ANZ.NZX - Anyone holding?

[Snoopy]

Note 17d (page 54 UDC 2014 prospectus) lists the internal risk grading of the loan assets on a scale of 1 to 9. On this scale 1 is the lowest risk while 9 means a default. The grade 6 and below categories for EOY2014 add up as follows:

$811,700m + $92,366m + $34,833m = $938,899m.

These represents a fraction of the total loans outstanding as follows:

$938,899m / $2,375.936m = 39.5% of total loan assets.

Impairment of $31,805m has been accumulated on the books over the years. This impairment of $31,805m represents

$31,805m / $938,899m = 3.38% of the Grade 6 (monitor) and below grade assets.

For comparative purposes it is interesting to see what happens when we take the same statistics for Heartland bank. The situation is not strictly comparable because Heartland has a different credit risk system for so called 'Behavioral Loans' and separately categorized 'Judgement Loans'. Heartland Behavioral loans consist of consumer and retail receivables usually relating to the financing of a single asset. I have added the three vulnerable categories of behavioural loans separately.

OTOH Heartland 'Judgement Loans' are graded on the 1-9 system. A 'Judgement loan' within Heartland consists mainly of business and rural lending, including non-core property, where an ongoing and detailed working relationship has been developed.

The grade 6 and below categories of 'Judgement Loans' for Heartland EOY2014 add up as follows:

$115,776m + $14,833m + $13,520m + $3,412m = $147,541m.

These represents a fraction of the total loans outstanding as follows:

$147,541m / $979,354m = 15.1% of total Judgement loan assets.


[The grade 6 and below categories of 'Judgement Loans' for Heartland EOY2013 add up as follows:

$198.370mm + $18.034m + $21.518m + $27.761m = $265.683m.

These represents a fraction of the total loans outstanding as follows:

$265.683m / $1,068.531m = 24.9% of total Judgement loan assets.]

Some impairment ($6,999m) has already been taken onto the book over the years. Add to this a reverse mortgage fair value adjustment of $8.000m This total impairment of $14.999m represents

$14.999m / $147.596m = 10.1% of the Grade 6 (monitor) and below grade assets.

Note 11d (page 50 UDC for 2015 prospectus (No.69)) lists the internal risk grading of the loan assets on a scale of 0 to 9. On this scale 0 is the lowest risk while 9 means a default.

	UDC Vulnerable Loans
	Judgement	Total
	Grade 6+
2012	$975.744m +$80.745m +$55.403m	$1,111.892m
2013	$1,157.111m +$83.790m +$24.814m	$1,265.715m
2014	$811.700m +$92.366m +$34.883m	$938.949m
2015	$904.338m +$81.156m +$32.640m	$1,018.134m

The grade 6 and below categories for EOY2015 added up represents a fraction of the total loans outstanding as follows:

$1,018,134m / $2,461.224m = 41.4% of total loan assets.

Credit impairment is noted as $31.529m (note 11d)

========

For comparative purposes it is interesting to see what happens when we take the same statistics for Heartland bank. The situation is not strictly comparable because Heartland has a different credit risk system for so called 'Behavioral Loans'. Behavioral loans consist of consumer and retail receivables usually relating to the financing of a single asset.

OTOH 'Judgement Loans' are graded on the 1-9 system. Grade 1 represents a 'Very Strong' loan. Grade 9 represents a loan 'At Risk of Loss'. Grade 6 represents a loan that should be monitored. A 'Judgement loan' within Heartland consists mainly of business and rural lending, including non-core property, where an ongoing and detailed working relationship has been developed.

The grade 6 and below categories of 'Judgement Loans' plus the equivalently vulnerable 'Behavioural Loans' sum up to a total amount of Heartland Vulnerable Loans'. represent a fraction of the total loans outstanding as follows:

$149,011m / $2,878,513m = 5.18% of total loan assets.

Some impairment ($10,201m) (Note 18b) has already been taken onto the book over the years. Add to this a reverse mortgage fair value adjustment of ($6.242m) This total impairment of $16.433m represents

$16.433m / $126.382m = 13.0% of the Grade 6 (monitor) and below grade assets.

		Heartland Vulnerable Loans
	Behavioural			Judgement	Total
	Arrangement	Non Performing Repossession	Recovery	Grade 6+
2012	$13.750m	$4.386m	$2.740m	$185.315m +$53.360m +$14.036m +$13.741m	$287.118m
2013	$8.416m	$2.226m	$1.936m	$198.370m +$18.034m +$21.518m +$27.761m	$278.051m
2014	$7.571m	$2.113m	$2.113m	$165.776m +$14.833m +$13.520m +$3.412m	$159.338m
2015	$15.855m	$3.087m	$3.687m	$99.849m +$14.937m +$4.514m +$7.082m	$149.011m

A summarized comparative table between UDC (Year ending 30th September) and Heartland (Year ending 30th June) is below:

	UDC					Heartland
	Impaired Loans (A)	Grade 6+ Loans [total Vulnerable](B)	(A)/(B)	Total Loans (C)	(A)/(C)	Impaired Loans (A)	Total Vulnerable Loans (B)	(A)/(B)	Total Loans (C)	(A)/(C)
2012	$38.481m	$1,111.892m	3.46%	$2,141,780m	1.79%	$8.032m	$287.118m	2.80%	$2,086.303m	0.785%
2013	$37.460m	$1,265.765m	2.95%	$2,198,653m	1.70%	$15.961m	$278.051m	5.74%	$2,026.337m	0.788%
2014	$31.805m	$938,899m	3.38%	$2,375.936m	1.34%	$14.999m	$159.338m	9.41%	$2,622,392m	0.571%
2015	$31.529m	$1,018,134m	3.10%	$2,461.224m	1.28%	$16.433m	$149.011m	11.0%	$2,878,513m	0.571%

SNOOPY

[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 2014 Bank Disclosure Statement, p48) so that they correspond to those listed in the December 2014 UDC prospectus. Then I need to subtract the UDC equivalent figures (page 54, December 2014 prospectus) to get the underlying ANZ bank figure. The results are below:

	All ANZ.NZ		UDC		Underlying ANZ.NZ
Agriculture forestry, fishing and mining:	$20,860m	(13.4%)	$456m	(19.5%)	$20,404m	(13.3%)
Business and property services:	$12,061m	(7.8%)	$121m	(5.2%)	$11,940m	(7.8%)
Construction:	$2,154m	(1.4%)	$340m	(14.5%)	$1,814m	(1.2%)
Entertainment, leisure and tourism:	$1,294m	(0.8%)	$11m	(0.5%)	$1,283m	(0.8%)
Finance and insurance:	$20,254m	(13.0%)	$76m	(3.3%)	$20,178m	(13.2%)
Government and local authority:	$11,363m	(7.3%)	$3m	(0.1%)	$11,360m	(7.4%)
Manufacturing:	$5,312m	(3.4%)	$91m	(3.9%)	$5,221m	(3.4%)
Personal & Other lending:	$74,191m	(47.7%)	$555m	(23.7%)	$73,636m	(48.1%)
Retail and Wholesale:	$5,721m	(3.7%)	$278m	(11.8%)	$5,443m	(3.6%)
Transport and storage:	$2,264m	(1.5%)	$412m	(17.6%)	$1,851m	(1.2%)
Total:	$155,474m	(100%)	$2,344m	(100%)	$153,130m	(100%)

We have to remember that UDC is roughly equivalent to Heartland in size. Heartland is an NZX top 50 company. So it is quite a surprise to me when UDC are removed from the New Zealand division of ANZ (which in itself is only a fraction of the total ANZ) and the result is not much different. This highlights what an extremely large company just the New Zealand division of ANZ has become in its own right.

In a slight change to funding, ANZ has strengthed the equity position of UDC with shareholders funds now supporting 17% of the loan book, up from 15% in FY2013. Consumately the debenture funding from the public has decreased from 70% to 68% (p8 UDC prospectus for 2013 and 2014).

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

SNOOPY

[Snoopy]

I am using the Heartland business categories, Table 37c Heartland AR2014 for comparison purposes. The UDC figures come from the 2014 prospectus Note 17c, page 54.

	HNZ	UDC
Agriculture Forestry & Fishing:	$491.321m (16.90%)	$445.299m (19.0%)
Mining:	$11.148m (0.38%)	$11.000m (0.5%)
Manufacturing:	$77.321m (2.66%)	$90.962m (3.9%)
Finance & Insurance:	$291.223m (10.02%)	$76.220m (3.3%)
Retail & Wholesale Trade:	$251.903m (8.67%)	$277.662m (11.8%)
Households:	$1,313.977m (45.20%)	$510.484m (21.8%)
Property & Business Services	$330.860m (11.38%)	$120.881m (5.2%)
Transport & Storage:	$15.873m (0.55%)	$412.633m (17.6%)
Other Services:	$123.070m (4.23%)	$398.984m (17.0%)

Total for Heartland $2,906.6m (100%) , with the collectively impaired assets yet to be adjusted for. This equates to a loan book YOY growth of 22.6%.

Total for UDC $2,344.1m (100%), with credit impairment already adjusted for. This equates to a loan book YOY growth of 8.5%.

So how good a measuring stick is UDC for Heartland? Heartland has grown a lot more with the purchase of the Seniors Money International home equity release business during the year. These are likely to be classified as 'household' loans. That accounts for the big jump in household category loans (from 26.5% to 45.2%) of the total Heartland loan book. It looks like it has been lumped in with the residual mortgage business for risk category classiication purposes. Total 'household' loans are substantially higher at Heartland.

The fact that UDC has a much higher percentage rating of loans in Transport and Storage is another long standing difference.

'Construction' ($340.228m) is a category that UDC breaks down, that I have included in 'Other'. If instead I had included this in 'Finance & Investment' then the 'Finance and Investment' comparison would have been a lot more even.

On balance though, I believe the comparison between the two is still useful.

I am using the Heartland business categories, Table 18c Heartland AR2015 for comparison purposes. The UDC figures come from the 2015 prospectus (No.69) Note 11c, page 50.

	HNZ	UDC
Agriculture Forestry & Fishing:	$572.412m (17.6%)	$456.195m (18.8%)
Mining:	$14.105m (0.4%)	$9.183m (0.4%)
Manufacturing:	$93.779m (2.9%)	$78.327m (3.2%)
Finance & Insurance:	$377.318m (11.6%)	$87.179m (3.6%)
Retail & Wholesale Trade:	$276.527m (8.5%)	$292.686m (12.0%)
Households:	$1,397.003m (43.0%)	$552.061m (22.7%)
Property & Business Services	$396.939m (12.2%)	$130.419m (5.4%)
Transport & Storage:	$20.068m (0.6%)	$425.302m (17.5%)
Other Services:	$102.317m (3.1%)	$398.984m (16.4%)

Total for Heartland $3,250.2m (100%) , with the collectively impaired assets yet to be adjusted for. This equates to a loan book YOY growth of 11.8%.

Total for UDC $2,429.7m (100%), with credit impairment already adjusted for. This equates to a loan book YOY growth of 3.7%.

So how good a measuring stick -still- is UDC for Heartland? Both companies have grown mostly organically as opposed to making big new acquisitions. Heartland has grown through a shareholding in P2P platform Harmony during the year. More significant in strategic than absolute terms at this stage. The Heartland non core residential mortgage business has been reduced. The Heartland non core legacy property portfolio is down to $27.0m.

The fact that UDC has a much higher percentage rating of loans in Transport and Storage is another long standing difference.

The rural lending book for UDC has grown by 2.4% YOY. The Heartland rural lending book has grown by 16.5% YOY. One interpretaion of this is that Heartland are 'helping' more of their customers by capitalising more interest payments.

'Construction' ($344.072m) is a category that UDC breaks down, that I have included in 'Other'. If instead I had included this in 'Finance & Investment' then the 'Finance and Investment' comparison would have been a lot more even.

On balance though, I believe the comparison between the two is still useful.

SNOOPY

[Snoopy]

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)/ $2,631.754m = 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.

The annual provision for loan impairment at UDC (page 32 'Summary Financial Statements' UDC 2015 prospectus) is still high: $10,427m down 11% on the high previous year figure $11,733m from FY2014 . Granted it is still much less since the depths of the GFC.

From note 6 (Net Loans & Advances) the resultant provisions on the books without bad debts already written off, with reference to the whole EOFY2015 loan book is:

$31.529m /($2,347.163m+$31.529m+$129.586m+$8.849m) = 1.25% 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 2015 update to the Reserve Bank)

($611m-$31.529m)/ ($106,357m -$2,347m)= 0.56%

-------

Compare that to Heartland (HNZ AR2015, Note 11 'Finance Receivables' )

($25.412m+$6.242m)/ $2,893.724m = 1.09% 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

P.S. Refer back to my post 205.

UDC: For FY2015:

Impaired Loans = $31.529m, Vulnerable Loans $1,018.134m
=> Impaired Loans as a percentage of Vulnerable Loans: 3.1%

Heartland: For FY2015:

Impaired Loans = $16.433m, Vulnerable Loans $149,011m
=> Impaired Loans as a percentage of Vulnerable Loans: 11.0%

I use the term 'less reckless' for UDC, because:

1/ They understand risk is important SO
2/ they are keeping an eye on more loans AND
3/ of the loans they keep a careful eye on, a smaller percentage go bad.

However, this is opposite conclusion you might come to if you just look at the impaired loans to total loans, the numbers I was quoting in the pre PS body of this post.

The questions that come up becasue of this that I am not sure about are:

1/ Why does UDC class such a large percentage of their loans as vulnerable (my term)?
2/ Since vulnerable is really a judgement call, what does this say about the relative judgement calls made by UDC and Heartland?

[Snoopy]

One year on and we look at the chances of default for ANZ.NZ mortgages and ANZ.NZ other retail loans.

(page 41 of the ANZ NZ September 30th 2014 Reserve Bank disclosure).

	For retail mortgages: 30-09-2014
Grades 0-3:	0.2%
Grades 4:	0.46%
Grade 5:	0.93%
Grade 6:	2.04%
Grade 7,8:	5.24%

	For other retail: 30-09-2014
Grades 0-2:	0.1%
Grades 3-4:	0.30%
Grade 5:	1.13%
Grade 6:	2.60%
Grade 7,8:	9.56%

Overall observation? A small risk reduction from year to year in the higher risk categories (Grade 6 and above).

One year on and we look at the chances of default for ANZ.NZ mortgages and ANZ.NZ other retail loans.

http://www.anz.co.nz/about-us/media-...r-information/


(page 53 of the ANZ NZ September 30th 2015 Reserve Bank disclosure).

	For retail mortgages: 30-09-2013	For retail mortgages: 30-09-2014	For retail mortgages: 30-09-2015
Grades 0-3:	0.2%	0.2%	0.2%
Grades 4:	0.46%	0.46%	0.46%
Grade 5:	0.93%	0.93%	0.92%
Grade 6:	2.11%	2.04%	2.02%
Grade 7,8:	5.40%	5.24%	5.27%

	For other retail: 30-09-2013	For other retail: 30-09-2014	For other retail: 30-09-2015
Grades 0-2:	0.1%	0.1%	0.1%
Grades 3-4:	0.29%	0.30%	0.26%
Grade 5:	1.12%	1.13%	1.00%
Grade 6:	2.67%	2.60%	2.39%
Grade 7,8:	11.25%	9.56%	8.79%

Overall observation? A continuing small risk reduction from year to year in the higher risk categories (mostly Grade 6 and above).

SNOOPY

[Snoopy]

One year later (30th September 2014) we compare the break down of the loan book. From the ANZ New Zealand statement to the reserve bank on 30th September 2014, page 48, the loan book break down is like this:

ANZ (New Zealand) Loan Book FY2014
Agriculture	$18,811m (+0%)
Forestry, fishing and mining	$2,049m (+10.8%)
Business and property services	$12,051m (+6.3%)
Construction	$2,154m (+23.2%)
Entertainment, leisure and tourism	$1,294m (-6.9%)
Finance and insurance	$20,254m (+10.0%)
Government and local authority	$11,363m (+14.6%)
Manufacturing	$5,312m (+5.2%)
Personal lending	$70,098m (+10.4%)
Retail trade	$3,026m (+5.8%)
Transport and storage	$2,264m (+5.4%)
Wholesale trade	$2,695m (+0%)
Other	$4,093m (-5.6%)
Total	$155,174m (+7.5%)

One year later (30th September 2015) we compare the break down of the loan book. From the ANZ New Zealand statement to the reserve bank on 30th September 2015, page 29, the loan book break down is like this:

ANZ (New Zealand) Loan Book	FY2012	FY2013	FY2014	FY2015
Agriculture	$19,071m	$18,842m (-1.2%)	$18,811m (-0%)	$19,717m (+4.8%)
Forestry, fishing and mining	$1,260m	$1,850m (+46.8%)	$2,049m (+10.8%)	$2,014m (-2.0%)
Business and property services	$11,706m	$11,334m (-3.2%)	$12,051m (+6.3%)	$13,681m (+13.5%)
Construction	$2,059m	$2,154m (+4.6%)	$2,154m (+23.2%)	$2,170m (+0.7%)
Entertainment, leisure and tourism	$1,697m	$1,389m (-18.1%)	$1,294m (-6.9%)	$1,386m (+7.1%)
Finance and insurance	$19,245m	$18,412m (-4.3%)	$20,254m (+10%)	$27,569m (+36.1%)
Government and local authority	$13,433m	$9,910m (-26.2%)	$11,363m (+14.6%)	$12,229m (+7.6%)
Manufacturing	$5,591m	$5,051m (-9.6%)	$5,312m (+5.2%)	$5,925m (+11.5%)
Personal lending	$58,664m	$63,492m (+8.2%)	$70,098m (+10.4%)	$80,935m (+15.5%)
Retail trade	$2,964m	$2,859m (-3.5.%)	$3,026m (+0.5.8%)	$3,046m (+0.7%)
Transport and storage	$2,416m	$2,147m (-11.1%)	$2,264m (+5.4%)	$2,470m (+9.1%)
Wholesale trade	$2,653m	$2,704m (+1.9%)	$2,695m (-0%)	$2,739m (+1.6%)
Other	$4,792m	$4,577m (-4.5%)	$4,093m (-5.6%)	$4,267m (+4.3%)
Total	$145.551m	$144.315m (-0.8%)	$155,174m (+7.5%)	$178,148m (+15%)

Finance and Insurance and Personal loans are the two categories that are driving loan portfolio growth!

SNOOPY

[macduffy]

Thanks, Snoopy, but no surprises there. Personal lending, aka housing mortgage loans, remains the biggest growth category!

[Snoopy]

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

Today I want to update the ANZ New Zealand banking covenants for September 30th 2015 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 2015, Number 79 issued November 2015"

Page 49, note 28 contains the information on capital adequacy.

The information supplied is as follows:

Common Equity Tier 1 ratio: 10.5% (vs RBNZ minimum of 4.5% + 2.5% buffer)
Total Tier 1 ratio: 12.7% (vs RBNZ minimum of 6.0% + 2.5% buffer)
Total Tier 1 & 2 ratio: 13.6% (vs RBNZ minimum of 8.0% + 2.5% buffer)

The improvement in these ratios could have benefittted from the $3.2b capital raising by institutional placement and subsequent share purchase plan offer to shareholders made during the financial year. However the ANZ.NZ Tier 1 capital ratio has gone down in New Zealand over the year, and no new share capital injection is apparent from the accounts. Additional capital requirements recently announced by the Australian Prudential Regulation Authority (APRA), in particular the increase in average credit risk weights for major bank Australian mortgage portfolios to 25% taking effect from 1 July 2016. So it looks like all the capital raising monies were ear marked for Australia, and the ANZ.NZ subsidiary operations have not benefitted at all.

Instead, the ANZ New Zealand operation has been shored up by the issue of two new tranches of ANZ convertible notes.

• On 5 March 2015, the Bank issued 10.0 million convertible notes (ANZ NZ ICN) to the NZ Branch at NZ$100 each, raising NZ$1,003 million.
• On 31 March 2015, the Bank issued 500 million convertible notes (ANZ NZ CN) at NZ$1 each, raising NZ$500 million before issue costs.

Both of these issues are structured as additional Tier 1 capital for ANZ.NZ.

Page 50 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 $106,357m (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: $8,441m/$106,357m = 7.9%
Total Tier 1 ratio: $10,282m/$106,357m = 9.7%
Total Tier 1 & 2 ratio: $10,984m/$106,357m = 10.3%

Those figures are a different to those on the preceding referenced 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

	30/09/2015 (risk adj)	30/09/2015 (book value)	RBNZ Required
Common Equity Tier 1 Ratio	10.5	7.9	4.5+2.5
Total Tier 1 Ratio	12.7	9.7	6.0+2.5
Total Tier 1&2 Ratio	13.6	10.3	8.0+2.5

[Buffett Jr]

I'm eyeing up ANZ is it is getting very close to my calculated buy price.

However, I'm wondering how to factor in the exchange rate. The AUD/NZD exchange rate is approximately 94cents. However, looking at a long term trend over the past 10 years, it hovers around the 80-90cent mark.

Would one therefore be willing to pay a higher price in NZD because if the exchange rate works in your favour and gets down to say 88cents, you would pay 6.8% more for the company (100*0.94)/(0.88).

Or do you just take the exchange rate conversion completely out of the calculation and just assume the exchange rate now will be the exchange rate when you get twice yearly dividends or go to sell the company at a later date?

[stoploss]

B Jr best of luck , just checking you are aware of the following ?

http://www.smh.com.au/business/banki...08-gmo76l.html