBL have put aside for impairment. Multiply by some number to account for biased assessment, bad LVRs, and the grief caused by a further deterioration in dairy, and then do DFCs or whatever you knowledgeable people do to calculate a shareprice.
What do you get? How can the calculation be improved?
I posted the following back in July last year, and still stand by it.
"The dairy industry is not in trouble, just receiving reduced pay outs, and still within a statistical normal range. Loans are not to the industry, but to individual owners, each with their own set of circumstances.
Some dairy farmers converted their farms when pay-outs were well above average, and used this high projected income as a basis for their financial planning. Of these, some have converted farms in areas that are not suitable for dairying (like Central Otago or mid Canterbury) and these are the ones who will really struggle to make the conversion pay. But sharemilker Fred in Southland, who borrowed just to buy his stock, and is on a traditional farm which doesn't need pivot irrigators etc. is probably still keeping his head above water and will manage OK.
It is not as if ALL dairy will crash and default. So the banks could afford to let the less likely ones go under, sell the stock at meat prices, and still support those that are marginal or still successful."
The current dairy payout is almost exactly the average payout prior to the boom that started 7 years ago and ended 2 ywears ago. Everything is now back to normal. Those farmers who converted to dairy using traditional values are doing just fine. It is the ones who thought the rosy times were the new norm who are suffering, and I don't believe that is a large proportion of the industry at all.
Yeap I have heard through certain channels they have deferred the Tier2 capital notes issue and planned return of capital. Amazing they don't have the courtesy to tell shareholders properly seeing as many have already factored this into the SP, (was worth a potential circa 5 cps) by my calculations. Wonder what else they're not telling shareholders about...
Shareholders who read the "Looking forward" section of Heartland Bank's interim report remain fully informed.
"
Looking forward
Underlying asset growth is projected to continue during the second
half of the financial year across all areas, but particularly in consumer
and reverse mortgages.
Heartland believes that current market volatility is expected to give
rise to acquisition opportunities that it may wish to exploit as part
of its growth objective. In considering any acquisition, Heartland’s
criteria remain based on value accretion and access to innovation or a
compelling product or distribution capability.
The Board will continue to monitor its capital position during this
period and continues to support the position that, in the absence of a
more appropriate use, Heartland’s excess capital should be returned
to shareholders.
We continue to expect that NPAT for the year ended 30 June 2016 will
be in the range of $51.0m to $55.0m. This guidance range excludes the
impact of any capital management initiatives.
We are confident that Heartland is well placed to meet this guidance
and deliver on its growth strategy"
The return to shareholders was supposed to be in April. that time frame has been and gone so are we assume that HBL have found a more appropriate use for the tier 2 capital that it hasn't yet raised?
"in the absence of a more appropriate use'.
I take it they are looking at appropriate use,ie acquisition/s.
Offcourse, they can not do anything until the MTF sportzone judgement has been made.
We eagerly await that judgement,and look forward to seeing what ANZ Bank do with UDC.
We live in interesting times.
Yove got investors and traders on here. I know which ones i would believe.
No need to panic davflaws - dairy won't Heartland go broke.
If things do get really bad the impact will only be a drag on profits over several years - like reducing earnings growth from a healthy number to a much less modest one. That also becomes a bit of drag on the share price over time.
Will see little if any impact this financial year (read between the lines of Rogers post)
An update from last years equivalent reporting period, HY2015.
The underlying debt of the company according to the HY2016 statement of financial position is:
$43.377m + $1.095m = $44.472m
To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:
$3,344.498m - ($2,928.621m +$12.439m + $269.769m) = $133.669m
We are then asked to remove the intangible assets from the equation as well:
$133.669m - $54.314m = $79.355m
Now we have the information needed to calculate the underlying company debt net of all their lending activities:
$44.472m/$79.355m= 56.0% < 90%
This compares unfavourably with the comparatuve half year period figure of 27.7%, but favourably with the more recent 58.4% figure from FY2015 date (30th June 2015)
Result: PASS TEST
Updating for the half year result HY2016. The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs
EBIT (high estimate) = $134.340m-$37.039m= $97.301m
Interest expense is listed as $62.868m.
So (EBIT)/(Interest Expense)= ($97.301m)/($62.869m)= 1.55 > 1.20
Result: PASS TEST, an improvement from the HY2015 (1.51) position. And also an improvement on the full year position as of 6 months ago FY2015 (1.52)
SNOOPY
Updating this number for the half year HY2016
Equity Ratio = (Total Equity)/(Total Assets)
Using numbers from the Heartland HYR2016
= $485.688m/$3,344.498m = 14.5%
This is a decrease on the HY2015 position (14.6%). But it is also an increase on the FY2015 position of 6 months ago (14.3%). An indication perhaps of a slightly more conservative funding bias, considering company equity supporting company loans?
SNOOPY
Tier 1 or Tier 2 capital adequacy is noted under section 19A (Capital Ratios) in the Heartland HY2016 report.
$2,928.621m of loans are outstanding. 20% of that figure is:
0.2 x $2,928.621m = $585.7m
Heartland has total equity of $485.688m. But from note 19A, only $427.084m is Tier 1 capital. The difference is because intangible assets, deferred tax assets, hedging reserve effects and defined benefit superannuation fund assets on the books must be adjusted for.
On top of the Tier 1 assets, there is a subordinated bond of $1.455m
Nevertheless, however the total tier capital is added together, it is still below the "20% of loan" target no matter what the tier classification of capital buffering any potential problems with the loans.
Result: FAIL TEST
PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it is not too far away from the 17% which by implication is judged acceptable by management under the watchful eye of Reserve Bank chairman Graeme Wheeler.
Using current period Tier 1 capital and loan book figures:
$427.084m/$2,928.621m = 14.6%
So it seems Heartland's position has deteriorated significantly, compared to when it qualified as a bank.
The reserve bank further qualifies their views that a company of Heartlands credit rating still has a 1 in 30 chance of going broke in any year. I prefer to think in business cycles and 30 years will contain around five of those. So you could restate the Reserve Bank's view as saying that HNZ has a one in five chance of going broke at the bottom of the business cycle. For me that investment risk is too high. So I am sticking to my 20% equity requirement, even if the Reserve Bank will settle for less.
SNOOPY
Under Note 4 of HY2016 the 'impaired asset expense' has increased to $5.610m (HY2016, ended 31st December 2015) up from from $5.102m in the corresponding prior period (HY2015). Bad debts for the full year to 30th June 2015 (FY2015) added to $12.105m. By simple subtraction the bad debt expense for the period 1st January 2015 to 30th June 2015 ( 2HY2015 ) was $12.105m - $5.102m = $7.003m.
This means that what we are seeing is 20% fall in bad debts declared over the six months to December 2015, compared to the immediately preceeding 6 month period.
SNOOPY
http://www.stuff.co.nz/business/7992...r-the-industry
Here we go...
PT. This is from my post of 2772 dated 27-02-2014 titled:
"Heartland's Acceptable Operating Leverage Ratio"
------
We can work backwards and see from a 'reserve bank' pair of eyes (wheels?) to deduce what is considered an acceptable operating leverage ratio for the rest of the business (excluding reverse mortgages just purchased).
Apparently, just before the purchase of the reverse mortgages, Heartland had 'surplus' cash of $28.3m -
(Explanatory Note: Total Heartland cash contribution to this deal was $48.3m, made up of the $28.3m 'surplus cash' on the balance sheet at 31st December 2013 plus $20m yet to be raised from shareholders at the time the half yearly report was published.)
- on the balance sheet. If we look at the 31st December 2013 HY2014 balance sheet $178.5m in cash was there. So we can deduce that:
$178.5m - $28.3m = $150.2m
of cash is required , as part of a more comprehensive asset package, to fund all the rest of the Heartland business. Put another way, the 'total equity' (again from the balance sheet) needed to fund the rest of the Heartland business is:
$382.5m - $28.3m = $354.2m
The size of the loan book at balance date was $2,077.0m
So the equity to loan book ratio for the rest of the business, as judged acceptable under the watchful eye of Mr Wheeler, is:
$354.2m/$2,077m = 17.0%
-------
The background to those that have forgotten (I had!) goes like this.
Heartland's purchase of the Seniors reverse mortgage business was financed by the issue of new shares and borrowings. "In theory", Heartland could have purchased the business with:
a/ 100% new shares and no more borrowings OR
b/ 100% new borrowings and no new shares issued.
Instead Heartland management struck a balance between these two extremes.
Heartland issued 43m new shares worth around $NZ38.7m and used $NZ28.3m worth of cash to make up the Seniors purchase price of $NZ60m. This cash/share balance was a judgement call made by Heartland management under the watching brief of satisfying reserve bank capital reqiurements, [i]taking into account the much larger existing businesses already under the Heartland umbrella[i/] IOW Heartland management had to be cogniscent of the total business when the Seniors acquisition was made.
Thus the Seniors purchase gave shareholders a snapshot on management's judgement on the amount of capital needed to support the 'regular' Heartland business relative to the size of the loan book.
SNOOPY
Re: Dairy, I remember at debt briefing last year the CFO when asked about the dairy risk compared to car loans said something along the lines of "well we can always shoot the cows", got a decent chuckle out of the audience
Thanks Jantar. I know very little about farming. But I am insured with Farmers Mutual, FMG. We, it is a Mutual, had a problem a couple of years ago with irrigators toppling over. Quite a number in Canterbury. Some of the centre spigot ones are a Kilometer long. There is now the question of 'what is a safe design length for irrigators?' It seems the American maximum design length is 400 metres. However, this design cannot be simply transferred to NZ. It would depend on local conditions here of maximum windage etc. It takes some time to move a centre spigot so it faces 'down wind.' So pivoting them round is normally not an option.
FMG and Lincoln College, University, are trying to get design guidelines for irrigators.
Now, to the punchline. FMG, I think, are still insuring irrigators. But at some point they will only insure 'complying' irrigators that conform to the new design requirements.
Come a big blow, a lot of the irrigators could fall over and not be insured, or not be adequately insured. This will impact on farming, FMG and Heartland. How much have we loaned on irrigators?
My view is Banks need plenty of actual shareholder capital so that if things go a bit wrong we still meet capital requirements.
"Of these, some have converted farms in areas that are not suitable for dairying (like Central Otago or mid Canterbury) and these are the ones who will really struggle to make the conversion pay"............. (Jantar)
"Now, to the punchline. FMG, I think, are still insuring irrigators. But at some point they will only insure 'complying' irrigators that conform to the new design requirements...................................... .........(Mouse)
Come a big blow, a lot of the irrigators could fall over and not be insured, or not be adequately insured. This will impact on farming, FMG and Heartland."
A couple of comments attributed to Mouse and Jantar I would be happy to debate, Blockhead gets around a lot of Mid Canterbury dairy farms and sees what is going on, Jantars comment re Mid Canterbury farms being not suitable for dairying imho are completely wrong, some of the best farms I have seen are in this area, free draining soils, flat land, easy to irrigate, close to services, what else could you want ?
And Mouse I think you will find many (most) of the cockies with centre pivots now have plans for securing the irrigators when wind is coming, I see many concrete blocks either dug into the ground or able to be put in a line running away from the wind when wind is forecast, and forecasts are generally 2-3 days in advance so plenty of time to get the irrigator in the right place. I imagine Insurance Co's will insure them if they can show they have planned for the wind
How about aquifers that are not drying up and so allowing for that "easy to irrigate" part? At the last 2 years Hydrological society conferences there have been a number of papers presented on Mid Canterbury irrigation and the over allocation of water. At last year's conference there was a presentation on an experiment to take flood water from the rivers and to attempt to recharge the aquifers.
Yes that is happening Jantar but perhaps the biggest proportion of Mid Canterbury water is coming from the Rangitata not the aquifiers (I don't know the proportion from one or the other) The Rangitata South irrigation scheme is already taking water based on the "flood" system you mention and is only just providing what is required, all the reservoirs have been empty more than once in this last season.
My point is, Mid Canterbury is a great dairying location.....with water !
My read of the Supreme court's decision is that finance companies and banks are going to have to be extremely careful going forward that they can justify their loan application fees based on the cost of the process, not as a separate revenue stream. The supreme court has effectively said interest charges are where banks and finance companies should make their profits not loan application fees. I think we all know that with standardised loan application procedures and credit and employment checking processes the banks and finance companies have been doing very nicely thank you very much out of loan application fees in the past. Harmoney has had to modify there's recently, tip of the iceberg in terms of what's coming ? The Supreme court's decision is very much focused on protecting the consumer and forcing finance companies to make their profit out of the interest rate as opposed to currying the real cost of credit through expensive loan application fees and therefore enhances the transparency of the cost of the loan from the consumers viewpoint. Many consumers will cross shop to get the best interest rate.
Greater transparency in my opinion reduces the opportunity to make unusually high profits, especially from small loans. Is it a coincidence that the SP is down the day after the Supreme court's decision or are we in a slightly different credit environment now where profits on loans going forward could be slightly lower ?...you folks be the judge.
The case was based on 39 MTF-Sportzone loans written between 2006 and 2008.
So the industry has watched this case with interest for a good number of years..
What has not been qualified is whether this is where MTF's liability ends,or will CCC chase them for other loans written during this period.
The judgement affects all lenders,whether they are banks or finance companies.Level playing fields for everyone.
I guess banks have had to adapt to changing regulations, since the first bank was formed in 1327.
689 years of change???
PT, I have reviewed my calculation. The Seniors acquisition, early in CY2014, was the last time Heartland issued a serious number of new shares to fund an acquisition. So I think it is stilll the best guide we have to that window in management's mind as to what constitutes 'sufficient shareholder capital' for Heartland to keep on the books.
However, this Senior's transaction was before the 14th January 2015 easing in reserve bank capital requirements. From that date Heartland had their 'introductory' 12% of loan book requirement reduced to:
(a)the Total capital ratio of the banking group is not less than 8% (10.5% incl 2.5% buffer ratio);
(b)the Tier 1 capital ratio of the banking group is not less than 6% (8.5% incl 2.5% buffer ratio);
(c)the Common Equity Tier 1 capital ratio of the banking group is not less than 4.5% (7.0% incl 2.5% buffer ratio).
Prior to 14th January 2015, there was no separate 'buffer ratio' requirement for Heartland.
The most streched covenant that Heartland currently must comply with is (a). This means that Heartland have been given an extra 1.5% (12% - 10.5% = 1.5%) "wriggle room" to remain in compliance with their debt covenants. IOW while my calculation I believe was correct at the time it was done, I now need to revise it becasue I am using it as a forecasting tool for today. Specifically I need to take into account the lesser amount of capital that the reserve bank now dictates Heartland must hold.
SNOOPY
The folks on the Harmoney thread are grappling with a few issues, recently the fraud case and now an unexpected significant hike in fees. Worth a read. Not sure whether this is weighing on Heartland, it might be just small beer.
Surely the answer to the question what "window in management's mind as to what constitutes 'sufficient shareholder capital'" is answered simply by reading the capital adequacy section from the disclosure statements?
Or am I missing the point here?
Best Wishes
Paper Tiger
PS With regard to the Post Title: See this video clip from the original "The Italian Job" movie, which I watched last night.
ANZ Half Year Disclosure Statement is out and on page 15 their current Capital Adequacy Ratios are down to:
12.8% for the group (appears to be the one that matters) and
11.8% for the bank.
Best Wishes
Paper Tiger
What you are telling me is part of the picture PT. But no bank would be foolish enough to run their actual loan to equity ratio as low as the minimum reserve bank requirements. Otherwise a customer like young Percy could go into Heartland to withdraw $100 to buy a bunch of flowers for his good wife. But he would be kept waiting until Joe Driver from the coin arcade, puts in the morning coin take to make the balancing $100 deposit required to avoid tipping Heartland into administration!
The question is, what level of buffer over and above the reserve bank requirements do management regard as acceptable? To answer that you would have to
1/ Do a 'scenario analysis' based on less likely withdrawal and deposit scenarios.
2/ Look at the asset loan base and assess the prospect of what quantum of loans going bad is required to degrade company equity to unacceptable levels.
Shareholders are not in possession of enough information to answer those questions. But bank management are. So I say the best way to look out for what equity to loan ratio is 'acceptable' is to look at what Heartland's chief bank manager does in practice. And the window of buying Seniors was one opportunity to do just that.
Now going back to the raw data we have from that transaction:
-----
'Total equity' (from the balance sheet) needed to fund the rest of the Heartland business is:
$382.5m - $28.3m = $354.2m
The size of the loan book at balance date was $2,077.0m
So the equity to loan book ratio for the rest of the business, as judged acceptable under the watchful eye of Mr Wheeler, was:
$354.2m/$2,077m = 17.0%
------
However, that transaction was under the old equity to loan book rules (12% ratio required). The current limiting factor is a 10.5% requirement.
So the lesser 'management acceptable' equity required to manage the same sized loan book today would be:
$354.2 x ( 10.5/12 ) = $309.9m
and the adjusted 'management acceptable' equity to loan portfolio value ratio is now:
$309.9m / $2,077m = 14.9%
Note: This figure includes an extra margin of 14.9 -10.5 = 4.4 percenatge points above the minimum reserve bank guidelines.
SNOOPY
Refer to the interim report of FY2016 for the latest audited Heartland information. Time has rolled on and the total loan portfolio at the latest balance date (31-12-2015) was: $2,928.621m (Interim Statement of Financial Position)
Home equity release loans, which apparently have separate capital requirements total $422.706m (note 18c).
So the loan portfolio, less home equity release loans, was:
$2,928.621m - $422.706m = $2,505.915m
Balance date shareholder equity was: $485.688m
(Explanation: I know that assessable Tier capital is reduced to $428.539m as outlined in note 19a. But this is a recent report disclosure. So I need to use the 'slightly incorrect' earlier quoted higher number to maintain compatability with my previous calculation).
So firstly, I can calculate the 'equity' to support the Reverse Mortgage Business as:
0.114 x $422.706m = $48.188m
And that measn the equity left to support the rest of the business is:
$485.688m - $48.188m = $437.5m
So the equity to loan book ratio, with the reverse mortgage business taken out of the equation, at balance date was:
$437.5m / $2,505.915m = 17.4%
Now let's imagine for a moment that Heartland only had share capital of $373.4m
$373.4m / $2,505.915m = 14.9% (the same value that mangement were comfortable with before).
By this measure then, Heartland currently has:
$437.5m - $373.4m = $64.1m of 'surplus capital' on the books.
The total of individually impaired and restructured assets still on the books amount to just over $30m (note 6). So if the impairment people have done their job correctly, you would have to conclude that Heartland, relative to their position of a year ago, is getting stronger in terms of balance sheet strength. And in absolute terms, if you take management's past judgement as 'reasonable', they are now in 'more than reasonable' shape.
SNOOPY
So HBL have $64.1mil of "surplus capital" on the books.
I am not surprised,as they said they had "surplus capital."
Yet all the Australian Banks have been raising capital.
Big difference,