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  1. #13321
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    Quote Originally Posted by Baa_Baa View Post
    At only 5% of receivables $250m, Harmoney (including other consumer lending) is probably the lesser of their worries, with potential defaults in business and motor vehicle loans (representing a combined 47% $2133m receivables).

    Heartland Receivables (Dec 2019)
    $M
    %
    Reverse Mortgages
    $ 1,424
    31%
    Motor Vehicle Finance
    $ 1,124
    25%
    Harmoney & other consumer lending
    $ 250
    5%
    Business Finance
    $ 1,009
    22%
    Open for Business
    $ 158
    3%
    Rural Finance
    $ 621
    14%
    total
    $ 4,586


    Attachment 11175
    Quote Originally Posted by Snoopy View Post
    Thanks for putting things in proportion Baa baa. $250m is not a lot for Harmony in the big picture. Incidentally, I went over to the P to P forum and saw that Harmony P to P for most of us is closing down. You can still borrow as a 'P' but to get on the lending side you now require a minimum of $10m. There aren't too many, even on this forum, able or willing to splash out that much on lending via Harmony. Harmony losses may not be so bad because, as a part owner of Harmony, Heartland 'clips the ticket' on each loan they write by part owning the Harmony platform. That income stream is independent of what happens to the loan down the track.

    'Business Finance' must be a worry. The problem here is that many of these loans would have been taken out in a business environment that could not have conceived of a business lock down such as we are in now. Having no revenue does not mean you are an incompetent business person today. For example, what would be the point in bankrupting a mall store owner, then on selling the bankrupt's assets to a new store owner who may be less competent? And who would take on a lease in a mall that is closed, and liable to be closed again at short notice anyway? The only solution I can see to this is a multi-party solution. Banks, premesis owners, and business operators will have to work together and take a 'joint hit'. If they don't then all three will lose, and lose big time. OK banks might get their money back, but then they will have no-one to lend to. I think we are going to have to move out of the lock down phase before anything can happen. 'And Grant Robertson has provided the liquidity to allow everyone to wait. And if there is no light after six weeks, Robertson will provide more liquidity. 'Liquidating at the bottom' would be three way commercial suicide for business owners and landlords and banks alike.

    Motor vehicle loans is likely to be more of a slow moving problem. There will be no appetite to repossess a whole lot of vehicles en masse. In this environment there would be no-one to sell them to. Better to let things slow burn, and even put aside some car payments, deferring them to the end of the lease when a lump sum of capital becomes available. It is very hard to form a meaningful view of what happens to a motor loan that expires in 2-3 years. Kicking the loan down the road looks like the only short term solution.

    Suddenly 'rural finance' looks relatively safe. Who would have picked that two or three years ago! Maybe time to return the HGH AGM to Ashburton?

    SNOOPY
    Recently we talked about 'exposure', and Harmoney will be the least of their worries.

  2. #13322
    ShareTrader Legend Beagle's Avatar
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    I maintain that $250m is a big worry and the reason is this is all totally unsecured lending. Increasing numbers of people who have taken out loans for spurious consumer spending like holidays and retail splurges will be looking to do a full reset under the no asset procedure (short form bankruptcy) while they're unemployed. The recovery in this type of situation will be zero.

    Also a lot of consumer vehicle lending has been with minimum guaranteed buy-back provisions and with the vehicle market about to take a big dive I would think a lot of customers who are making payments will be walking away at the end of the term as the residual guaranteed values on Holden's for example exceed their realistic market value.

    HGH are wide open to some big bad and doubtful debt provisioning with the type of lending they have been doing. They are however well capitalised as has been recently acknowledged by Fitch but a capital raise at some stage this year would not surprise me in the slightest.
    Last edited by Beagle; 22-05-2020 at 04:13 PM.
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  3. #13323
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    Quote Originally Posted by Beagle View Post
    I maintain that $250m is a big worry and the reason is this is all totally unsecured lending. Increasing numbers of people who have taken out loans for spurious consumer spending like holidays and retail splurges will be looking to do a full reset under the no asset procedure (short form bankruptcy) while they're unemployed. The recovery in this type of situation will be zero.
    Maybe a fair chunk of it went to Air New Zealand ....do Harmoney take Air NZ credits as payments.
    “Just consider that maybe the probability of you being wrong is higher than you think.”

  4. #13324
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    Quote Originally Posted by winner69 View Post
    Maybe a fair chunk of it went to Air New Zealand ....do Harmoney take Air NZ credits as payments.
    Hahaha.Fly byes

  5. #13325
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    Quote Originally Posted by Beagle View Post
    I maintain that $250m is a big worry and the reason is this is all totally unsecured lending.
    How much is HGH lending though, versus punters and other larger lenders using the platform? Can a case be made as to what % of the $250m receivables are at risk?

    I'm sure they're more concerned about the $2b receivables for MV and business finance.

  6. #13326
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    With reducing interest rates and now an easing of building consent legislation i can see alot of small to medium size loans been applied for.
    Time to get that sleepout and carport done
    Last edited by nevchev; 24-05-2020 at 06:29 PM.

  7. #13327
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    Default Heartland's Motor Vehicle Loans Outlook FY2020/FY2021

    Quote Originally Posted by Snoopy View Post
    Motor vehicle loans is likely to be more of a slow moving problem. There will be no appetite to repossess a whole lot of vehicles en masse. In this environment there would be no-one to sell them to. Better to let things slow burn, and even put aside some car payments, deferring them to the end of the lease when a lump sum of capital becomes available. It is very hard to form a meaningful view of what happens to a motor loan that expires in 2-3 years. Kicking the loan down the road looks like the only short term solution.
    I have been looking at some motor vehicle year to date sales figures.

    https://www.mia.org.nz/Portals/0/MIA...es%20Table.xls

    Kia right on top in the lockdown month of April, even outselling perennial market leaders Toyota. And Heartland are the ones that finance Kia sales - wow! YTD Kia is in 5th place just behind Holden (also financed by Heartland). Kia being a 'budget' brand might grow. They seem to be having great success with the new Seltos small SUV. Let's say sales grow 10% in FY2021. Yet Holden is a zombie company now, so that part of the Heartland business will probably disappear altogether in three years as present day Holden loans unwind. Jaguar/Land Rover are the other brand financed by Heartland, as are Hino trucks. But they are both niche players and don't appear on the top 15 sales statistics.

    Jaguar Land Rover are having some sales issues globally but seem to be running hot in New Zealand.

    https://www.driven.co.nz/news/did-th...-back-in-1948/

    “For Jaguar, sales have experienced an increase of over 100 per cent since the launch of the F-Pace in 2017 and subsequent launches of the E-Pace and the EV I-Pace. Land Rover, too, has experienced double-digit percentage growth year on year thanks to the growth of the category but also having models with high-performance attributes."

    Prestige brands generally slow in sales during a recession though. So I am picking JLR sales might halve this calendar year.

    So what will all this do to Heartland's financing of new vehicles? Well, Heartland's financial year ends on 30th June. Only three months of the year will be 'post lockdown', so things might not be as ugly as some think. Particularly as dealers look to quit excess stock with sweet finance deals. Bad for motor dealers but ironically good for Heartland,

    The market is always forward looking though. So the real interest is, what will motor vehicle finance look like in FY2021? If you are Heartland, don't look in the mirror. You will see 'ugly'. If the base case for funding new vehicles is split for FY2020 45:45:10 between Holden:Kia:JLR (an educated guess) then FY2021 is likely to look like 0:50:5 on the same scale. That means new car financing down 45%.

    As at December 2019 the motor vehicle finance book at Heartland was $1,124m. Let's guess new vehicle sales were $500m of that. So a 45% reduction would see a loss of:

    0.45 x $500m = $225m worth of finance business in turnover.

    Motor vehicle finance has traditionally had some of the best margins at Heartland. Heartland's AGM presentation had an ROE north of 15%. In recessionary times I am going to stick to the 15% figure. This means the earnings that Heartland will miss out on due to plunging new car finance deals will be around:

    0.15 x $225m = $34m

    Of course the annual hit won't be this much, as finance typically has a three year cycle. So the FY2021 hit will be about 1/3 of that, $11.4m

    Underlying profit was around $74m in FY2019 (a bit less in FY2020?). So it looks like new car financing alone will knock Heartland's profit down to just shy of $63m, or a 15% drop.

    Lot's of figures pulled out of the air here.

    Anyone like to comment if I am on the right track?

    SNOOPY
    Last edited by Snoopy; 25-05-2020 at 04:46 PM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  8. #13328
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    Guaranteed future minimum values are a product HGH has been offering on loans. Holden resale value is under intense pressure at present with GM's decision to cease manufacture in RHD.
    Luxury car values could also come under serious pressure so the GFMV could see a fair percentage of Holden and JLR owners walking away from their vehicles at the end of the term and taking advantage of the guaranteed future minimum value which could exceed the resale value. Kia's should be okay.
    No butts, hold no mutts, (unless they're the furry variety).

  9. #13329
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    I think it will take some time for "issues" arising from the Corona Virus to work their way through.
    Perhaps HGH's interim due February next year will give a full [fuller] picture.?
    In the meantime TRA's interim report, due in late November this year ,may give us a better idea of how motor vehicle financing is tracking.
    Last edited by percy; 24-05-2020 at 09:44 PM.

  10. #13330
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    Quote Originally Posted by Beagle View Post
    Guaranteed future minimum values are a product HGH has been offering on loans. Holden resale value is under intense pressure at present with GM's decision to cease manufacture in RHD.
    Luxury car values could also come under serious pressure so the GFMV could see a fair percentage of Holden and JLR owners walking away from their vehicles at the end of the term and taking advantage of the guaranteed future minimum value which could exceed the resale value. Kia's should be okay.
    I seem to recall on another thread you saying that you owned a 'newish Holden' Beagle, so I guess you have some personal interest in Holden residual values? Given what you have seen in the market, what value do you expect to see on your car when it is three years old? And how much lower will that be as a result of Holden becoming a 'zombie' brand?

    I don't suppose you bought it on finance through Heartland? Although if you had been offered a guaranteed buyback price by doing so, perhaps you now feel you should have taken a Heartland finance deal!

    SNOOPY
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  11. #13331
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    Quote Originally Posted by Snoopy View Post
    I seem to recall on another thread you saying that you owned a 'newish Holden' Beagle, so I guess you have some personal interest in Holden residual values? Given what you have seen in the market, what value do you expect to see on your car when it is three years old? And how much lower will that be as a result of Holden becoming a 'zombie' brand?

    I don't suppose you bought it on finance through Heartland? Although if you had been offered a guaranteed buyback price by doing so, perhaps you now feel you should have taken a Heartland finance deal!

    SNOOPY
    Yeap, I bought a Holden Calais V last year brand new.
    3 year residuals are typically expressed as a percentage of the original retail prices I am sure you know. Some cars fare really well such as a Honda Civic which have their one fair price for all and don't do any discounting even for rental car firms and 3 year residuals can be as high as in the mid 60% range.

    Residual value on Holdens are typically around 50% of original retail, (but nobody pays full retail for them), but will probably be less in the circumstances.
    Last edited by Beagle; 24-05-2020 at 10:42 PM.
    No butts, hold no mutts, (unless they're the furry variety).

  12. #13332
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    Quote Originally Posted by Beagle View Post
    Yeap, I bought a Holden Calais V last year brand new.
    3 year residuals are typically expressed as a percentage of the original retail prices I am sure you know. Some cars fare really well such as a Honda Civic which have their one fair price for all and don't do any discounting even for rental car firms and 3 year residuals can be as high as in the mid 60% range.

    Residual value on Holdens are typically around 50% of original retail, (but nobody pays full retail for them), but will probably be less in the circumstances.
    Thanks for the info. Let's say Holden's three year residuals work out at 45%, five percentage points less than budget. Why 45%?

    The best selling Holden in NZ is the Colorado Ute.

    https://www.stuff.co.nz/motoring/113...op-10-vehicles

    "Colorado is currently selling at rate at least twice that of any other Holden."
    "sales, may pass the 5000 mark by the end of the year."

    The Holden Colorado is nothing more than a re-badged Isuzu D-max. The Isuzu D Max continues to be sold in NZ. So it would be hard to argue that second hand ute buyers would not recognize a bargain when they see one. Utes have a pretty good record of retained value anyway, so I don't think 50% retained value for the Colorado is out of the question. If all other Holden's retain 40% of their value and the Colorado is at 50% (representing half of all Holden financed sales) , then that makes for a 45% vehicle portfolio retained value average.

    Now, over three years lets say the Holdem loan book totals $225m. Let's say Heartland take a one off hit on the difference between the booked retained value (45% vs 50%) and the actual retained value.

    0.05 x $225m = $11m

    Not nice for shareholders, but a one off $11m write-down looks manageable. A withheld dividend should more than cover it.

    SNOOPY
    Last edited by Snoopy; 25-05-2020 at 09:03 AM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  13. #13333
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    To be honest Snoopy I don't think it will be that much. Guaranteed future minimum values are usually set at very conservative level's of around 40-45% anyway and come with strict conditions in regard to mileage and vehicle condition.
    No butts, hold no mutts, (unless they're the furry variety).

  14. #13334
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    Default Heartland's Business Loans Outlook FY2020/FY2021 (Part 1)

    Quote Originally Posted by Snoopy View Post
    'Business Finance' must be a worry. The problem here is that many of these loans would have been taken out in a business environment that could not have conceived of a business lock down such as we are in now. Having no revenue does not mean you are an incompetent business person today. For example, what would be the point in bankrupting a mall store owner, then on selling the bankrupt's assets to a new store owner who may be less competent? And who would take on a lease in a mall that is closed, and liable to be closed again at short notice anyway? The only solution I can see to this is a multi-party solution. Banks, premesis owners, and business operators will have to work together and take a 'joint hit'. If they don't then all three will lose, and lose big time. OK banks might get their money back, but then they will have no-one to lend to. I think we are going to have to move out of the lock down phase before anything can happen. 'And Grant Robertson has provided the liquidity to allow everyone to wait. And if there is no light after six weeks, Robertson will provide more liquidity. 'Liquidating at the bottom' would be three way commercial suicide for business owners and landlords and banks alike.
    The 19th March Heartland update didn't read well for business loans

    https://www.nzx.com/announcements/350143

    "Heartland expects that new lending levels in some portfolios, such as business intermediated and SME, will slow."

    But things were a bit more cheerful with the 2nd April response to the government support measures for business,

    https://www.nzx.com/announcements/351120

    "Heartland Bank has been contacting its business lending customers that are most likely to be financially affected by COVID-19, to discuss their support options. To that end, Heartland Bank is pleased to support the New Zealand Government’s Business Finance Guarantee Scheme, the details of which were announced yesterday. The Scheme enables Heartland Bank, alongside other participating banks, to provide new and existing qualifying business customers with annual turnover of between $250k and $80m with business loans to meet their urgent liquidity and bridging finance requirements while they deal with the disruption to their businesses caused by COVID-19. Heartland Bank looks forward to being able to offer customers that support option and is accepting registrations of interest on its website at www.heartland.co.nz/covid-19-update now."

    Under the scheme, businesses with annual revenue between $250,000 and $80 million can apply to their banks for loans up to $500,000, for up to three years.

    The real sting was in the next paragraph though:

    "Importantly, a range of other support options may be available to all Heartland Bank customers who have been financially affected by COVID-19. All affected customers are encouraged to contact Heartland to discuss support available to meet their loan repayments."

    IOW, Heartland would really prefer that businesses sort themselves out without using this particular government scheme. Quite understandable when under it, Heartland would wear 20% of any 'generous' loan that went bad. Other banks seemed to agree. On 1st May, rules around the scheme were changed removing the $250,000 minimum revenue cap and allowing businesses in the Agriculture space to join.

    https://www.interest.co.nz/banking/1...including-agri

    "Secondly, the Government is removing the requirement for a “general security agreement” under the scheme."

    "This means that for a loan of more than $50,000, a bank will no longer have to "obtain security from the borrower under a general security agreement". "

    "Borrowers will no longer have to draw down on all existing facilities provided to them by their bank before applying for a loan under the scheme."

    That last sentence is important. I think it means that Heartland can effectively transfer existing loans, or at least the incremental headroom on existing loans into the scheme. Ultimately Heartland could transfer 80% of the risk of a marginal existing loan to the government. As far as I understand the banking laws, this does not reduce the amount of capital that Heartland needs to hold to support such a loan. But it does support the downside loss of capital if the loan were to go bad.

    More recently we have the "COVID-19 Small Business Cash Flow Loan (SBCS)" administered by the IRD.

    https://www.interest.co.nz/business/...e-viable-small

    "Robertson said it was necessary for the Government to write businesses loans directly, in addition to underwriting bank loans, as the latter isn't meeting businesses' needs nor the Government's expectations."

    The new IRD administered scheme provides an interest free loan for one year for up to $11,800 for a sole trader, to $100,000 for a firm with up to 50 full time employees. The scheme is only open for a one month window commencing 12th May. This must be serious competition for Heartlands 'O4B' on line small business loans. Who would take out a $100,000 loan from Heartland if they could get the same thing from the IRD at no cost? I guess if the IRD loan scheme is extended beyond 12th June , Heartland's O4B might be declared dead. But in the current business environment, I am not sure if this is a negative or a positive!

    'O4B' was 3% of the Heartland bank loan book in December 2019, with $158m of loans on the books.

    Heartland has been earning an ROE of more than 15% on this O4B portfolio.
    If O4B sinks, then the annual tax profit loss for Heartland will be about:

    0.15 x $158m = $24m

    That is likely an overestimate as O4B also offers partially secured loans of up to $250,000 and secured and unsecured loans into Australia. Those boundaries are beyond the IRD scheme. I would estimate the actual annualised profit hit to be 80% of my calculated figure, or around $19m. I estimate the IRD loan scheme may have brought forward about three months worth of loan applications that otherwise might have gone through O4B. If the IRD scheme is dropped on 12th June as planned, then the impact flowing into FY2021 may only be a couple of months. That equates to a reduction in FY2021 profit of $19m/6 = $3.2m.

    SNOOPY
    Last edited by Snoopy; 25-05-2020 at 06:48 PM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  15. #13335
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    Thanks for the hard work you put into the analysis in your posts, Snoopy, makes for interesting reading. Hold, or fold do you think?

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