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  1. #7611
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    Quote Originally Posted by Jantar View Post
    Snoopy, I normally value your analysis, but I do believe that this time your are being overly pessimistic. What you are effectively allowing for here is for almost every single dairy loan to fail.

    I will admit to making a few assumptions and not going back through the annual report in detail, but I base this claim as follows.

    Assumption 1: The average dairy loan is at an LVR of 20%. So that a $260M in loans is covered by $325 in farm values, or each $1m of loan is covered by $1.25 M of security.
    Assumption 2: From Pierre's quote "He said that should a dairy farm have to revert to sheep and beef the value of the operation would be around 60% of its dairy value and that with their LVR's HBL would not be too badly impacted. He is comfortable with their current level of provisioning." This means that for each $1,000,000 of loan that defaults and is foreclosed, the amount recovered is 60% of $1.25M or $0.75M. That means that for every $1M defaulted the potential write off is $0.25M.

    So for a write off of $52M that would mean $208 M of defaults, or 80% of all dairy farms that HBL have loans to.

    Do you really think that 80% of Dairy farms will fail?
    Assumption LVR 20%??? Can this be confirmed anywhere?What are HBL loans to dairy farmers secured over?Land(valuations down 14%+),stock(down 25+%),machinery(down x%)

  2. #7612
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    Quote Originally Posted by kiora View Post
    Assumption LVR 20%??? Can this be confirmed anywhere?...
    If I could confirm it, then it wouldn't be an assumption.

  3. #7613
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    Does anyone know why the bank shares, (HBL, WBC, ANZ) all took a dive by about 2-3%??

  4. #7614
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    Quote Originally Posted by Jantar View Post
    Snoopy, I normally value your analysis, but I do believe that this time your are being overly pessimistic. What you are effectively allowing for here is for almost every single dairy loan to fail.

    I will admit to making a few assumptions and not going back through the annual report in detail, but I base this claim as follows.

    Assumption 1: The average dairy loan is at an LVR of 20%. So that a $260M in loans is covered by $325 in farm values, or each $1m of loan is covered by $1.25 M of security.
    Assumption 2: From Pierre's quote "He said that should a dairy farm have to revert to sheep and beef the value of the operation would be around 60% of its dairy value and that with their LVR's HBL would not be too badly impacted. He is comfortable with their current level of provisioning." This means that for each $1,000,000 of loan that defaults and is foreclosed, the amount recovered is 60% of $1.25M or $0.75M. That means that for every $1M defaulted the potential write off is $0.25M.

    So for a write off of $52M that would mean $208 M of defaults, or 80% of all dairy farms that HBL have loans to.

    Do you really think that 80% of Dairy farms will fail?
    I was not quite as rigorous in my 'agricultural value' calculation as you Jantar. The main point I was trying to make was that the dairy downturn could have an effect , the order of one year's profit. Thinking about it further, I am more inclined towrads Rogers view that the total effect will be spread out over many years. Thus it will be an ongoing crimp on profits rather than one devastating blow.

    Specifically, I was thinking 'cows' rather than 'land' when I made my comments. Someone posted how high the Heartland loan rates are in a comparison chart the other day. So I am thinking that Heartland is a dairy lender of last resort. The kind of lender who would lend to an unsecured sharemilker with low equity, rather than a land owning farmer. The before/after comparison then I had in mind was the drop in value a dairy cow suffers when it changes from a 'producer of milk' to 'two walking sides of beef waiting to be killed'.

    Then there is the issue of working with 'average' LVRs. There could be some, relatively well heeled, land owning farmers who need seasonal bridging finance. These are not the farming loans at risk, but they would pull down the 'average' LVR. Taken individually, there is no such thing as an 'average' farmer. It is those on the high side of average (in leverage terms) that I would be most concerned for.

    Finally there are the downstram effects that I did not consider. The crop farmer who has bought a combine harvester to make sileage to sell to dairy farmers. The little enginerring business that has borrowed money to help to maintain on farm dairy machinery. These are 'ripple effects' that I had in mind, but didn't soecifically allow for in my crude one line analysis.

    Do I think that 80% of dairy farms will fail? No.
    Do I think that Heartland could lose money across all customer sectors as a ripple effect equivalent to 80% of all of Heartland's dairy loans going down? I think it's possible!

    SNOOPY
    Last edited by Snoopy; 01-06-2016 at 03:09 PM.
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  5. #7615
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    Quote Originally Posted by Jantar View Post
    ....
    Assumption 1: The average dairy loan is at an LVR of 20%. So that a $260M in loans is covered by $325 in farm values, or each $1m of loan is covered by $1.25 M of security.
    ...
    That is a Loan to Value Ratio (LVR) of 0.8 (80%).

    Last figures I can recall from HBL was sixty something percent, but not going to bother with finding the precise figure or when that was.

    Best Wishes
    Paper Tiger
    om mani peme hum

  6. #7616
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    Default Liquidity Buffer Ratio HY2016 (Part 3)

    Quote Originally Posted by Snoopy View Post

    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)/(Expected Current Net Loan Maturity 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.
    --------


    Expected Current Net loan Maturity Outstanding $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 Current Loans Outstanding)
    = {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.
    (Total Current Money to Draw On)/(Net Current Loans Outstanding) > 10%

    In the numerator of the equation, we have borrowings.

    HNZ BORROWINGS

    1/ Term deposits lodged with Heartland. $2,174.553m
    2/ Bank Borrowings $377.605m
    3/ Securitized Borrowings total $258.819m
    4/ Subordinated Bonds $3.381m
    Total Borrowings of (see note 7, IRFY2016) $2,814.358m

    Note 7 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 in relation to the 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. Additional borrowing capacity is available up until 30th June 2017, but only if certain scheduled repayments are met by the Heartland group. It follows that Heartland can’t rely on CBA Australia as a source of short-term funds.

    The information given in note 7 on the securitized borrowing facilities is as follows:

    -------

    Total HY2016 Total FY2015 Facility Maturity Date HY2015
    Securitized bank facilities total all in relation to the Heartland ABCP Trust 1 $350.000m $350.000m 3rd August 2016 (*)
    less Current level of drawings against this facility $258.819m $258.630m
    equals Borrowing Headroom $91.181m {A} $91.370m

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

    -------

    Summing up:

    (Total Current Money to Draw On)/(Expected Current Net Loan Maturity Outstanding)
    = {A}/{B (from post Liquidity Buffer Ratio HY2016 (Part 2) }
    = $91.4m / $569.701m
    = 16.0% > 10%

    => Pass Short term liquidity test


    HY2016 FY2015
    Amount lent to Customers (Receivables) $2,928.601m (+2.3%) $2,862.070m
    Total Borrowings $2,814.338m (-0.4%) $2,825.245m
    Amount borrowed from Customers (Debentures and Deposits) $2,174.533m (+3.7%) $2,097.458m

    Securitized borrowing facilities are nearly constant over the six month comparative period. External Bank borrowings have reduced by $88.174m. Heartland have reduced their current period risk profile by:

    1/ Having a potentially much smaller mismatch between borrowings and receivables.
    2/ Sourcing more borrowed funds from Heartland bank customers, replacing borrowings from third party external banks.

    SNOOPY
    Last edited by Snoopy; 25-04-2017 at 10:55 PM.
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  7. #7617
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    Quote Originally Posted by Paper Tiger View Post
    That is a Loan to Value Ratio (LVR) of 0.8 (80%).

    Last figures I can recall from HBL was sixty something percent, but not going to bother with finding the precise figure or when that was.

    Best Wishes
    Paper Tiger
    Probably wise not too seeing as land values have fallen 24% in the last year, (much worse for stock and plant and machinery and also consider that those valuations would have been anything but fresh and current as at 30 June 2015.

    Snoopy - What I learned from the GFC and finance companies is that many will refinance as many impaired loans as they can possibly get away with just before balance date to "wash" their receivables ledger and make it as clean as possible for balance date muster.
    Last edited by Beagle; 01-06-2016 at 03:41 PM.

  8. #7618
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    Red face Left speechless by the enormity of my memory lapse

    Quote Originally Posted by Paper Tiger View Post
    ...Last figures I can recall from HBL was sixty something percent, but not going to bother with finding the precise figure or when that was....
    Was looking for something else when I spotted this from the commentary accompanying the last half year results:

    Given continued market interest in the dairy sector in New Zealand, Heartland advises that its direct exposure to dairy farmers is 8% of its total lending book as at 31 December 2015. The average loan to value ratio (LVR) for Heartland’s dairy exposures is 59%. However, it is important to note that LVRs are only one of the indicators of loan quality. Heartland remains cautious of market conditions and continues to monitor the dairy sector with close attention. Dairy customers are being supported through this challenging period.
    So even I am wrong occasionally .

    Best Wishes
    Paper Tiger
    om mani peme hum

  9. #7619
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    Quote Originally Posted by Paper Tiger View Post
    That is a Loan to Value Ratio (LVR) of 0.8 (80%).

    Last figures I can recall from HBL was sixty something percent, but not going to bother with finding the precise figure or when that was.

    Best Wishes
    Paper Tiger
    Ooops. True .... 20% is borrowers equity for 80% LVR. However the 59% figure you found makes HBL's position even better.

  10. #7620
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    Quote Originally Posted by winner69 View Post
    HBL +68%
    NZ50 +100% (or there abouts)
    From Today's presentation
    Total Shareholder Return for last 3 years:
    Heartland TSR: 179%
    NZX 50 TSR: 89%

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