ANZ.NZX - Anyone holding?

[Snoopy]

Frankly I am surprised how high the provision for loan impairment is at UDC (page 33 UDC 2013 prospectus). Granted it has been reducing since the depths of the GFC.

From note 8, with reference to the whole EOFY2013 loan book:

$37.460m / ($2,241.110m+$37.460m+$131.094m+$7.439m) = 1.55% of gross value loans on issue

The figures for ANZ New Zealand, suitably disentangled from UDC are (using note 13: 'Net Loans and Advances' based on ANZ New Zealand's September 30th 2013 update to the Reserve Bank)

($826m-$37m)/ ($91,543m -$2,103m) = 0.88%

Compare that to Heartland (HNZ AR2013 p39)

$50.491m/ $2,060.867m = 2.45% of gross value of loans on issue.

Of course we all know that UDC isn't a 'real' finance company, even to the extent that they don't have to keep the Reserve Bank updated on their financial position. As long as the parent ANZ New Zealand (who have full control of the UDC purse strings) keeps their own disclosure up to date, the UDC are off the radar as far as the Reserve Bank of NZ is concerned. In practice UDC are simply a 'marketing arm' of the ANZ.

I am surprised how high the provision for loan impairment is at UDC (page 33 UDC 2014 prospectus) has increased ($7,123m to $11,733m up 65%) since FY2013 . Granted it is still much less since the depths of the GFC.

From note 8 the resultant provisions on the books without bad debts already written off, with reference to the whole EOFY2014 loan book:

$31.805m /($2,272.081m+$31.805m+$115.310m+$8.964m) = 1.31% of gross value loans on issue

The figures for ANZ New Zealand, suitably disentangled from UDC are (using note 12: 'Net Loans and Advances' based on ANZ New Zealand's September 30th 2014 update to the Reserve Bank)

($666m-$31.8m)/ ($96,902m -$2,148m) = 0.67%

Compare that to Heartland (HNZ AR2014, Note 20 'Finance Receivables' )

($16.361m+$8.000m)/ $2,613.754m = 0.93% of gross value of loans on issue.

Of course we all know that UDC isn't a 'real' finance company, even to the extent that they don't have to keep the Reserve Bank updated on their financial position. As long as the parent ANZ New Zealand (who have full control of the UDC purse strings) keeps their own disclosure up to date, the UDC are off the radar as far as the Reserve Bank of NZ is concerned. In practice UDC are simply a 'marketing arm' of the ANZ. If anything that might make UDC potentially more 'reckless' than fully independently owned finance companies. That's because they know that ANZ Bank will bail them out if they get into trouble. So I think it is interesting that in practice UDC are less reckless with their lending policies (hold a lower relative provision for credit impairment on the balance sheet) than Heartland.

SNOOPY

[Snoopy]

Aussie banks misbehaving
http://pickeringpost.com/story/bastard-banks/4237

This article relates to the Australian arm of ANZ. Kiwi bankers would never behave like this. Please supply your full address noodles. The re-education department of the ANZ would like to supply three burly souls to visit you for your exclusive benefit ;-P

SNOOPY

[percy]

Aussie banks misbehaving
http://pickeringpost.com/story/bastard-banks/4237

Thanks for posting that article.
If ANZ do that to their own countrymen,it is easy to see why New Zealanders prefer to bank with a New Zealand owned and operated bank.

[BlackPeter]

Aussie banks misbehaving
http://pickeringpost.com/story/bastard-banks/4237

A heart breaking story - and yes, I believe that the situation of many farmers in drought stricken regions (not just Winton) is quite hopeless. Not sure, though whether it is fair to blame the banks for this situation ... and certainly not one particular bank (ANZ).

Winton has an arid climate with in average something like half of the Canterbury rainfall, just less even distributed. If you look at the weather chart - a mean annual rainfall of 400 mm, but than there are weather events with more than 600 mm in one month - meaning that after a devastating flood they might get next to nothing for more than a year after that.

Leveraging a farm in such a climate without a reliable source of irrigation is just like playing roulette with one's livelihood. Is this really just the fault of the bank?

I think this is something the (Australian) politicians and people need to sort ... just bashing banks or throwing (public) money at the problem is unlikely to help. They either need to find a reliable water supply, help farmers to move to crops and livestock which can deal with the conditions (cows might not be optimal adapted for living in a desert), or help them to relocate ... another loan, just hoping the rain might come back next year is unlikely to be of long term help.

[Snoopy]

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	6.0
Total Tier 1&2 Ratio	12.4	9.9	8.0

Today I want to update the ANZ New Zealand banking covenants for September 30th 2014 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 2014, Number 75 issued November 2014"

Page 37, note 26 contains the information on capital adequacy.

The information supplied is as follows:

Common Equity Tier 1 ratio: 10.7% (vs RBNZ minimum of 4.5% + 2.5% buffer)
Total Tier 1 ratio: 11.1% (vs RBNZ minimum of 6.0% + 2.5% buffer)
Total Tier 1 & 2 ratio: 12.3% (vs RBNZ minimum of 8.0% + 2.5% buffer)

Page 38 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 $96,299m (from the balance sheet) I calculate the above ratios as follows (total net loans and advances of broken down under Note 12 'Net Loans & Advances'):

Common Equity Tier 1 ratio: $7,826m/$96,299m = 8.1%
Total Tier 1 ratio: $8,126m/$96,299m = 8.4%
Total Tier 1 & 2 ratio: $9,062m/$96,299m = 9.4%

Those figures are a different to those on the preceding page. That is because the Tier 1 and Tier 2 capital figures have been 'risk adjusted' before they went into my calculation. The risk adjustment is done because the expected capital recovery from loans should they go bad is different among the different classes of loans (corporate, sovereign, bank, retail mortgages and other retail)

SNOOPY

PS Tabulated version of above results

	30/09/2014 (risk adj)	30/09/2014 (book value)	RBNZ Required
Common Equity Tier 1 Ratio	10.7	8.1	4.5+2.5
Total Tier 1 Ratio	11.1	8.4	6.0+2.5
Total Tier 1&2 Ratio	12.3	9.4	8.0+2.5

[macduffy]

Hi, Snoopy.

Reports in the AFR today reckon that ANZ is readying its finance arm, Esanda, for sale - all $16.2b in assets. Will be interesting to see who's interested in buying and whether the urge to divest extends to its NZ equivalent, UDC.

[Snoopy]

I have been looking at the operating performance of ANZ in the New Zealand marketplace. It makes an interesting yardstick with that local bank Heartland.

The problem with comparisons is that banks to not report their performance in an identical way. My particular measuring stick of choice at the moment is 'Operating Margin'. This is 'Operating Profit' divided by assets under management. I regard 'Operating Profit' as the same as Earnings Before Interest and Tax (EBIT).

If you turn to page 156 of AR2013, the 'Segment Result Before Tax' (EBT) for NZ operations is listed at $A1,219m. ( I will work in $A for the NZ operation because this is the currency used in in the Annual Report.) To get EBIT I have to add back an allowance for the core underlying bank debt.

Total interest expense is shown in note 4 as $15,869m. But this includes interest payable to depositors. The underlying interest bill is only $4,789m.

Where the allocation of corporate interest between segments is not specified, I prefer to allocate this in proportion to divisional revenue. Again using the information on page 156, New Zealand revenue is:

$2,208m / $18,446m = 12% of the total.

12% of $4,789m comes out to $574m

Adding this to the NZ segment result gives me my EBIT figure.

$1,219m + $579m = $1,793m

Total NZ 'external assets' are listed on p156 as $85,229m.

So the 'operating margin' based on assets in loans is:

$1,793m / $85,229m = 2.104%

I note that this is the operating margin, looking at the NZ business in its entireity.

I made the calculation for FY2013. Now it is time to update that and tabulate the result all the way back to GFC days (FY2008). ANZ is the largest banking sector operator in New Zealand by a good margin. So to some extent looking at ANZ is a proxy for the whole market.

'Operating margin' in this sense is EBIT divided by loans under managment at the end of the year. Raw figures supplied in the annual report are EBT. The interest paid component I have added back to get EBIT is based on the total company interest bill, apportioned out by the fraction revenue turned over in New Zealand. This method eliminates one potential source of transfer pricing that could distort underlying EBIT. The interest calculated is the underlying interest applicable to corporate debt inherent in ANZ, and does not include interest paid to depositor customers.

Dollar figures are in $A, despite those figures relating to NZ operations. This is because the parent reporting currency is $A. The final ratio calculation is independent of currency choice.

	EBT	Underlying I	EBIT	NZ Loan Assets	NZ Loan Assets	Operating Margin
2014	$1,486m	$562m	$2,048m	$89,443m	$NZ100,228m	2.290%
2013	$1,219m	$574m	$1,796m	$85,229m	$NZ95.666m	2.104%
2012	$1,028m	$645m	$1,673m	$71,816m	$NZ89,736m	2.330%
2011	$978m	$804m	$1,782m	$70,273m	$NZ88,639m	2.536%
2010	$967m	$971m	$1,938m	$93,074m	$NZ122,209m	2.082%
2009	$503m	$1170m	$1,673m	$101,445m	$NZ123,427m	1.650%
2008	$1,061m	$1938m	$2,999m	$100,270m	$NZ120,851m	2.999%

I will comment on the blip in FY2011 later. But one thing is clear. Operating margin has not improved to pre GFC levels. Nor would I necessarily expect it to do so.

SNOOPY

[percy]

Aussie banks misbehaving
http://pickeringpost.com/story/bastard-banks/4237

Hope they don't start the same practices with NZ farmers.
I note ANZ have been reducing its lending to the NZ dairy sector from $13.1 billion in 2010 to $11.3 billion at @ 31-03-2015.
Positive.?

[percy]

Thanks Roger,but I think I was wrong to ask you to post it here.Until we know which bank it is, it should have been posted in Off Market discussions Cows etc.
Yet, I would think if history does in fact repeat itself, it would be one of the Aussie Banks, and ANZ would be my first pick.

[macduffy]

Couldn't possibly be HNZ, could it percy!