ANZ.NZX - Anyone holding?

[Snoopy]

Total impaired assets from note 15 amount to $894m. That is hardly material when total loan assets on the books are $90,489m.

Today I want to look at the ANZ New Zealand banking covenants for September 30th 2013 quarter (corresponding to the EOFY). ANZ New Zealand includes their wholly owned subsidiary UDC finance.

Once again the document I am referencing is the:

"ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2013, Number 71 issued November 2013"

Page 36, note 28 contains the information on capital adequacy.

The information supplied is as follows:

Common Equity Tier 1 ratio: 10.4% (vs RBNZ minimum of 4.5%)
Total Tier 1 ratio: 10.8% (vs RBNZ minimum of 6.0%)
Total Tier 1 & 2 ratio: 12.4% (vs RBNZ minimum of 8.0%)

Page 37 contains detailed notes on just how the ANZ NZ capital is made up. If you use that information and use it to calculate the above ratios, based on a loan book with net loans and advances of $90,489m (from the balance sheet) I calculate the above ratios as follows (total net loans and advances of broken down under Note 13 'Net Loans & Advances'):

Common Equity Tier 1 ratio: $7,523m/$90,489m = 8.3%
Total Tier 1 ratio: $7,823m/$90,489m = 8.6%
Total Tier 1 & 2 ratio: $8,957m/$90,489m = 9.9%

Those figures are a little different to those on the preceding page! So why the difference?

SNOOPY

PS Tabulated version of above results

	30/09/2013 (risk adj)	30/09/2013 (book value)	RBNZ Required
Common Equity Tier 1 Ratio	10.4	8.3	4.5
Total Tier 1 Ratio	10.8	8.6	8.6
Total Tier 1&2 Ratio	12.4	9.9	8.0

[Snoopy]

Those figures are a little different to those on the preceding page! So why the difference?

The figures that I have calculated are based on an end of year snapshot as at 30th September 2013. One day in the life of a bank is not always typical. I believe it is likely that the banks figures are based on a weighted average calculation over the reporting period.

I believe that the same banking rules apply for that three month period as applied to the previous period ending 30th September 2013.

Yet using the
"Pillar 3 Basel 3 Disclosure Quarter Ended 31st December 2013 APS 330 Public Disclosure"
as reported to the NZX

ratios have changed significantly:

Level 2 Common Equity Tier 1 ratio: 8.5% (Sept 30th) vs 7.9% (Dec 31st)
Level 2 Total Tier 1 ratio: 10.4% (Sept 30th) vs 9.6% (Dec 31st)
Level 2 Total Tier 1 & 2 ratio: 12.2% (Sept 30th) vs 11.2% (Dec 31st)

I note with annoyance that the September 30th figures have been slightly revised (not sure why). But the volatility between the September quarter and December quarter is still noticeable using like with like figures supplied. The December quarter is showing the bank's capital is a little more stretched

SNOOPY

[macduffy]

Hi Snoopy

The parent company paid its final dividend in December which would have depleted accumulated profits (capital) to some degree. Has there also been a "contributory" payment from the NZ arm to the parent in this quarter?

As an aside, but an important one, the market liked today's update from ANZ! Bodes well for tomorrow's CBA profit announcement.

[Snow Leopard]

...Those figures are a little different to those on the preceding page! So why the difference?

SNOOPY

So go back to your copy of "ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2013, Number 71 issued November 2013"

Then go back to Page 36 where Note 28 starts and then Read All of Note 28 (pages 36 to 43 inc).
If the term 'Risk Weighted' confuses you (I thought we had been through this a long time ago) then go read up about it (but not from wikipedia please!).

Best Wishes
Paper Tiger

[Snow Leopard]

The figures that I have calculated are based on an end of year snapshot as at 30th September 2013. One day in the life of a bank is not always typical. I believe it is likely that the banks figures are based on a weighted average calculation over the reporting period.

See previous reply: you are barking up the wrong tree.

I believe that the same banking rules apply for that three month period as applied to the previous period ending 30th September 2013. \

Score 1 point for being correct.

Yet using the
"Pillar 3 Basel 3 Disclosure Quarter Ended 31st December 2013 APS 330 Public Disclosure"
as reported to the NZX

ratios have changed significantly:

Level 2 Common Equity Tier 1 ratio: 8.5% (Sept 30th) vs 7.9% (Dec 31st)
Level 2 Total Tier 1 ratio: 10.4% (Sept 30th) vs 9.6% (Dec 31st)
Level 2 Total Tier 1 & 2 ratio: 12.2% (Sept 30th) vs 11.2% (Dec 31st)

If you read all the report you may gain an understanding of why the ratios have changed.

I note with annoyance that the September 30th figures have been slightly revised (not sure why). But the volatility between the September quarter and December quarter is still noticeable using like with like figures supplied. The December quarter is showing the bank's capital is a little more stretched

SNOOPY

I am not sure that you are aware that what you now referring to are the figures for the ANZ Bank in Australia. These are not figures for ANZ NZ.

Best Wishes
Paper Tiger

[BlackCross]

Interesting article from Lex in today's FT:

February 12, 2014 2:24 am


Australian banks: teacher’s pets


The big four are still straight-A students in market’s eyes
To listen to Commonwealth Bank of Australia present results is to recall what banking everywhere sounded like a decade ago: house prices rise, loan books grow, shame about low interest rates but still, management’s focus on productivity is helping deliver record profits and dividends. Bonuses are barely mentioned, bad loans are low and core capital is enviously strong. CBA embodies what regulators want banks to be. But whoever had the most fun hanging out with the teacher’s pet?


Australia’s four big banks – CBA, Westpac, ANZ and National Australia Bank – are all straight-A students in the market’s eyes. None trades below 1.8 times book value and CBA is top of the class at a whopping 2.7 times – a level more associated in Asia-Pacific with Indonesia’s fast-growing sector. Return on equity across the four has averaged about 15 per cent in recent years. The driver of this is Australian homes: three-fifths of CBA’s loan book is in Aussie mortgages. Even ANZ, the one of the four with ambitions to expand across Asia, has two-fifths of its loan book in houses back home. Predictions of a bubble about to burst have so far come to naught: house prices were rising at 9.3 per cent annually at the end of 2013, a rate that has caused twitches at the Reserve Bank of Australia, but no more as yet. For now growth is supporting lower loss provisions, which were never that high to begin with.


Even if the housing market doesn’t sour the question is this: where are future profits to come from? Rising interest rates (the RBA ended its easing bias last month) would improve net interest margins but weaken loan growth. Straight-A credit quality has nowhere to go but down, while productivity gains can only do so much – and operating costs are already near global banking lows. Suggestions are emerging. Last month there was speculation (yet again) that ANZ might scale up its Asian ambitions and bid for Standard Chartered. This month it was talk that National Australia Bank could spin off its UK operations. Teachers’ pets rarely make rash moves, but as crisis memories fade around the world, the pressure to do something just a little more exciting will grow.

http://www.ft.com/cms/s/3/d75bc222-9...#axzz2t23WlYrz

[Snoopy]

Hi Snoopy

The parent company paid its final dividend in December which would have depleted accumulated profits (capital) to some degree. Has there also been a "contributory" payment from the NZ arm to the parent in this quarter?

'ANZ NZ' is a fully owned subsidiary of 'ANZ Australia' which is the entity we can all buy on the sharemarket. That means any contributory payment from ANZ NZ to ANZ Australia would be one subsidiary paying another. IOW it probably wouldn't even register in the published ANZ Annual Report to shareholders.

However your question is interesting in that it goes to the heart of whether ANZ NZ is really a New Zealand bank, or just a branch of ANZ Australia ripe for manipulation.

Inspection of page 7 of the ANZ NZ declared "30th September Results" shows a proceeds of sales of loans to the NZ Branch (I presume from the parent in Australia) of $3,114m over the past year. Add this to the $3,781m change in NZ "deposits and other borrowings" (more cash in) and I get $6,895m. That is fairly close to the negative $7,071m offsetting cashflow entry of changes in loans and advances. I imagine the tie in of those totals is no co-incidence.

If anything on my simple analysis of the cashflow statement of the NZ operations, it looks like cash has net come across the ditch to New Zealand from Australia. But I find these bank financials notoriously difficult to pick apart and I may have missed something.

SNOOPY

EDIT: Thinking about it again, if the cash is coming into ANZ NZ, and so the loans must have been sold to ANZ Australia, then the ANZ NZ branch has exchanged the ultimate ownership of new loans for cash. This is good because it means they now have more cash to loan out on their growing loan book. But it is also bad because it means that the ultimate ownership of those loans has passed to the parent in Australia. I guess it now follows that more NZ customer interest payments will now head offshore to Australia.

[macduffy]

Yes, it's all too convoluted for me, Snoopy!

But I would think that if ANZ NZ's loan book is growing, which it is, then its capital will have to grow commensurately - the RBNZ will see to that. I'm not sure where you see the scope for manipulation of the NZ subsidiary by the Australian parent? Other than in some subtle tweaking of transfer payments for administrative and other services provided by the parent -and that's more a tax matter for the IRD.

[Snow Leopard]

Australia and New Zealand Banking Group Ltd (Australian registered) "OZ Bank"

owns

ANZ Funds Pty Limited (Australian Registered)

owns (except for 0.23% which is owned by a different bit of ANZ)

ANZ Holdings (New Zealand) Limited (New Zealand registered)

owns

ANZ Bank New Zealand Limited (New Zealand registered) "NZ Bank"

owns

UDC Finance Limited (New Zealand registered) and more?

Transactions between NZ Bank and related parties are detailed in Note 25, the major one being the $3,144M sale of mortgages to other New Zealand bits of the empire (and then from there to where?)

Additionally there is a flow of dividends from NZ Bank to it shareholder ANZ Holdings (New Zealand) Limited (and then from there to where?)

All pretty straight forward really.

Best Wishes
Paper Tiger

Disc: Have no shares in ANZ but bank with OZ Bank and NZ Bank and use cash machines of other bits of the ANZ pyramid.

[Snoopy]

So go back to your copy of "ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2013, Number 71 issued November 2013"

Then go back to Page 36 where Note 28 starts and then Read All of Note 28 (pages 36 to 43 inc).
If the term 'Risk Weighted' confuses you (I thought we had been through this a long time ago) then go read up about it (but not from wikipedia please!).

AH, IC. ANZ have 'risk weighted' some of the assets on the loan book, according to the accepted IRB approach for evaluating capital adequacy. The numbers that I calculated were on the book value of the assets, and that doesn't include the IRB adjustments for assets values.

The exposure rated LGD (Loss Given Default) on page 39 represents the amount of capital that the IRB considers will be lost should that class of loan go into default. This risk adjustment must be done because the risk on the different classes of loan (Corporate, Sovereign, Bank, Retail Mortgages and Other Retail) is not equal.

It should follow then, that IF the value of the loans at risk is less than that declared on the balance sheet, THEN an IRB risk calculation based on adjusted capital should show the balance sheet is less stretched than just using the raw asset values

Reprise of my calculations:

Common Equity Tier 1 ratio: $7,523m/$90,489m = 8.3%
Total Tier 1 ratio: $7,823m/$90,489m = 8.6%
Total Tier 1 & 2 ratio: $8,957m/$90,489m = 9.9%

Reprise of report published figures (using IRB assumptions)

Common Equity Tier 1 ratio: 10.4%
Total Tier 1 ratio: 10.8%
Total Tier 1 & 2 ratio: 12.4%

And so it proves to be.....

SNOOPY