HGH - Heartland Group Holdings

[Snoopy]

In fact I see HNZ doing very well with out one,so a bank licence does not concern me,however I would rather have one>!!!

Here are the latest basel 3 requirements outlining hoops that must be jumped through for all new banks.

http://www.rbnz.govt.nz/finstab/bank...on/3564868.pdf

I draw your attention to Clause 10(c) amongst the information the Reserve Bank need to have on record.

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10(c) Financial accounts for the parent company or bank for the last 3 years.
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Since Heartland have only existed since the second half of last year, I think this means we can rule out registration of HNZ as a bank for about three years.

SNOOPY

[percy]

I have been sniffing around the NBDT section of the New Zealand Reserve Bank website.

The minimum capital ratio for a non bank deposit taker is 8% with a credit rating and 10% without a credit rating.

SNOOPY

Heartland building Society has a BBB-[outlook stable] credit rating from Standard & Poor's.

[winner69]

Does HNZ have a Treasury function ..... one that is charged (and incentivised) to make profit out of idle funds?

[percy]

Does HNZ have a Treasury function ..... one that is charged (and incentivised) to make profit out of idle funds?

Craig Stephen's title is treasurer,so expect they do.

[Snoopy]

Out of interest I looked at yahoo finance.

ANZ bank.ROE 14.88% equity 6.247% 33,220,000/531,739,000

Just been looking at the latest (FY2011) ANZ annual report Percy.

The balance sheet on page 88 shows net assets of $37.954m. Net loans and advances are listed on the same page $396.337m. So I get an equity to loan ratio of:

$37.954m/$396.337m= 9.58%

ROE based on end of year equity was

$5.873m/$37.954= 15.5%

Of course the true ROE figure uses the average equity over the year which could account for the different figure you quoted. I am intrigued though that our equity to loan ratios are so different though. Can you clarify your figure?

SNOOPY

[Snoopy]

At present I feel HNZ is the best value for money on the NZ market.It is trading at over 35% discount to NTA.
It has achieved a lot in a short time,getting approvals and merging three companies.It has successfully got through the Govt guarantee,and now looks to be getting on with the business on making money. From earlier posts you will note the high rate of return banks/finance companies earn.This means they can grow quickly.You will also note that bad loans/deals have been left at PGC or PGW.
Once we have seen good earnings we will see HNZ rerated.It will /could trade at two or three times NTA.ie $1.60 to $2.40.The recent announcement of ACC buying approx 10% means a lot of the risk is past us. Kerr's influence is gone.
On the downside low interest rates,and low demand for money could delay big profits.

Percy you have missed your calling. You should have been the Heartland head of publicity in 2007. Of course the fact that Heartland did not exist in 2007 may have mitigated against the chances of your successful job application.

I will get the bit I agree on with you over first. I do agree that Heartland has significant share appreciation potential. In these post GFC days that means it may end up trading at asset backing. As for going to two to three times that figure, I think you would need to wind the clock back to 2007 to achieve it.

Why? Post GFC regulations have tightened around finance companies and banks. All are now required to hold a lot more capital in relation to the loans that underlying capital supports. If the NZ economy suddenly upticks that means HNZ cannot suddenly expand the amount of lending they do like finance companies of yore. Any expansion in lending will require very careful management of company equity so that everything expands in proportion. To make best use of capital I would say a dividend should not be paid.

Likewise if there is a downturn HNZ should keep their capital base strong so that they can manage the reduction in their lending book and any mismatch of depositors and lending interest that entails. That means no dividend in those circumstances either. In short it is hard to think of a scenario post GFC where HNZ will ever pay a dividend again.

The other 'problem' is that unlike a factory where plant can lie idle between downturns and be fired up again when the demand kicks in, modern finance industry requirements mean that the 'finance factory' itself must now be dismantled and rebuilt between business cycles. This is very different to loans being written on whiffs of capital as happened pre GFC.

The finance industry is not dead. But the former thoroughbred is wearing concrete clogs. There is a reason that even the likes of the National bank will be changing their promotional animal from thoroughbred steed to a draught horse.

SNOOPY

[percy]

Just been looking at the latest (FY2011) ANZ annual report Percy.

The balance sheet on page 88 shows net assets of $37.954m. Net loans and advances are listed on the same page $396.337m. So I get an equity to loan ratio of:

$37.954m/$396.337m= 9.58%

ROE based on end of year equity was

$5.873m/$37.954= 15.5%

Of course the true ROE figure uses the average equity over the year which could account for the different figure you quoted. I am intrigued though that our equity to loan ratios are so different though. Can you clarify your figure?

SNOOPY

Unfortunately Yahoo finance do not seem to have received the latest annual reports.May I aplogise on their behalf.
However all comparisons were based on Yahoo figures, so apples were being compared with apples or in this case banks with banks.
ROE.ANZ is achieving over 15%.For a huge elephant like ANZ to achieve this,makes the case for HNZ coming from a much smaller capital base very compelling.20% or more.?
After you making me do some comparisons I have begun to believe what I have posted,and today sinned and brought some more HNZ.!!!!

[Snoopy]

ROE.ANZ is achieving over 15%.For a huge elephant like ANZ to achieve this,makes the case for HNZ coming from a much smaller capital base very compelling. 20% or more.?
After you making me do some comparisons I have begun to believe what I have posted,and today sinned and brought some more HNZ.!!!!

I don't believe that stacking up banks against finance companies is an apples with apples comparison. I would say that the 'huge elephant' is liable to be more efficient on a per loan basis, not less efficient. You should also remember that all that surplus Heartland capital you think is there is also required to spruce up the branch offices, and pay for advertising.

Maybe I haven't been looking in the right places but I haven't seen any advertising at all for Heartland this year. I imagine this is because they are downsizing their loan portfolio as the recession bites. Nevertheless I am not going to say you were wrong with your purchase today. Just that your tolerance for risk is higher than mine. Personally I will be waiting for the next set of HNZ results and reviewing the terms of any possible cash issue before buying in.

SNOOPY

[percy]

[QUOTE=Snoopy;374420]I don't believe that stacking up banks against finance companies is an apples with apples comparison. I would say that the 'huge elephant' is liable to be more efficient on a per loan basis, not less efficient.

.Agree to disagree with you.

[winner69]

For what's it worth I'd be really worried if HNZ were making 20% ROE .... to me it would mean they are taking too many risks and/or are too highly leveraged

Leverage has stuffed the world ..... aided and abetted by measuring (and paying) bankers on ROE .... things will revert to the old fashioned ways of doing things one day .... like building societies / financial institutions only lending out what is prudent to do so

And I still would like too know what that 'treasurer' does with the spare cash .........