HGH - Heartland Group Holdings

[mouse]

Percy, sympathies over the cat.
Please however follow the advice of the Trade Me chap, make that the last one, and protect the birds.
The attitude of S&P seems to be, 'big is beautiful.' Which is not often the case. If the SP goes down too low as a result of S&P then Heartland becomes the target of a take-over.

[kizame]

I don't think it's any more of a takeover target now than it was back when the shareprice was 50 odd cents.They still need to hit the runs,and get some great market share.

[percy]

Percy, sympathies over the cat.
Please however follow the advice of the Trade Me chap, make that the last one, and protect the birds.
The attitude of S&P seems to be, 'big is beautiful.' Which is not often the case. If the SP goes down too low as a result of S&P then Heartland becomes the target of a take-over.

Thanks for your sympathies.My cat helped keep the MOUSE population under control. So you are safe until we get another one.!!!!!
Can't bring myself to comment on the rest of your post.

[percy]

I don't think it's any more of a takeover target now than it was back when the shareprice was 50 odd cents.They still need to hit the runs,and get some great market share.

They are doing both steadily,in markets they want to be in.!!!

[mouse]

They are doing both steadily,in markets they want to be in.!!!

The problem is not Heartland, the problem is its shareholders! Kiwis seem to hand over companies to anyone who wants to buy. Particularly when there is a little stress about.

[K1W1G0LD]

this viewpoint care of Chris Lee in his latest column very interesting reading.Puts S&P on the spot for the Twats they are

Bank credit ratings - Standard & Poor, the credit rating agency, has issued a 'negative outlook' statement about smaller NZ banks and credit unions in response to their concern about the scale of NZ’s offshore funding and the risk of falling house prices in NZ.

After reading the S&P announcement I would characterize it as a mathematical formula:
‘= (if 6)’.

Their announcement has been unnecessarily unsettling to many callers with deposits in the various organisations.

After describing the risk as one of funding they proceed to state that they have excluded the major banks from the downgrade as they would likely receive support from their parents. So, does S&P mean equity support, or do they think they world’s lenders naively forget to look at the combined risk between Australia and NZ?

Further, if their main concern is the funding risk, our Reserve Bank tells us via its Core Funding Ratio that local retail deposits are the best funding to have, so S&P should have little fear in NZ’s smaller banking organisations which are almost entirely funded by retail deposits.

I think the S&P statement is unnecessarily aggressive and frankly, misleading.

That their statement comes immediately after the Budget on Thursday implies that they believe the government measures to reduce house pricing will be very successful, very soon, which is not an opinion that I share.

If Auckland house prices do fall, and I think this is still a big if, then it is likely to be in small increments as new housing supply makes it on to the market. During that slow process of change, borrowers will have repaid some of the debt through their principal repayments.

If the rollout of extra house supply takes the three to five years to be influential, that I expect, then an average 'high Loan to Value Ratio' mortgage in Auckland should have dropped from 90% to 80% over three years (assumes $450,000 loan, 5.25% interest rate, 20 year repayment = $15,000 equity per annum).

Further;

Did S&P completely ignore the rising equity levels on bank balance sheets and the new Reserve Bank of NZ demands for even higher capital from banks agreeing to high Loan to Value Ratio loans?

Did they ignore the declining unemployment, and rising employment, situation in NZ?

They clearly haven't looked deeply into the actual credit metrics of the smaller banks, or their domestic funding, before singling them out for elevated risk assessment.

Heartland Bank is one that we retain a familiarity with given customer investments with the bank. The following numbers are approximate: HNZ has $2.3 billion of lending with only 12% of this amount in residential mortgages (only 1.7% of total assets are in the so-called 'risky' Auckland region).

HNZ's average LVR across all residential mortgages is 45%, with the average for Auckland mortgages at 37%. The percentage of their loans with LVR above 90% (across NZ) is tiny, and these have other very strong protection in place. Heartland has no loans in Auckland with LVR's above 90%, in fact they have none above 80%.

Heartland has a very healthy 14.9% equity capital ratio, so with such a modest exposure to Auckland residential mortgages (per above) it doesn't warrant calculating the potential loss of equity for theoretical declines in the average value of Auckland property. The results would be minute even if the fall was a nonsensical 50%.

This also assumes the property owner doesn't simply continue to service the loan.

So why does S&P feel the need to place them on credit watch negative outlook with international funding and Auckland house price risks as the motive? The announcement looks like an unreasonable generalisation or an imprecise shot across the bows of ships that they cannot see very clearly.

S&P excluded the 'big banks' from the negative outlook downgrade because 'they would enjoy equity support from their owners'. They must have ignored that the NZX listed HNZ could ask its shareholders for more equity if ever necessary. They must also have disagreed with HNZ directors paying a dividend recently regardless of having excess equity and sustainable profits.

There was no comment about the fact that the largest and most aggressive lending in NZ recently has been delivered by the main banks. I was told that one of these major banks had written $1.7 billion of new lending, with two thirds of this in the 'high LVR' category.

The S&P focus on small banks is diametrically opposed from where their attention should actually be focused.

S&P's concern is anchored in New Zealand's oversized need for offshore lenders to support our economy, because we borrow too much money. This is a truth and must be addressed by increasing our exports, reducing our imports, achieving trade surpluses and actually saving money 'as a nation'.

If the world's lenders were refusing to lend to us, or were sharply increasing the price I would be concerned, but at present the opposite is true.

On this occasion I think that S&P have erred in downgrading the credit assessments of NZ banking, and have been quite unreasonable to the small banks.

I usually like investors to pay close attention to the independent opinions provided by the credit rating agencies but on this occasion I think investors should let 'negative outlook' assessment about our smaller banks drift on by without undue concern.

NZ banks are in good shape, have increased levels of equity, are well governed and are very well regulated by the central bank.

It’s as if S&P had nothing better to announce but it was time to say something, somewhere. Pick an easy target. It made me think of the dog control officer who finds it easy to pursue the poorly behaved Chihuahua which steps just outside its gate but ignores the snarling Pit Bull with no collar.

SBS Bank – Eagle eyed observers may have noticed that they were not covered by the S&P downgrade above. This is because they get their credit rating from Fitch, not S&P!

Fitch has not announced a downgrade like that from S&P.

[POSSUM THE CAT]

Sparky the Clown If Cris Lee says S&P are wrong with rating the banks. S&P must be right.

[winner69]

Sparky the Clown If Cris Lee says S&P are wrong with rating the banks. S&P must be right.

It was his offside Michael who made those comments

and kiwigold will be in deep deep trouble pasting something from Mr Lee's website ... he does not think much of us

[K1W1G0LD]

It was his offside Michael who made those comments

and kiwigold will be in deep deep trouble pasting something from Mr Lee's website ... he does not think much of us

Thats why I gave the venerable Mr Lee the credit for quoting from his column.

[percy]

Sparky the Clown If Cris Lee says S&P are wrong with rating the banks. S&P must be right.

Chris Lee site has been correct will all their references to HNZ.Even had Kevin attend HNZ agm.