Originally Posted by
Snoopy
By a strange co-incidence I was reading Chris Lee's book when I made the post Percy! And here is the specific passage I was reading, from p53:
"(Business and) property lending Forsyth Barr said <snip numbers specific to South Canterbury Finance> was largely made on the basis of interest only loans or on the basis of no regular repayments at all"
"The company was in effect entirely reliant on extremely high levels of renewals and new money to pay its overheads and continue to lend."
In the book Lee was talking about South Canterbury Finance. But those comments can equally apply to Heartland's Australian Reverse Mortgage business today. The only difference being instead of relying on individual depositors, the funding is coming from the Australian wholesale interest markets. See note 15 of the HGH Annual Report:
"An $A50m two year unsubordinated notes issued 8th March 2019 and maturing 8th March 2021
"A Seniors Warehouse Trust securitization facility of $A650m drawn to $A637m, maturing on 20th September 2022"
So total Australian funding was $A687m, maturing in 1-3 years time.
In the FY2019 AGM presentation p15, Australian Reverse Mortgages were listed to be worth $NZ758m at balance date. At the prevailing exchange rate on 30-06-2019 of 0.9566, this translates to an $A Reverse Mortgage balance of $A725m. So this reverse mortgage balance was 95% funded from the shorter term Australian wholesale lending market at reverse mortgage balance date.
The typical reverse mortgage is taken out for 7-8 year term. So yes, there is a significant timing mismatch between the actual cash funding of these mortgages (1-3 years) and the amount of time Heartland are being asked to lay out the money for those Aussie Seniors (7-8 years). If any Beagle, or human critter, can't see the warning signs in that, may I suggest moving your floppy ears so they do not cover your eyes.
SNOOPY
PS One point I do agree with Percy on, and that is that Chris Lee's book is a very good read. "The Biliion Dollar Bonfire" is much more than tracing the decline of Alan Hubbard and South Canterbury Finance. It contains lessons for those investing in finance companies and banks today that should not go unheeded.