HGH - Heartland Group Holdings

[Beagle]

Couple of economists out today predicting GDP to decline by 6% over the rest of 2020. My instincts tell me that its probably going to be quite a bit worse than that. Could this recession be worse than the GFC ? I suppose a lot depends upon how soon an effective treatment is developed followed by how long before a vaccine is widely available.
My sense is it won't be until 2022 that things get back to some sort of "normal", whatever that new normal looks like ?
For HGH I expect the impact to last until at least FY23 as previous level's of provisioning for bad and doubtful debts prove to be inadequate.
Dividend level under threat now ? Definitely in my opinion.

[Playa]

Many will say cash is king at a time like this, but how secure do you think our money is sitting in the bank?Are the big Aussie Banks safe if sh*t really does hit the fan?Or will the govt come knocking on our doors(bank accounts).Just a thought.Where is the best place to keep the cash?

[Beagle]

The safest place is Govt issue Kiwibonds https://debtmanagement.treasury.govt.nz/kiwi-bonds

Yes the Govt could come knocking on your door with bank deposits under the open banking resolution and some or all of your money could be "collared" for a period of time and some could be lost. https://www.rbnz.govt.nz/regulation-...ank-resolution

My understanding is you do not have this risk with Kiwibonds but do have it with bank term deposits. What investors need to weigh up for themselves is whether the after tax extra return of a bank term deposit compared to Kiwibonds is worth the risk considering we could be headed into a very long and protected recession and worse case a great depression which potentially could involve the Reserve Bank invoking the open banking resolution with potential losses to even deposit holders..

Last week Kiwibonds were paying 1.0%. Banks were generally paying 2.7% or thereabouts. At that point people were earning an extra 1.7% before tax, or for investors on a 33% tax rate an extra 1.14% per annum after tax for a bank term deposit. Now that shorter duration Kiwibonds are down to 0.5% and special term deposit deals from HGH have been offered at up to 2.9% for existing customers the after tax spread is out to 1.6%.

One advantage Kiwibonds have is that you can ask for all or some of your money back with 7 working days notice, (there is an early repayment penalty) People may find banks very reluctant to repay term deposits early, (even with the penalties banks normally apply for doing so) if things get really tough. Even proving hardship may not be enough.

Having a bob each way (Kiwibonds and term deposits) and a variety of different banks for term deposits could be a good strategy for those who are largely cashed up to ride this storm out.

[winner69]

Couple of economists out today predicting GDP to decline by 6% over the rest of 2020. My instincts tell me that its probably going to be quite a bit worse than that. Could this recession be worse than the GFC ? I suppose a lot depends upon how soon an effective treatment is developed followed by how long before a vaccine is widely available.
My sense is it won't be until 2022 that things get back to some sort of "normal", whatever that new normal looks like ?
For HGH I expect the impact to last until at least FY23 as previous level's of provisioning for bad and doubtful debts prove to be inadequate.
Dividend level under threat now ? Definitely in my opinion.

By how much did the economy contract as a result of the GFC ......about 2%

Maybe GFC not a good benchmark

[Beagle]

Possibly not. I am planning for the worst, (another great depression), and really hoping it doesn't get that bad. The majority of my funds are now in Kiwibonds. If there's a glimmer of light at the end of this tunnel I can call all or part of them up early to take advantage of depressed asset prices. As you know, I believe we are headed down well below 6,000 on the NZX50 index.

[Playa]

Thanks Beagle.Long time reader of this site and have just joined.I guess 0.5%,1% or 2.7% is chicken feed which ever option you take,it's all about protecting capital until we get to a point where it looks safe enough to dip the toes (or paws) back in the water with the markets.I actually contacted Westpac in Australia last week about sending some money over there,I heard(correctly or not) we have a guarantee deposit scheme in NZ of only $50k and in Australia $250k. The lady in Westpac Australia told me that they are not allowed to open accounts for people from NZ now unless they are planning to live there,a new policy apparently

[Beagle]

I don't think that $50K deposit guarantee scheme is in effect yet. Welcome to the forum

[Jerry]

Getting way off topic now, but how would money say in a Jarden Trading Account in AUS $ be considered if there were a haircut? I suppose I should ask them!

[Traderwannabe]

I too have bought some Kiwi Bonds, only got the 0.5% rate as I bought them last week. (Bought them before during the GFC so have some experience with them.) The Kiwi Bond information website says that you can buy them from some registered banks, however, after visiting quite a few banks Kiwibank, ASB, Westpac, BNZ - not one teller even knew what I was asking for?? They thought I wanted Bonus Bonds? So ended up dropping off my application form in the drop box outside the ComputerShare office in Takapuna, as you are not able to go up to their office anymore.

Beagle can I ask, why did you open a TSB account and not a Kiwibank account - just wondering, do you think it is safer? As also looking to spread money between banks, currently just have Kiwibank and now Kiwi Bonds.

[Snoopy]

At only 5% of receivables $250m, Harmoney (including other consumer lending) is probably the lesser of their worries, with potential defaults in business and motor vehicle loans (representing a combined 47% $2133m receivables).

Heartland Receivables (Dec 2019)	$M	%
Reverse Mortgages	$ 1,424	31%
Motor Vehicle Finance	$ 1,124	25%
Harmoney & other consumer lending	$ 250	5%
Business Finance	$ 1,009	22%
Open for Business	$ 158	3%
Rural Finance	$ 621	14%
total	$ 4,586

Thanks for putting things in proportion Baa baa. $250m is not a lot for Harmony in the big picture. Incidentally, I went over to the P to P forum and saw that Harmony P to P for most of us is closing down. You can still borrow as a 'P' but to get on the lending side you now require a minimum of $10m. There aren't too many, even on this forum, able or willing to splash out that much on lending via Harmony. Harmony losses may not be so bad because, as a part owner of Harmony, Heartland 'clips the ticket' on each loan they write by part owning the Harmony platform. That income stream is independent of what happens to the loan down the track.

'Business Finance' must be a worry. The problem here is that many of these loans would have been taken out in a business environment that could not have conceived of a business lock down such as we are in now. Having no revenue does not mean you are an incompetent business person today. For example, what would be the point in bankrupting a mall store owner, then on selling the bankrupt's assets to a new store owner who may be less competent? And who would take on a lease in a mall that is closed, and liable to be closed again at short notice anyway? The only solution I can see to this is a multi-party solution. Banks, premesis owners, and business operators will have to work together and take a 'joint hit'. If they don't then all three will lose, and lose big time. OK banks might get their money back, but then they will have no-one to lend to. I think we are going to have to move out of the lock down phase before anything can happen. 'And Grant Robertson has provided the liquidity to allow everyone to wait. And if there is no light after six weeks, Robertson will provide more liquidity. 'Liquidating at the bottom' would be three way commercial suicide for business owners and landlords and banks alike.

Motor vehicle loans is likely to be more of a slow moving problem. There will be no appetite to repossess a whole lot of vehicles en masse. In this environment there would be no-one to sell them to. Better to let things slow burn, and even put aside some car payments, deferring them to the end of the lease when a lump sum of capital becomes available. It is very hard to form a meaningful view of what happens to a motor loan that expires in 2-3 years. Kicking the loan down the road looks like the only short term solution.

Suddenly 'rural finance' looks relatively safe. Who would have picked that two or three years ago! Maybe time to return the HGH AGM to Ashburton?

SNOOPY