HGH - Heartland Group Holdings

[percy]

http://www.stuff.co.nz/business/7992...r-the-industry

Here we go...

Thanks for posting the link.
MTF have to pay $25,000 plus,towards CCC costs.
The case only covered 39 loans from 2006,to 2008.
This will cost under $10,000 in total..
Case over,liability known.
Game on.?

[Snoopy]

PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it is not too far away from the 17% which by implication is judged acceptable by management under the watchful eye of Reserve Bank chairman Graeme Wheeler. ...


Indulge me and explain the above please, I believe that I have no knowledge of this; though I do have jet-lag.

Best Wishes
Paper Tiger

PT. This is from my post of 2772 dated 27-02-2014 titled:

"Heartland's Acceptable Operating Leverage Ratio"

------

We can work backwards and see from a 'reserve bank' pair of eyes (wheels?) to deduce what is considered an acceptable operating leverage ratio for the rest of the business (excluding reverse mortgages just purchased).

Apparently, just before the purchase of the reverse mortgages, Heartland had 'surplus' cash of $28.3m -

(Explanatory Note: Total Heartland cash contribution to this deal was $48.3m, made up of the $28.3m 'surplus cash' on the balance sheet at 31st December 2013 plus $20m yet to be raised from shareholders at the time the half yearly report was published.)

- on the balance sheet. If we look at the 31st December 2013 HY2014 balance sheet $178.5m in cash was there. So we can deduce that:

$178.5m - $28.3m = $150.2m

of cash is required , as part of a more comprehensive asset package, to fund all the rest of the Heartland business. Put another way, the 'total equity' (again from the balance sheet) needed to fund the rest of the Heartland business is:

$382.5m - $28.3m = $354.2m

The size of the loan book at balance date was $2,077.0m

So the equity to loan book ratio for the rest of the business, as judged acceptable under the watchful eye of Mr Wheeler, is:

$354.2m/$2,077m = 17.0%

-------

The background to those that have forgotten (I had!) goes like this.

Heartland's purchase of the Seniors reverse mortgage business was financed by the issue of new shares and borrowings. "In theory", Heartland could have purchased the business with:

a/ 100% new shares and no more borrowings OR
b/ 100% new borrowings and no new shares issued.

Instead Heartland management struck a balance between these two extremes.

Heartland issued 43m new shares worth around $NZ38.7m and used $NZ28.3m worth of cash to make up the Seniors purchase price of $NZ60m. This cash/share balance was a judgement call made by Heartland management under the watching brief of satisfying reserve bank capital reqiurements, [i]taking into account the much larger existing businesses already under the Heartland umbrella[i/] IOW Heartland management had to be cogniscent of the total business when the Seniors acquisition was made.

Thus the Seniors purchase gave shareholders a snapshot on management's judgement on the amount of capital needed to support the 'regular' Heartland business relative to the size of the loan book.

SNOOPY

[Subway]

Re: Dairy, I remember at debt briefing last year the CFO when asked about the dairy risk compared to car loans said something along the lines of "well we can always shoot the cows", got a decent chuckle out of the audience

[mouse]

I posted the following back in July last year, and still stand by it.

"The dairy industry is not in trouble, just receiving reduced pay outs, and still within a statistical normal range. Loans are not to the industry, but to individual owners, each with their own set of circumstances.

Some dairy farmers converted their farms when pay-outs were well above average, and used this high projected income as a basis for their financial planning. Of these, some have converted farms in areas that are not suitable for dairying (like Central Otago or mid Canterbury) and these are the ones who will really struggle to make the conversion pay. But sharemilker Fred in Southland, who borrowed just to buy his stock, and is on a traditional farm which doesn't need pivot irrigators etc. is probably still keeping his head above water and will manage OK.

It is not as if ALL dairy will crash and default. So the banks could afford to let the less likely ones go under, sell the stock at meat prices, and still support those that are marginal or still successful."

The current dairy payout is almost exactly the average payout prior to the boom that started 7 years ago and ended 2 ywears ago. Everything is now back to normal. Those farmers who converted to dairy using traditional values are doing just fine. It is the ones who thought the rosy times were the new norm who are suffering, and I don't believe that is a large proportion of the industry at all.

Thanks Jantar. I know very little about farming. But I am insured with Farmers Mutual, FMG. We, it is a Mutual, had a problem a couple of years ago with irrigators toppling over. Quite a number in Canterbury. Some of the centre spigot ones are a Kilometer long. There is now the question of 'what is a safe design length for irrigators?' It seems the American maximum design length is 400 metres. However, this design cannot be simply transferred to NZ. It would depend on local conditions here of maximum windage etc. It takes some time to move a centre spigot so it faces 'down wind.' So pivoting them round is normally not an option.
FMG and Lincoln College, University, are trying to get design guidelines for irrigators.
Now, to the punchline. FMG, I think, are still insuring irrigators. But at some point they will only insure 'complying' irrigators that conform to the new design requirements.
Come a big blow, a lot of the irrigators could fall over and not be insured, or not be adequately insured. This will impact on farming, FMG and Heartland. How much have we loaned on irrigators?
My view is Banks need plenty of actual shareholder capital so that if things go a bit wrong we still meet capital requirements.

[freddagg]

Re: Dairy, I remember at debt briefing last year the CFO when asked about the dairy risk compared to car loans said something along the lines of "well we can always shoot the cows", got a decent chuckle out of the audience

There were certainly a lot shot last Autumn and its probably happening again right now

[blockhead]

"Of these, some have converted farms in areas that are not suitable for dairying (like Central Otago or mid Canterbury) and these are the ones who will really struggle to make the conversion pay"............. (Jantar)

"Now, to the punchline. FMG, I think, are still insuring irrigators. But at some point they will only insure 'complying' irrigators that conform to the new design requirements...................................... .........(Mouse)
Come a big blow, a lot of the irrigators could fall over and not be insured, or not be adequately insured. This will impact on farming, FMG and Heartland."



A couple of comments attributed to Mouse and Jantar I would be happy to debate, Blockhead gets around a lot of Mid Canterbury dairy farms and sees what is going on, Jantars comment re Mid Canterbury farms being not suitable for dairying imho are completely wrong, some of the best farms I have seen are in this area, free draining soils, flat land, easy to irrigate, close to services, what else could you want ?

And Mouse I think you will find many (most) of the cockies with centre pivots now have plans for securing the irrigators when wind is coming, I see many concrete blocks either dug into the ground or able to be put in a line running away from the wind when wind is forecast, and forecasts are generally 2-3 days in advance so plenty of time to get the irrigator in the right place. I imagine Insurance Co's will insure them if they can show they have planned for the wind

[Snow Leopard]

PT. This is from my post of 2772 dated 27-02-2014 titled:

"Heartland's Acceptable Operating Leverage Ratio"

...

Thanks for that Snoopy.

We will have to disagree on the validity of the calculations you made and on the conclusions you drew.

Best Wishes
Paper Tiger

[Jantar]

... Blockhead gets around a lot of Mid Canterbury dairy farms and sees what is going on, Jantars comment re Mid Canterbury farms being not suitable for dairying imho are completely wrong, some of the best farms I have seen are in this area, free draining soils, flat land, easy to irrigate, close to services, what else could you want ?....

How about aquifers that are not drying up and so allowing for that "easy to irrigate" part? At the last 2 years Hydrological society conferences there have been a number of papers presented on Mid Canterbury irrigation and the over allocation of water. At last year's conference there was a presentation on an experiment to take flood water from the rivers and to attempt to recharge the aquifers.

[blockhead]

How about aquifers that are not drying up and so allowing for that "easy to irrigate" part? At the last 2 years Hydrological society conferences there have been a number of papers presented on Mid Canterbury irrigation and the over allocation of water. At last year's conference there was a presentation on an experiment to take flood water from the rivers and to attempt to recharge the aquifers.

Yes that is happening Jantar but perhaps the biggest proportion of Mid Canterbury water is coming from the Rangitata not the aquifiers (I don't know the proportion from one or the other) The Rangitata South irrigation scheme is already taking water based on the "flood" system you mention and is only just providing what is required, all the reservoirs have been empty more than once in this last season.

My point is, Mid Canterbury is a great dairying location.....with water !

[Beagle]

My read of the Supreme court's decision is that finance companies and banks are going to have to be extremely careful going forward that they can justify their loan application fees based on the cost of the process, not as a separate revenue stream. The supreme court has effectively said interest charges are where banks and finance companies should make their profits not loan application fees. I think we all know that with standardised loan application procedures and credit and employment checking processes the banks and finance companies have been doing very nicely thank you very much out of loan application fees in the past. Harmoney has had to modify there's recently, tip of the iceberg in terms of what's coming ? The Supreme court's decision is very much focused on protecting the consumer and forcing finance companies to make their profit out of the interest rate as opposed to currying the real cost of credit through expensive loan application fees and therefore enhances the transparency of the cost of the loan from the consumers viewpoint. Many consumers will cross shop to get the best interest rate.

Greater transparency in my opinion reduces the opportunity to make unusually high profits, especially from small loans. Is it a coincidence that the SP is down the day after the Supreme court's decision or are we in a slightly different credit environment now where profits on loans going forward could be slightly lower ?...you folks be the judge.