HGH - Heartland Group Holdings

[Snoopy]

Snoopy. It looks like you are beginning to get a grip on the Harmoney funding transition.

With regard to Heartlands $199 of Harmoney receivables vs Harmoneys $129 of receivables: They are not the same thing.

Heartland is a peer-to-peer lender through the Harmoney platform and the $199 is part of the $344.

So the question is: What happens to that $199 (from Heartlands view point) over the next year or so as Harmoney unwinds the p2p?

I was going to say the p2p unwinding at Harmoney makes no difference to Heartland, It is only the retail part of p2p that is being unwound and the big boys like Heartland doing the wholesale funding just carry on. But on closer reading of the Harmoney Prospectus, I see that the wholesale peer to peer funding is being unwound as well! So I guess the answer is that all of that $199m in loans to Harmoney will be repaid. I imagine Heartland would have had the option of getting involved in one or more of these finance receivable warehousing operations that will ostensibly replace the peer to peer lending. However, to my knowledge they have so far declined to do so. From the Harmoney prospectus p74.

"In December 2018, Harmoney established its second funding channel – the New Zealand Warehouse Trust. <snip> The senior note funding is provided by a major bank (not Heartland then!), which initially subscribed to $35 million of senior notes. A large Australian asset manager subscribed to $9.75 million of the mezzanine notes."

"In September 2020, Harmoney also received credit committee approval from a global asset manager (not Heartland then!) for up to $200 million to establish a second Warehouse Facility in New Zealand."

I am slightly surprised at this because under the new warehouse funding model (Harmoney Prospectus p72), Heartland would transfer the "impairments for losses on loan receivables" to Harmoney and that would de-risk Heartland's own position in the loan operation. Given Heartland -apparently- do not want to continue operational involvement at Harmoney, I have to conclude that they have decided to make better use of their capital elsewhere. And that probably means they will sell down their equity position over the medium term within Harmoney as well, in my view. Personally I am not enamoured with the Harmoney target market for loans, particularly in post Covid-19 times. And I would be quite glad for Heartland to exit this kind of lending.

AFAIK Heartland have retained the arrangement whereby they granted $50m in wholesale funding to Harmoney when it was getting going. It will be up to Harmoney to see if they can get a better deal elsewhere with another bank.

SNOOPY

[Beagle]

Given Heartland do not want to continue operational involvement at Harmoney, I have to conclude that they have decided to make better use of their capital elsewhere. And that probably means they will sell down their equity position over the medium term within Harmoney as well, in my view. Snoopy

I hope so. More money and much less risk in lending money to old and trustworthy homeowners with zero risk of default.

[nztx]

I hope so. More money and much less risk in lending money to old and trustworthy homeowners with zero risk of default.

but the strategy to of realising a maturing equity interest seems like a better option than a SP depressing Cap Raise
as in past to put some further Shareholders funds on the Books

[Snoopy]

I was forecasting a proposed 'one off shock' at the end of FY2020 which looks to have happened. My forecast EOFY2021 decline of 10% for the O4B receivables from an EOFY2019 base level, is equivalent to a 23% fall from the EOFY2020 base level. Too harsh?

I see from the IRD website:

https://www.ird.govt.nz/covid-19/bus...cash-flow-loan

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Latest developments

The Small Business Cashflow (loan) Scheme has been extended until the end of 2020. Applications opened on 12 May 2020 and can now be submitted up to and including 31 December 2020.

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So I think I am justified in holding my assumptions about the decline in O4B. No small business owner in their right mind is going to get a business loan from Heartland if they can get one from the IRD at 0%. That means very little new O4B business will be written for the first half of FY2021 at Heartland Bank!

The new Labour government looks to have put supporting small business at the top of their agenda

https://www.newsroom.co.nz/small-bus...ovt-to-do-list

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With little time to lose, Ardern said her new Cabinet’s first item of business would be improving the small business loan scheme, originally designed as a “stop-gap” for vulnerable Kiwi companies. Given ongoing uncertainty and instability, the Government now proposed to extend the scheme for three years, also extending the interest-free period for loans from one year to two years.

Later in the month, ministers would put forward proposals to expand the potential purposes of the scheme, covering investments in new equipment or infrastructure. Ardern said the Government also wanted to start work on new financial mechanisms to support small businesses, such as expanding the mandate of its Venture Investment Fund.

“We need to find long-term solutions to a problem that actually existed before Covid arrived on our doorstep,” she said.

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Business loans over two years with no interest payments required are a pretty difficult product for Heartland to compete with.

SNOOPY

[Beagle]

Jarden been engaged to look at financial engineering. Got to get this up to a fintech PE. Can't help wondering if they realise almost all other banks are pursuing a full digital strategy ?

I think they start to lose credibility when they try and argue that a fintech multiple is more appropriate. If they think the shares are so cheap do a massive on market buy-back. Less talk from them and more action I reckon.

[Beagle]

Further to the above post I would just add that TSB bank have moved rapidly to everything digital and I was chatting with a lawyer who works for Westpac this morning and he told me they're moving as fast as they can to all things digital.

So Winner me ol mate, do you still think HGH deserves to trade on special metrics because they're a special case with all things digital or have the directors "lost it" thinking they're a special case and spending (probably hundreds of thousands, a million or two ?) engaging Jarden to review their options ? What say you ?

My opinion is that with the niches they have carved out for themselves in the market and the highest NIM in the market they at least should trade on the average forward metrics of the Australian banks I follow which suggests, (last time I looked), that HGH are very cheap.

[Greekwatchdog]

They are going hard - Floating rate 2.5% ...https://www.nzx.com/announcements/362840

[winner69]

They are going hard - Floating rate 2.5% ...https://www.nzx.com/announcements/362840

Get the 2.5% and all done on line in the blink of an eye .....easy peasy

Do they ask for more than your name and address when you apply?

Probably need your solicitors name for the paperwork?

[peat]

Get the 2.5% and all done on line in the blink of an eye .....easy peasy

Do they ask for more than your name and address when you apply?

Probably need your solicitors name for the paperwork?

hopefully some proof of income too!
Its all good to lend money but gotta get it back!

[Greekwatchdog]

Jeff Greenslade comments.https://www.nzherald.co.nz/business/...ROCFLLG4TGXSA/