HGH - Heartland Group Holdings

[Snoopy]

Maybe I’m the zonc but I don’t get this bit at all — I got a sudden brain zonc during the day. Tax will be due on this subordinated capital note.

I never resolved this issue to my satisfaction, but the following RBNZ discussion paper hints at the answer

https://www.rbnz.govt.nz/-/media/Res...ital.pdf?la=en

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102. An important aspect of the regime is recognition that tax liabilities may arise for banks when contingent debt becomes loss absorbing. BS2B and BS2A require banks to accurately estimate any potential tax liabilities associated with instruments they report as capital and to deduct any potential tax liabilities from the face value when they report the value of a capital instrument (this deduction is called the regulatory “tax haircut”).

103. Given the company tax rate in New Zealand is currently 28%, the regulatory “tax haircut” is a significant consideration for issuing banks. It appears the requirement to recognise any potential tax liabilities may not always have been fully complied with in practice. This issue is discussed in more detail later in the Paper.

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Tier 2 capital is one example of 'contingent debt liability'.
The key words in the two paragraphs painted above are 'may arise'. It seems the RBNZ doesn't know for sure, so best to be conservative and assume they 'will arise'.

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203. It is important that the capital values reported by banks are accurate. If a capital instrument is likely to impose a tax liability on the issuing bank, at the time the instrument absorbs losses, the value available to absorb losses will be reduced. Hence, any potential IRD claims on the bank of this nature should be taken into account when reporting capital values.

204. The current regime requires banks to accurately estimate and deduct any potential tax liabilities arising at the point a capital instrument absorbs bank losses. If banks wish to report the full value of a contingent debt instrument, currently they must acquire a binding tax ruling from the IRD.

205. Some banks have raised matters of interpretation of the requirements, arguing that a less conservative interpretation than the stated policy intent is possible. Perhaps for this reason, some banks may have requested less than comprehensive rulings, and have thus potentially overlooked relevant tax effects.

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The above 'seems to be saying' that if Tier 2 debt is used to absorb bank losses the IRD may claim some of that bond as 'tax due'. However, since the bank would likely be in some trouble if Tier 2 capital was 'called in', I do not understand why, faced with huge losses, the bank would still be subject to any tax due if it had got to an emergency bail out situation.

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222. Tax considerations appear likely to feature prominently as a part of the decision by some banks to issue contingent debt. The proposals covered in this paper would exclude contingent debt from Tier 1 capital and, limit Tier 2 capital to subordinated debt that has, at most, only write off triggered by a non-viability event.

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One way or the other, it seems all this will be 'decided' by the RBNZ by 1st January.

SNOOPY

[Leftfield]

I've been enjoying your analysis of HBL/HBH Snoopy. Your F/A analysis is v helpful, however, I suspect T/A sentiment is currently against most NZ/AUS banks and this does not help HBL - as this article notes;
https://www.abc.net.au/news/2018-10-...ction=business

[percy]

I wonder whether having the dirty word "bank" out of their name,ie Heartland Group Holdings,will make a difference.

[winner69]

I wonder whether having the dirty word "bank" out of their name,ie Heartland Group Holdings,will make a difference.

Maybe but then many finance companies are seen as really dodgy as well and share prices down as well .....like Flexigroup and those payday lenders

Didn’t being a (de facto) bank give them credibility and helped underpin the share price?

[Beagle]

I wonder whether having the dirty word "bank" out of their name,ie Heartland Group Holdings,will make a difference.

Hasn't done much good for Summerset Group Holdings Limited lately but who knows this week might be different.

All aboard, this weeks roller coaster market ride is about to commence. Wonder how much I will lose this week ?

[Aaron]

I wonder whether having the dirty word "bank" out of their name,ie Heartland Group Holdings,will make a difference.

Probably "Bank" rates better than "Finance Company" at least if you are a shareholder or debenture holder in NZ. Heartland seems to be a go to bank for rural finance although these are riskier borrowers who have been declined by the major banks but heartland also charges a higher interest rate.
Disclaimer; These statements are not based on facts but personal anecdotal evidence from a very limited sample.

[winner69]

Hasn't done much good for Summerset Group Holdings Limited lately but who knows this week might be different.

All aboard, this weeks roller coaster market ride is about to commence. Wonder how much I will lose this week ?

Cheer up ....just think of those dividends

Not good for your health checking your net worth every day/week .....just do it once a year if you must

[Beagle]

Cheer up ....just think of those dividends

Not good for your health checking your net worth every day/week .....just do it once a year if you must

Thanks, I tend to agree but you have set the bar too high. Moving to monthly, (instead of weekly) portfolio net worth updates would be a good start for me but I might try for quarterly this quarter seeing as there's so much pain this month lol

[percy]

I have a good laugh.
Look each day to see if I have any green.
Only green I have is my very small holdings.
VHT [thanks KW] brought with a little bit of leftover funds, is going gang buster.Brought at au90 cents ,now up to au$1.40.
Looking forward to TRA's fat divie tomorrow night.

[percy]

Probably "Bank" rates better than "Finance Company" at least if you are a shareholder or debenture holder in NZ. Heartland seems to be a go to bank for rural finance although these are riskier borrowers who have been declined by the major banks but heartland also charges a higher interest rate.
Disclaimer; These statements are not based on facts but personal anecdotal evidence from a very limited sample.

Best to read one of their presentations,or their annual report,then you will know the "facts"..