ANZ.NZX - Anyone holding?

[Snoopy]

Snoopy,is ANZ a big part of your portfolio?

ANZ is one of my bigger holdings, yes. And the weird thing is, I know less about ANZ now that when I first invested in ANZ all those years ago ;-P

SNOOPY

[Snoopy]

The definition of a 'write off' is not ambiguous. When an asset is gone it is gone! Other categories of loan risk are more fluid. There is not a consistant nomenclature for players in the industry to use. I have used the term 'vulnerable loans ' to mean something lesser on the problem scale than 'stressed loans'. But both of these are lesser problem child categories than the term 'Write Off'. Specifically for UDC and Heartland, the definitions that I have used look like this:

	UDC Finance Categories	Heartland Behavioural Categories	Heartland Judgement Categories
Snoopy 'Vulnerable Loans'	Loan Categoriy 6 plus Loan Categories 7 and 8 plus 'Default' loans {Note: There is no loan category 9}	Arrangement plus Non Performing/Repossession plus Recovery	Grade 6 - Monitor plus Grade 7 - Substandard plus Grade 8 - Doubtful plus Grade 9 - At Risk of Loss
Snoopy 'Stressed Loans'	Loan Categories 7 and 8 plus 'Default' loans less Provision for Credit Impairment. {Note: There is no loan category 9}	a/ Loans at least 90 days past due plus b/ Loans individually impaired . plus c/ Restructured assets. less d/ Provision for Impairment	a/ Loans at least 90 days past due plus b/ Loans individually impaired . plus c/ Restructured assets. less d/ Provision for Impairment

The above definitions are not definitive. I am simply tabulating them so that readers can get a comparative sense of what I am talking about.

'Vulnerable Loans' was my first attempt at deciding what kind of loans might be considered to be 'at risk' of going bad. The problem was that 6.51% of Heartland loans were considered 'vulnerable' by my definition whereas 46.3% of UDC loans met by definition of 'vulnerable'. Clearly there was a disconnect. Comparing equivalent figures 'UDC to Heartland' was not going to work. All was not lost though. The trends within each individual company 'year to year' were worth following.

In both the Heartland 'Judgement' and 'Behavioural' loan portfolios, the provision for collectively impaired assets was taken off ther table after all the loan categorization judgements were made. The 'Finance Receivables' as listed on the 'Statement of Financial Position' has the collective impairment provision removed from the books.

With UDC the provision for collectively impaired assets was again taken off the table after all the loan categorization judgments were made (note 11d). The 'net loans and advances' as listed on the 'balance sheet' has the collective impairment provision removed from the books.

However, in neither case did I remove the credit impairment from my 'Vulnerable Loan' statistic.

In my second statistic I did remove the credit impairment from my newly named 'Stressed Loans' category. I am not sure if that was an improvement or not! Effectively I am saying that an impaired loan written 'off the books' is no longer stressed. I am also drawing a line in the sand between 'Stressed Loans' and 'Impaired Loans'. I thought this was useful as I wanted to see if the movement of 'Stressed Loans' and 'Impaired Loans' showed a distinct correlation over time between my self defined 'Stressed' and 'Impaired' categories. The idea here was that if a loan (or more correctly portion of a loan) started out 'stressed' before it became 'impaired', one might expect a time slipped correlation between the two. However, 'stressed loans' might be more a 'judgement watch' event which is dependent on the biases of management. OTOH an impaired loan would surely require some management intervention that directly flows through to the account. So there exists the possibility that staff could downplay the number of 'stressed loans' to make the books look better than they really are to management.

For Heartland particularly in FY2014 and FY2016, the write offs are a very high percentage of the stressed loans. For example the 'Cover Ratio' ('Normalised Stressed Loans' to 'Normalised Write Offs') has shrunk from 11 at EOFY2015 to just to 2 at EOFY2016. And one explanation for this might be that the 'Stressed Loans' are being seriously underestimated by Heartland in FY2016 (nothing to worry about in immediate company performance terms in that ). But consequently the 'Impaired Loans' of the future might be being underestimated too. And that could be cause for concern by Heartland shareholders.

SNOOPY

[Bobdn]

One of my bigger holdings too. Second biggest after Genesis

[Biscuit]

One of my bigger holdings too. Second biggest after Genesis

I bought a few ANZ shares after the GFC knocked the Aussie banks (probably irrationally -tarred with the same brush). Still hold, but have never bought more than a very small holding because I simply could not understand their financials - they are way too complicated for me to make head nor tail of, and I nearly only invest if the accounts are straightforward.

Many years ago, when I was a nipper, I owned shares in Capital Markets (NZ public company, set up and majority owned by the merchant bankers Fay, Richwhite and Co). I eventually sold as they didn't seem to me to be going anywhere. I wondered at the time if Capital Markets was set up by F,R & Co to spread the pain on their poorest performing deals, but I didn't have any reason to think that except a naturally suspicious mind. I guess if ANZ were using UDC to gild the lily, then you would see that in the debt write-off data.

[Bobdn]

Wish I had had the good sense to buy straight after the GFC.

[macduffy]

Wish I had had the good sense to buy straight after the GFC.

Yes, retrospective investing is the best kind!

My biggest "miss" was not buying enough WBC after the big slump in that bank's shares in the early "90's!

[Biscuit]

Wish I had had the good sense to buy straight after the GFC.

My average buy in was around $20, but that was back in 2009 so pretty crappy investment really. They did well initially I think but gone nowhere for a few years now.

[Snoopy]

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 slightly rearrange the ANZ (NZ) categories (ANZ September 30th 2015 Bank Disclosure Statement, p29) so that they correspond to those listed in the December 2015 UDC prospectus. Then I need to subtract the UDC equivalent figures (page 50, December 2015 prospectus) to get the underlying ANZ bank figure. The results are below:

	All ANZ.NZ		UDC		Underlying ANZ.NZ
Agriculture forestry, fishing and mining:	$21,731m	(12.2%)	$465m	(19.5%)	$21,266m	(12.1%)
Business and property services:	$13,681m	(7.7%)	$130m	(5.4%)	$13,551m	(7.7%)
Construction:	$2,170m	(1.2%)	$344m	(14.2%)	$1,826m	(1.0%)
Entertainment, leisure and tourism:	$1,386m	(0.8%)	$8m	(0.3%)	$1,378m	(7.8%)
Finance and insurance:	$27,569m	(15.5%)	$87m	(3.6%)	$27,482m	(15.6%)
Government and local authority:	$12,229m	(6.9%)	$0.5m	(0.0%)	$12,229m	(7.0%)
Manufacturing:	$5,925m	(3.3%)	$78m	(3.2%)	$5,847m	(3.3%)
Personal & Other lending:	$85,202m	(47.6%)	$597m	(24.6%)	$84,605m	(48.2%)
Retail and Wholesale:	$5,785m	(3.2%)	$293m	(12.0%)	$5,492m	(3.1%)
Transport and storage:	$2,264m	(1.4%)	$425m	(17.5%)	$1,851m	(1.2%)
Total:	$178,148m	(100%)	$2,430m	(100%)	$175,718m	(100%)

In a slight change to funding (ref p7 UDC FY2015 propectus), ANZ has weakened the equity position of UDC with shareholders funds now supporting 15% of the loan book, down from 17% in FY2014. Consumately the debenture funding from the public has increased from 70% to 73% (p8 UDC prospectus for 2014 and 2015). (The balance to 100% is made up from the ANZ committed Credit facility).

The following table may help calculate the above numbers, but exactly how I'm not sure.

	FY2014	FY2015
UDC Shareholder Capital	$341.412m	$365.462m
ANZ Committed Credit Facility	$280.000m	$395.000m
Debenture Investments From Public	$1,569.247m	$1,736.026m

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 2016 Bank Disclosure Statement, p29) so that they correspond to those listed in the UDC FY2016 Financial Statements. THEN
2/ I need to subtract the UDC equivalent figures (page 17, UDC FY2016 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 1.1% 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:	$21,420m	(11.8%)	$506m	(19.0%)	$20,914m	(11.4%)
Business and property services:	$14,275m	(7.7%)	$133m	(5.0%)	$14,142m	(7.7%)
Construction:	$2,367m	(1.3%)	$356m	(13.4%)	$1,136m	(1.1%)
Entertainment, leisure and tourism:	$1,744m	(0.9%)	$8m	(0.3%)	$1,736m	(0.9%)
Finance and insurance:	$31,956m	(17.2%)	$89m	(3.3%)	$31,867m	(17.4%)
Government and local authority:	$12,373m	(6.6%)	$0.5m	(0.0%)	$12,373m	(6.7%)
Manufacturing:	$5,651m	(3.0%)	$66m	(2.5%)	$5,585m	(3.0%)
Personal & Other lending:	$87,719m	(47.1%)	$694m	(26.1%)	$87,025m	(47.4%)
Retail and Wholesale:	$6,177m	(3.3%)	$343m	(12.9%)	$5,834m	(3.2%)
Transport and storage:	$2,584m	(1.4%)	$460m	(17.3%)	$3,124m	(1.2%)
Total:	$186,266m	(100%)	$2,655m	(100%)	$183,611m	(100%)

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

	FY2014	FY2015	FY2016
UDC Shareholder Capital	$341.412m	$365.462m	$423.247m
ANZ Committed Credit Facility	$280.000m	$395.000m	$595.000m
Debenture Investments From Public	$1,569.247m	$1,736.026m	$1,591.711m

SNOOPY

[macduffy]

All good stuff, Snoopy, but carefull that you don't miss the wood for the trees here. Well and good to analyse accounts of ANZ NZ and UDC but remember that the investment here is in ANZ Group - despite being listed on the NZX - and that NZ accounts for around 14.75% of group income these days.

[macduffy]

15.7% return for 2016. Not too bad, eh, Biscuit?

http://www.theage.com.au/business/ba...08-gto0xz.html