ANZ.NZX - Anyone holding?

[Snoopy]

Time for my annual 'disentanglement' of ANZ.NZ from its UDC subsidiary. The information I need about the ANZ bank in New Zealand can be found here:

https://www.anz.co.nz/about-us/media...r-information/

UDC and ANZ New Zealand have the same balance date. So it is legitimate to work out the distribution of loans on their respective books using 30th September end of year data. First I need to:

1/ Slightly rearrange the ANZ (NZ) categories (ANZ September 30th 2017 Bank Disclosure Statement, p30) so that they link up to those listed in the UDC FY2017 Financial Statements. THEN
2/ I need to subtract the UDC equivalent figures (page 18, UDC FY2017 Financial Statements) to get the underlying ANZ bank figure.

(Note: Receivables for UDC in industry groups are listed after provisions for credit impairment are taken into account. OTOH, receivables for ANZ.NZ industry groups are listed before allowances for credit impairment are taken into account. This means the UDC figures are lower than they would be on a 'like for like' comparative figure basis. However the error is only 1.0% overall, not enough to undo the validity of this exercise in my judgement)

The results are below:

	All ANZ.NZ	=	UDC	+	Underlying ANZ.NZ
Agriculture forestry, fishing and mining:	$20,727m	(11.6%)	$563m	(18.9%)	$20,164m	(11.4%)
Business and property services:	$34,614m	(19.3%)	$171m	(5.8%)	$34,443m	(19.6%)
Construction:	$2,772m	(1.6%)	$409m	(13.8%)	$2,363m	(1.3%)
Electricity Gas Water & Waste:	$3,581m	(2.0%)	$12m	(0.3%)	$3,569m	(2,0%)
Finance and insurance:	$20,834m	(11.6%)	$70m	(3.3%)	$20,764m	(11.8%)
Government and local authority:	$11,201m	(6.3%)	$0.6m	(0.4%)	$11,200m	(6.4%)
Manufacturing:	$4,696m	(2.6%)	$59m	(2.0%)	$4,637m	(2,6%)
Personal & Other lending:	$71,031m	(39.7%)	$858m	(28.8%)	$70,173m	(39.8%)
Retail and Wholesale:	$7,260m	(4.1%)	$390m	(13.1%)	$6,870m	(3.9%)
Transport and storage:	$2,403m	(1.3%)	$443m	(14.9%)	$1,960m	(1.1%)
Total:	$179,119m	(100%)	$2,975m	(100%)	$176,144m	(100%)

As was the case last year, notwithstanding the shuffling of disclosure with the reclassification of the ANZ.NZ loan categories, the loan allocation of ANZ.NZ with UDC removed, is little different the loan allocation of the whole of ANZ.NZ. This is no surprise. The whole of the UDC loan book is only 1.6% of the ANZ.NZ loan book. And ANZ.NZ itself (which you cannot invest in directly) is only a fraction of the whole ANZ operation which is the ANZ vehicle listed on the NZX. However, the converse is not true.

UDC is very different from ANZ.NZ. In percentage terms:

1/ the Agricultural exposure of UDC is double,
2/ 'Construction' and 'Transport and Storage' exposure are up by nearly a factor of 10, AND
3/ 'Retail and Wholesale' exposure are higher by a factor of 4.

The volatility of these 'industry groupings' is testament to UDC being a much greater investment risk than any investment in ANZ itself.

The following inter-year table shows how UDC is funded by its 100% owner ANZ

UDC: Backing For Loans	FY2014	FY2015	FY2016	FY2017
UDC Shareholder Capital	$341.412m (15.6%)	$365.462m (14.6%)	$423.247m (16.2%)	$485.645m (16.7%)
ANZ Committed Credit Facility (Note 8)	$280.000m (12.8%)	$395.000m (15.8%)	$595.000m (22.8%)	$1,385,027m (47.6%)
Debenture Investments From Public (Note 8)	$1,569.247m (71.6%)	$1,736.026m (69.5%)	$1,591.711m (61.0%)	$1,039.133m (35,7%)

There is a very significant change happening with the role of debenture holders in funding UDC much reduced as the ANZ parent seemingly looks to take over that role. Debenture holders no longer have any guarantee that their debentures will not be repaid early - a big negative for some debenture investors.

Time for my annual 'disentanglement' of ANZ.NZ from its UDC subsidiary. The ANZ.NZ is the largest bank in New Zealand. That means the way the bank behaves has significant implications for all investors in NZ, not just ANZ group shareholders and UDC debenture holders.

The information I need about the ANZ bank in New Zealand can be found here:

https://www.anz.co.nz/about-us/media...r-information/

UDC and ANZ New Zealand have the same balance date. So it is legitimate to work out the distribution of loans on their respective books using 30th September end of year data. First I need to:

1/ Slightly rearrange the ANZ (NZ) categories (ANZ September 30th 2018 Bank Disclosure Statement, p32) so that they link up to those listed in the UDC FY2018 Financial Statements. THEN
2/ I need to subtract the UDC equivalent figures (page 18, UDC FY2018 Financial Statements) to get the underlying ANZ bank figure.

(Note: Receivables for UDC in industry groups are listed after provisions for credit impairment are taken into account. OTOH, receivables for ANZ.NZ industry groups are listed before allowances for credit impairment are taken into account. This means the UDC figures are lower than they would be on a 'like for like' comparative figure basis. However the error is only 1.0% overall, not enough to undo the validity of this exercise in my judgement)

The results are below:

	All ANZ.NZ	=	UDC	+	Underlying ANZ.NZ
Agriculture forestry, fishing and mining:	$20,936m	(11.3%)	$594m	(18.1%)	$20,342m	(11.2%)
Business and property services:	$35,501m	(19.2%)	$183m	(5.6%)	$35,318m	(19.5%)
Construction:	$3,092m	(1.7%)	$451m	(13.7%)	$2,641m	(1.5%)
Electricity Gas Water & Waste:	$3,309m	(1.8%)	$15m	(0.5%)	$3,294m	(1.8%)
Finance and insurance:	$19,324m	(10.5%)	$67m	(2.0%)	$19,257m	(10.6%)
Government and local authority:	$12,868m	(7.0%)	$0.377m	(0.0%)	$12,868m	(7.1%)
Manufacturing:	$4,764m	(2.6%)	$61m	(1.9%)	$4,703m	(2,6%)
Personal & Other lending:	$75.796m	(41.0%)	$1,055m	(32.1%)	$74,741	(41.2%)
Retail and Wholesale:	$7,195m	(3.9%)	$419m	(12.8%)	$6,776m	(3.7%)
Transport and storage:	$2,126m	(1.1%)	$438m	(13.3%)	$1,688m	(0.9%)
Total:	$184,911m	(100%)	$3,293m	(100%)	$181,628m	(100%)

As was the case last year, the loan allocation of ANZ.NZ with UDC removed, is little different the loan allocation of the whole of ANZ.NZ. This is no surprise. The whole of the UDC loan book is only 1.8% of the ANZ.NZ loan book. And ANZ.NZ itself (which you cannot invest in directly) is only a fraction of the whole ANZ operation, which is the ANZ vehicle listed on the NZX. However, the converse is not true.

UDC is very different from ANZ.NZ. In sector allocation percentage terms:

1/ the Agricultural exposure of UDC is 60% higher,
2/ 'Construction' and 'Transport and Storage' exposure are up by a multiple of 8, AND
3/ 'Retail and Wholesale' exposure are higher by a factor of 3.

The volatility of these three 'industry groupings' is testament to UDC being a much greater investment risk than any investment in ANZ itself.

The following inter-year table shows how UDC is funded by its 100% owner ANZ

UDC: Backing For Loans	FY2014	FY2015	FY2016	FY2017	FY2018
UDC Shareholder Capital	$341.412m (15.6%)	$365.462m (14.6%)	$423.247m (16.2%)	$485.645m (16.7%)	$550.944m (17.0%)
ANZ Committed Credit Facility (Note 8)	$280.000m (12.8%)	$395.000m (15.8%)	$595.000m (22.8%)	$1,385,027m (47.6%)	$1,762.003m (54.3%)
Debenture Investments From Public (Note 8)	$1,569.247m (71.6%)	$1,736.026m (69.5%)	$1,591.711m (61.0%)	$1,039.133m (35.7%)	$931,280m (28.7%)

There is a very significant change happening over the last two years, with the role of debenture holders in funding UDC much reduced as the ANZ parent seemingly looks to take over that role. It was confirmed in January 2019 that ANZ plans to pay out all UDC debenture holders over 2019.

SNOOPY