HGH - Heartland Group Holdings

[fish]

He has a great deal of reading to do..............lol.


ps.Don't think the Australian Banks/Insurance companies with rural exposure will be looking to flash with all the terrible fires.

Horrific fires indeed .
Your post made me think about the financial consequences.
It may seem untimely to think about the financial implications of such huge destruction and economic damage but has HGH any exposure?

[janner]

He has a great deal of reading to do..............lol..

Pumping book sales perc ?.
Thought you had retired..

[stoploss]

He has a great deal of reading to do..............lol.



ps.Don't think the Australian Banks/Insurance companies with rural exposure will be looking to flash with all the terrible fires.

Think there will be a rate cut from the RBA , probably force our hand to or parity will be a certainty .It might help our banks make some margin back if he cuts after the new capital requirements .

[percy]

Horrific fires indeed .
Your post made me think about the financial consequences.
It may seem untimely to think about the financial implications of such huge destruction and economic damage but has HGH any exposure?

Very doubtful.Their Reverse Equity lending is in cities.


I also have doubts about the level of insurance those who have lost their homes have.
I am only going from a niece who lives in Nimbin,rural north NSW who told me they can't afford the insurance premium.Simple,house burns down her ,her husband, and two daughter shift to NZ,[with nothing].
So I think there will be many people left with nothing.


ps.My right wing brother, who lives in Tasmania blames the conservationists for not allowing winter controlled burn off, and fire breaks,while my wife's left wing cousin, blames the right wingers for no action on climate.
pps.In 1951 people in ChCh could not see the blue sky for a number of days because of the smoke from Australian bush fires.?

[percy]

Pumping book sales perc ?.
Thought you had retired..

Yes retired from selling books.
Silly me, only buying books to give away to our local Community Library.

[janner]

" So I think there will be many people left with nothing ".

More than many perc.
The average person in the " Western " economies lives from pay cheque to pay cheque.
The fallout from this will be long and hard for Aussie.
The credit cards will still need payments.
No house. No job.

However. Every dark cloud has a silver lining.
Heartland will be there offering Reverse Mortgages to Grandparents wanting to help their offspring.

[Snoopy]

Perhaps he should read Chris Lee's book "The Billion Dollar Bonfire" to better understand how finance companies and banks work.
Then his posts may be worth reading.

ps.The book was well researched and well written. A must read.

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.

[iceman]

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.

Snoopy of course there are risks to HGH with reverse mortgages. But to say, as you do, that "the only difference" between this lending and Canterbury Finance is misleading.

The main point being that the reverse mortgages are equity release mortgages so HGH is not lending up to 90-100% like CF was and thereby taking a huge risk. The highest LVR possible at drawing down of HGH's reverse mortgages is 40% for those over 85 yo but in most cases it is much lower and borrowers are encouraged not to take more than they need. My understanding is that the average age of borrower is 72-73 yo and LVR well under 25%. My numbers may not be quite up to date but that's about where it was when I looked at it in detail last and they wouldn't have changed much.

The borrowers of these mortgages are overwhelmingly responsible people that are relatively asset rich and just want to ease the burden of cost of living a little or use their assets to allow for a little more life enjoyment, often for things such as long overdue renovations to make their life easier or a new car etc.
But its certainly very different from the pre GFC craziness from finance companies.

Yes you could say with a short term view that there currently is a "funding mismatch" but we have a clear statement from HGH that they see now issue with ongoing funding in the near future and so far they have not had any problems accessing a wide variety of funding, deposits, unsubordinated bonds, DRP etc etc.
All their funding is on low interest rates (unlike CF) and HGH last reported NIM was a very healthy 4.33%.

They have done all they said they would do with the reverse mortgages and I see no reason to believe anything other than this being a great business for HGH for many years or decades to come, supported by Governments on both sides of the Tasman as an important part of the overall solution of housing and wellbeing for our senior residents.

[kiwico]

ps.My right wing brother, who lives in Tasmania blames the conservationists for not allowing winter controlled burn off, and fire breaks,while my wife's left wing cousin, blames the right wingers for no action on climate.

There was a case a few years back in rural Victoria (I think) where one owner had illegally cut back the eucalyptus trees around his house. Come the fire season his was the only house standing as it wasn't surrounded by bone-dry oil-filled trees.

[I think that puts me of the same view as your brother...]

[Snoopy]

Snoopy of course there are risks to HGH with reverse mortgages. But to say, as you do, that "the only difference" between this lending and South Canterbury Finance is misleading.

The main point being that the reverse mortgages are equity release mortgages so HGH is not lending up to 90-100% like CF was and thereby taking a huge risk. The highest LVR possible at drawing down of HGH's reverse mortgages is 40% for those over 85 yo but in most cases it is much lower and borrowers are encouraged not to take more than they need. My understanding is that the average age of borrower is 72-73 yo and LVR well under 25%. My numbers may not be quite up to date but that's about where it was when I looked at it in detail last and they wouldn't have changed much.

The borrowers of these mortgages are overwhelmingly responsible people that are relatively asset rich and just want to ease the burden of cost of living a little or use their assets to allow for a little more life enjoyment, often for things such as long overdue renovations to make their life easier or a new car etc.

But its certainly very different from the pre GFC craziness from finance companies.

Iceman, I think I need to explain my post a little more. You are quite right to point out the difference between the property realisation risk of asset lending up to 90% on an uncompleted property development in the late noughties, verses lending 40% maximum (mostly much less) to a retired pensioner. However, I am talking about 'borrowing risk' of the financial institution, not the 'asset realisation risk' should the loans fall over.

I contend that the borrowing risk for Heartland funding these reverse mortgages today is very similar to that faced by South Canterbury Finance funding those late 2000s property developments. The main difference is that HGH is using wholesale funding. Wholesale funders -hopefully- are not as fickle as private investors in that they would not suddenly pull all their financial backing out on the whim of an internet rumour and cause a run on funds queuing out of the door to withdraw their money. But make no mistake, wholesale funders do not take their risks for granted. This is why Heartland have diversified their Australian funding away from just CBA bank, to now include Westpac and ME bank and their own wholesale fixed interest funding too. But although this wholesale provider diversification is good, it has not addressed the mismatch in borrowing and lending loan timing. Jeff is not a fool and I would be very surprised if there is not further work going on 'behind the scenes' to address exactly the issue I am talking about. However, exactly to what extent Jeff will be able to offset this timing risk is unknown. And while it remains unknown, this 'funding timing risk' creates an 'investment risk' for HGH shareholders.

The next question to ask is, what happens if this 'funding timing risk' becomes an issue? Unlike with South Canterbury Finance, it is likely that HGH will eventually get all their capital back. But the cost will fall not on Heartland directly but on those taking out the reverse mortgage who are forced to repay early. They will not have alternative funding available (because that is why they took out a reverse mortgage in the first place). They will be forced to sell their homes and forced to live out their days in some grotty rented bedsit. It would be a PR disaster for Heartland, and no doubt Australian politicians would be quick to put the boot into that 'greedy NZ institution Heartland' squeezing 'our elderly' out of their last coin and forcing their to sell their 'life savings within four walls'. It would make no difference whether reverse mortgage holders lost 90% of their capital or 20% of their capital. With no alternative funding available, they would be 'out on their ear'. That means that even if Heartland get all their money back, they would be finished in Australia. Now ask yourself what multiple would 'the market' pay for a business with no clients and no prospect of ever getting any clients? Heartland in Australia would most likely eventually get their capital back. But as a business they would be destroyed and be forced to retreat to NZ. With the Australian growth engine gone, how would investors value what would be left in NZ? Perhaps a 50% dive in the HGH share price would set things back on an even keel?

Yes you could say with a short term view that there currently is a "funding mismatch" but we have a clear statement from HGH that they see now issue with ongoing funding in the near future and so far they have not had any problems accessing a wide variety of funding, deposits, unsubordinated bonds, DRP etc etc.
All their funding is on low interest rates (unlike CF) and HGH last reported NIM was a very healthy 4.33%.

You would expect Heartland to say all of the above wouldn't you? It still doesn't address the potential issue I have raised though. Historical access to funds does not guarantee future access to funds. And yes a large discounted share recapitalisation would get Heartland out of any potential funding hole. But at what cost to existing shareholders? And if those Australian 'shorters' got into Heartland while it was in trouble, a recapitalisation might not be possible!

They have done all they said they would do with the reverse mortgages and I see no reason to believe anything other than this being a great business for HGH for many years or decades to come, supported by Governments on both sides of the Tasman as an important part of the overall solution of housing and wellbeing for our senior residents.

You are sounding a bit like Alan Hubbard. Heartland like SCF have many years serving a market they know well. No reason to believe anything will be different in the future. All deals 'kosher'. But will Jeff Greenslade be putting in his own capital to prop up a potentially faltering Heartland , like Hubbard did with SCF (until the funding mismatch got too big for even a very wealthy Hubbard to deal with?)

SNOOPY