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  1. #6941
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    Default How Depositors are 'expected' to behave: FY2015 update

    Quote Originally Posted by Paper Tiger View Post
    Can I just point out that the figures you use are not the expected maturity numbers but the contractual maturity figures.
    When looking at company liquidity, it is useful to have an estimate of how depositors are expected to behave in the coming year, rather than just looking at the maturiity dates of their cash funds/debentures.

    Over FY2014 Heartland managment provided this information. But from FY2015 they do not. Below I have tabulated the 'expected' and 'contractual' depositor behaviour.

    FY2013 Deposit Maturity (Financial Liabilities) Expected Contracted E/C
    On Demand $4.522m $452.201m 1.00%
    0-6 months $413.371m $881.306m 46.9%
    6-12 months $235.172m $648.567m 36.2%

    FY2014 Deposit Maturity (Financial Liabilities) Expected Contracted E/C
    On Demand $18.922m $629.125m 3.01%
    0-6 months $242.431m $748.129m 32.4%
    6-12 months $195.682m $538.050m 36.4%

    Of particular interest is the very small redemption rate from the on demand account, across both teh FY2013 and FY2014 years.

    During FY2013 Heartland was still establishing a 'depositors profile'. So in my judgement the best indicative figures we have for FY2015 come from FY2014. My table of expected depositor behaviour for FY2015 follows:

    FY2015 Deposit Maturity (Financial Liabilities) Expected Contracted E/C
    On Demand $22.450m $748.332m 3.01%
    0-6 months $395.102m $1213.450m 32.4%
    6-12 months $249.762m $686.159m 36.4%

    SNOOPY
    Last edited by Snoopy; 19-01-2017 at 02:54 PM.
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  2. #6942
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    Default How Loan customers are 'expected' to behave: FY2015 Update

    Quote Originally Posted by Paper Tiger View Post
    Can I just point out that the figures you use are not the expected maturity numbers but the contractual maturity figures.
    FY2013 Loan Maturity (Financial Liabilities) Expected Contracted E/C
    On Demand $185.782m $185.782m 100%
    0-6 months $611.342m $628.167m 97.3%
    6-12 months $542.352m $387.031m 140%

    FY2014 Loan Maturity (Financial Receivables) Expected Contracted E/C
    On Demand $50.254m $50.254m 100%
    0-6 months $629.445m $477.190m 132%
    6-12 months $483.727m $367.564m 132%

    Of particular interest is the very significant early cashing up of loans, (except for loans that are already payable on demand).

    During FY2013, Heartland was still liquidating the problem property portfolio. So in my judgement the best indicative figures we have for an FY2015 forecast come from FY2014. My table of calculated expected customer loan initiator behaviour for FY2015 follows:

    FY2015 Loan Maturity (Financial Receivables) Expected Contracted E/C
    On Demand $37.012m $37.012m 100%
    0-6 months $877.215m $664.557m 132%
    6-12 months $594.842m $450.638m 132%


    SNOOPY
    Last edited by Snoopy; 19-01-2017 at 02:55 PM. Reason: Correct Expected maturites for FY2015
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  3. #6943
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    Default Liquidity Buffer Ratio FY2015: Iteration 2

    As PT pointed out, my liquidity calculation used contractual cashflows not expected cashflows. This will likely give an incorrect result by assuming nothing is rolled over. Heartland no longer publishes 'expected' cashflows. This means I need to take an educated guess to derive them. I have previously posted my educated guesses on expected loan agreement maturities and debenture and call deposit maturities for FY2015. I repeat this information below:

    Quote Originally Posted by Snoopy View Post
    My table of calculated expected customer loan initiator behaviour for FY2015 follows:

    FY2015 Loan Maturity (Financial Receivables) Expected Contracted E/C
    On Demand $37.012m $37.012m 100%
    0-6 months $877.215m $664.557m 132%
    6-12 months $594.842m $450.638m 132%
    My table of expected depositor behaviour for FY2015 follows:

    FY2015 Deposit Maturity (Financial Liabilities) Expected Contracted E/C
    On Demand $22.450m $748.332m 3.01%
    0-6 months $395.102m $1213.450m 32.4%
    6-12 months $249.762m $686.159m 36.4%
    Time to update the Liquidity Buffer ratio for FY2015, the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:

    (Total Current Money to Draw On)/(Net Current Loans Outstanding) > 10%

    On the numerator of the equation, we have borrowings.

    HNZ BORROWINGS

    1/ Term deposits lodged with Heartland. $2,097.458m
    2/ Bank Borrowings $465.779m
    3/ Securitized Borrowings total $258.630m
    4/ Subordinated Bonds $3.378m
    Total Borrowings of (see note 13) $2,825.245m

    Note 13 does not contain a clear breakdown of current and longer-term borrowing amounts and their maturity dates.

    Banking facilities are provided by CBA Australia but for both Australia and New Zealand. These facilities are, I believe, in relation to the recently acquired reverse mortgage portfolio. These banking facilities are secured over the homes on which the reverse mortgages have been taken out. These loans have a maturity date of 30th September 2019. That means they are classed as ‘long term’ for accounting purposes. Heartland can’t rely on CBA Australia as a source of short-term funds.

    The information given in note 13 on the securitized borrowing facilities is as follows:

    -------

    Total FY2015 Total FY2014 Facility Maturity Date FY2015
    Securitized bank facilities total all in relation to the Heartland ABCP Trust 1 $350.000m $400.000m 3rd February 2016 (*)
    less Current level of drawings against this facility $258.630m $228.623m
    equals Borrowing Headroom $91.370m {A} $171.377m

    (*) I do not expect any problem in rolling this facility over for another year.
    --------

    Bank borrowings no longer explicitly rank equally with the securitized bonds. Therefore, I think it is safe to assume that if HNZ got into cashflow difficulty, the different classes of borrowings would be repaid in the following order:

    1/ Bank Borrowings,
    2/ Securitized Borrowings,
    3/ Subordinated Bond (new from FY2014 but only worth $3.378m) and finally
    4/ deposits from debenture holding customers.

    IMO that represents a large new incremental risk for Heartland depositors that has received almost no media attention.

    All four sources of drawn funds itemized have been "on loaned" to customers who want loans.



    HNZ LENDINGS

    Customers owe HNZ 'Finance Receivables' of $2,862,070,000. There is no breakdown in note 11 as to what loans are current or longer terms. However, if we look at note 20, we can derive the expected maturity profile of total finance receivables due over the next twelve months.

    On Demand 0-6 Months 6-12 Months Total
    Expected Receivables Due $37.012m + $877.215m + $594.842m = $1,509.069m
    less Expected Deposits for Repayment $22.450m + $395.102m + $249.762m = $667.314m
    equals Net Expected Cash Into Business $14.562m $482.112m $345.080m $841.755m {B}

    If more money is coming in from customer loans being repaid, than is having to be repaid to the debenture holders, then this is a good thing for liquidity. That now is the case here.

    Summing up:

    (Total Current Money to Draw On)/(Net Expected Cashflow into Business)
    = {A} / {B}
    = $91.370m / $841.755m
    = 10.8% > 10%

    => Pass Short term liquidity test (reversing the result of my most likely incorrect first iteration)

    FY2015 FY2014
    Amount lent to Customers (Receivables) $2,862.070m (+9.7%) $2,607.393m
    Total Borrowings $2,825.245m (+11.9%) $2,524.460m
    Amount borrowed from Customers (Debentures and Deposits) $2,097.458m (+20.8%) $1,736.751m

    Securitized borrowing facilities have gone down by $50m ($400m to $350m) over the same annual comparative period. So Heartland have upped their current period risk profile by having a smaller declared available loan buffer to cover any mismatch between maturing borrowings and maturing receivables.

    SNOOPY
    Last edited by Snoopy; 23-04-2017 at 04:51 PM.
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  4. #6944
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    Quote Originally Posted by Snoopy View Post
    Ho ho ho ho ho - Merry Christmas!

    SNOOPY
    So onward and upward to $1.60??

  5. #6945
    percy
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    It is the function of all banks that their treasury department match redemptions and deposits.
    Should a bank have too much liquidity they often don't want too many depositor's renewals,so will offer a very much lower deposit rate.
    Similarly should they find they are going to be "a little short" in a year's time,or whenever, they will offer a higher deposit rate.
    This is the reason why bank deposit rates vary so much,for various lengths of deposits.
    Therefore I would not read too much into any bank's liquidity, as they all seem to be ahead of the market.
    One of the big advantages HBL have over the other banks is they recycle their funds quickly.Car loans etc are for a lot shorter period of time than a house mortgage,say 3 years against 20 years,while seasonal loans are for a very short period..
    Our friends at TNR are similar.
    Last edited by percy; 24-01-2016 at 02:01 PM.

  6. #6946
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    Quote Originally Posted by percy View Post
    It is the function of all banks that their treasury department match redemptions and deposits.
    Should a bank have too much liquidity they often don't want too many depositor's renewals,so will offer a very much lower deposit rate.
    Similarly should they find they are going to be "a little short" in a year's time,or whenever, they will offer a higher deposit rate.
    This is the reason why bank deposit rates vary so much,for various lengths of deposits.
    Therefore I would not read too much into any bank's liquidity, as they all seem to be ahead of the market.
    Wise words Percy, and fine for 95% of investors 95% of the time. If companies in the finance business always did what they say they would do then there would be no need to worry about liquidity. However I feel we are still living in the shadow of the great New Zealand Finance Company collapse. So if I can produce data that backs up your wise words, then as a (potential) shareholder I will sleep more easily.

    "What happens if confidence is questioned?" is the question I am posing. In this case there looks to be enough securitized borrowing liquidity to see Heartland through. That is the most satisfactory result we can hope for in studying the accounts as published.

    One of the big advantages HBL have over the other banks is they recycle their funds quickly.Car loans etc are for a lot shorter period of time than a house mortgage,say 3 years against 20 years,while seasonal loans are for a very short period..
    Our friends at TNR are similar.
    You are assuming the house loans go full term. Just because a loan is taken out on 20 year terms, that doesn't mean it won't be cashed up and recycled after 3 years.

    SNOOPY
    Last edited by Snoopy; 24-01-2016 at 02:21 PM.
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  7. #6947
    percy
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    All banks operating in NZ must answer to The Reserve Bank of NZ,and report quarterly to them.
    This adds a very high level of safety/security to NZders.Borrowers,lenders and shareholders.
    So the first reaction to watch for in the event on a run on any bank in NZ would The Reserve Bank's.
    We can all guess what that would be.
    I think also 3 year can loans are often don't go the full term.
    So for you 1 year car loans verses 8 year mortgages.
    Last edited by percy; 24-01-2016 at 02:29 PM.

  8. #6948
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    From my mate Cam -
    @ANZ_cambagrie: Fonterra lowers payout to $4.15 from $4.60. No surprises with downgrade but marginally larger than expected (we were at 4.25).

    $4.15 is awfully low and a big drop from $4,60 - only one step away from being $3 something

    Spose those $300m of dairy loans just became even more riskier - and Heartlands generous 'support' to distressed farmers will need to last longer

    Hope this doesn't impact the $52m earnings forecast. Just hoping Heartlands guesses are better than Fonterras
    Last edited by winner69; 28-01-2016 at 07:53 AM.
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  9. #6949
    Senior Member Marilyn Munroe's Avatar
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    Quote Originally Posted by winner69 View Post

    Spose those $300m of dairy loans just became even more riskier - and Heartlands generous 'support' to distressed farmers will need to last longer
    Those share-milkers who mistimed their entry will be having a bad day.

    Boop boop de do
    Marilyn

  10. #6950
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    Quote Originally Posted by Marilyn Munroe View Post
    Those share-milkers who mistimed their entry will be having a bad day.

    Boop boop de do
    Marilyn
    Have you been talking to any share-milkers lately? I had interesting chat to one the other day. He said production was up. Most farmers seem to be very aware of how cyclical their industry is. As with any industry during this part of the cycle they will be looking to drive efficiencies and defer non essential CAPEX.

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