HGH - Heartland Group Holdings

[percy]

New rules now Percy. The government is saying no financial assistance from taxpayers. The shareholders and depositors carry the cost with Open Bank Resolution.
Can you imagine what it would do to business confidence if there was a bail-in and depositor’s funds were confiscated? The economy would tank. This would affect businesses as well as savers. Putting funds in finance companies was a choice and it was savings. With a bank there is no choice - you have to have a bank for your day to day transactions, especially for businesses.

Open Bank Resolution (OBR) is a long-standing Reserve Bank policy aimed at allowing a distressed bank to be kept open for business, while placing the cost of a bank failure primarily on the bank’s shareholders and creditors, rather than the taxpayer.
https://www.rbnz.govt.nz/regulation-and-supervision/banks/open-bank-resolution

For me this changes the rules of commerce. Now the money owed to an unsecured creditor remains as a debt until the business is wound up. With OBR the bank continues in business and the creditor doesn’t get all their money back, because some is confiscated. I accept that the government can confiscate assets but I don’t think a private business should be able to even with government approval. With OBR depositors get punished for bank’s bad behaviour.

I was really meaning the Australian banks,however the NZ banks with Australian parents would also be under pressure.
Yes you are right,however I can not see either the Australian or NZ government,letting the likes of ANZ,CBA or Westpac fail.There would be some sort of arrangement.

[Marilyn Munroe]

Yes you are right,however I can not see either the Australian or NZ government,letting the likes of ANZ,CBA or Westpac fail.There would be some sort of arrangement.

The Reserve Bank of New Zealand is not your friend. Its job is to protect the banks. It would not hesitate to impose a haircut on depositors of a minor deposit taking institution like Heartland to teach people a lesson.

The systemic risk of a major bank imposing a cram down on depositors would make the Reserve Bank hesitate and make politicians eager to fix it.

Boop boop de do
Marilyn

PS. Mid Canterbury where Heartland does its major deposit taking business is so staunchly National they could put up a cockies dog as a candidate and it would still get elected. Thus there is no political risk to either of the main parties from cutting Mid Canterbury depositors adrift.

[Joshuatree]

Voted for , lets get this done and keep this company growing!.

[Beagle]

The Reserve Bank of New Zealand is not your friend. Its job is to protect the banks. It would not hesitate to impose a haircut on depositors of a minor deposit taking institution like Heartland to teach people a lesson.

The systemic risk of a major bank imposing a cram down on depositors would make the Reserve Bank hesitate and make politicians eager to fix it.

Boop boop de do
Marilyn

PS. Mid Canterbury where Heartland does its major deposit taking business is so staunchly National they could put up a cockies dog as a candidate and it would still get elected. Thus there is no political risk to either of the main parties from cutting Mid Canterbury depositors adrift.

And said dog would probably have more of an idea how to run the country than half the present lot in power...for one thing he'd boost funding for the SPCA lol

[percy]

That post made my day....lol.

[Fred_Rubble]

Long term reader of this forum. Many thanks to all the long term posters.

Investor in HBL from the beginning - DRP and capital raising participant.

Voted Yes - Growth should be pursued - Low risk growth - even better

[Snoopy]

All good points. Taking another look at those RBNZ restrictions on Oz wholesale borrowing, I think the answer about timing reveals itself.

Against total assets of 4,496M as at 30 June '18, HBL is able to borrow a max. of 20% or 899M. Current Oz borrowing (at that date) was at 615M.

A very rough and ready assessment shows that one year of 39% growth in existing borrowing takes HBL up to the limit (assuming no asset growth).

Those figures were as at June so, if we follow that timeline, HBL could be seen to be doing this 6ish months before hitting that upper cap.

You are referring to this quote in the 'small print' on p6 of the scheme of arrangement book?

"1/ The Reserve Bank expects Heartland Bank to limit the extent to which its loans (both in New Zealand and Australia) are secured to wholesale funders to not more than 20%." ?

I think this note is referring to what are normally termed 'securitized loans'. These are loans packaged up and sold to third parties. The reason I think this is that other interpretations seem to me to make little sense.

I think your suggestion that 'borrowings' should not exceed 20% of the total balance sheet assets is an incorrect interpretation of what this note means. If you look at the balance sheet just down from where you took the $4,496m total asset figure from, you will see that borrowings already total $3,796m. This is way over your calculated ceiling of $899m.

Not sure where you get your Oz borrowing figure of $615m. Under note 13 of AR2018 we learn that $A562m has been drawn on the CBA facility in Australia of $A600m. Maybe you have converted this to $NZ at the following exchange rate?

$A562/$NZ615 => $NZ1 = $A0.9138

'Securitized Loans' involve a compromise. The parent bank will charge Heartland a lower than market interest rate. In return Heartland will swallow a larger than normal amount of lost capital should the loan ever go bad. This implied capital guarantee to the buyer of those loans is an extra risk to Heartland and the reason why the 'sold' loans must still appear on the Heartland balance sheet. But how much of a burden will the securitized loan guarantee be? Heartland aren't saying. But the Reserve Bank are saying:

"Don't securitize more than 20% of your loan portfolio."

or that risk becomes too great. This is how I interpret the foot note on p6.

SNOOPY

[Snoopy]

The Reserve Bank of New Zealand is not your friend. Its job is to protect the banks. It would not hesitate to impose a haircut on depositors of a minor deposit taking institution like Heartland to teach people a lesson.

Yes, but if what you say is true MM, and I think it is, then: What we shareholders need is a higher standard of protection than the Reserve Bank oversight gives. The argument that Reserve Bank oversight has let shareholders down (e.g. CBL Insurance), and so we should not be concerned about the loss of Reserve Bank oversight with Heartland seems a perverse one.

The 'good riddance to Reserve Bank oversight' attitude is akin to saying that one cop is not enough of a police presence to keep order in a small town, so let's get rid of the one cop we have and that will be better! Yet all the while the actual solution to small town unrest is that you need two cops, not just one. What we shareholders need is a more stringent application of Reserve Bank standards, if we shareholders are to avoid a loss of shareholder capital. We don't want Reserve bank oversight to be abolished. At least that is the way I see it.

SNOOPY

[BlackPeter]

Yes, but if what you say is true MM, and I think it is, then: What we shareholders need is a higher standard of protection that the Reserve Bank oversight gives. The argument that Reserve Bank oversight has let shareholders down (e.g. CBL Insurance), and so we should not be concerned about the loss of Reserve Bank oversight with Heartland seems a perverse one.

The 'good riddance to Reserve Bank oversight' is akin to saying that one cop is not enough of a police presence to keep order in a small town, so let's get rid of the one cop we have and that will be better! Yet all the while the actual solution to small town unrest is that you need two cops, not just one. What we shareholders need is a more stringent application of Reserve Bank standards, if we shareholders are to avoid a loss of shareholder capital. We don't want Reserve bank oversight to be abolished. At least that is the way I see it.

SNOOPY

Maybe we talked cross purpose ... just in case you are referring to my posts. I absolutely agree that NZ would need a financial authority overseeing banks, insurance business and actually all listed companies. NZ seems still to be the wild west - too many crooked and incompetent boards (not referring to HBL here) and no authority seems to be seriously concerned to sort the mess out.

Whoever thinks that the RBNZ will protect them as shareholders is wrong.

So, yes - lets get some financial authority properly resourced (with teeth) and tasked to keep our boardrooms crook free and our companies playing to the rule book.

However - whoever thinks that the RBNZ is this authority in its current state is mistaken - at the moment the RBNZ is not doing more for shareholders than a "she'll be right" bumper sticker at the car. Only difference - the bumper sticker might be more funny and less damaging (remember - the RBNZ even prevented the CBL board to comply with the continuous disclosure regime). I am not sure whether RBNZ are the good guys. In my view they should be investigated by themselves before they are assumed to protect others.

[percy]

From discussions I have had with HBL directors/management, they speak highly of their close working relationship with The Reserve Bank of NZ.
Started well before the granting of HBL's banking licence, and continues today, with their current corporate restructure.