ANZ.NZX - Anyone holding?

[winner69]

Out of favour these banks'

Banks tipped to fall further, especially NAB, ANZ

Read more: http://www.theage.com.au/business/markets/banks-are-set-to-fall-further-especially-nab-anz-20160329-gnsvg2.html#ixzz44Gtyfu8U

[Hoop]

Frankly, being a keep it simple type of pleb, it worries me... when Bank Equities go into a Bear cycle and the divine experts continue to tell their mere mortal plebs that there's nothing to fear.. the economic good times will roll on...

http://i458.photobucket.com/albums/qq306/Hoop_1/ANZ29032016.png (http://s458.photobucket.com/user/Hoop_1/media/ANZ29032016.png.html)

[winner69]

Frankly, being a keep it simple type of pleb, it worries me... when Bank Equities go into a Bear cycle and the divine experts continue to tell their mere mortal plebs that there's nothing to fear.. the economic good times will roll on...

http://i458.photobucket.com/albums/qq306/Hoop_1/ANZ29032016.png (http://s458.photobucket.com/user/Hoop_1/media/ANZ29032016.png.html)

But there are those times when things look a lot better .... Bugger, forgotten what they are called now!!!

[Hoop]

But there are those times when things look a lot better .... Bugger, forgotten what they are called now!!!

Hmmm, lets apply some guru type logic...if it looks better, it could be of the feminine variety ........ is it called a cow?

[Zouga]

Frankly, being a keep it simple type of pleb, it worries me... when Bank Equities go into a Bear cycle and the divine experts continue to tell their mere mortal plebs that there's nothing to fear.. the economic good times will roll on...

http://i458.photobucket.com/albums/qq306/Hoop_1/ANZ29032016.png (http://s458.photobucket.com/user/Hoop_1/media/ANZ29032016.png.html)
Hoop would you mind explaining the blue and red arrows? And what you mean by a bull trap?

[Snow Leopard]

Hoop would you mind explaining the blue and red arrows? And what you mean by a bull trap?

The red arrow points to the last time that the price line descended through the 50 day (exponential) moving average:
this is probably a bad thing :(.

The lower blue arrow points to the last time that the price line ascended through the 50 day (E)MA:
this at the time could have been a good thing :).

The upper blue arrow points to when the rising price line went above the little peak (or high) to its left:
this at the time could also have been a good thing :).

A bull trap is defined at investopedia (http://www.investopedia.com/terms/b/bulltrap.asp) as
"A false signal indicating that a declining trend in a stock or index has reversed and is heading upwards when, in fact, the security will continue to decline"

and kind of sums up what the arrows are trying to point out.

However:

Depending upon the future and currently unknown behaviour of the share price then it is possible that a new uptrend for ANZ has already begun.
In this case then the bull trap will turn out to be have been bull s***.

Best Wishes
Paper Tiger

If you take a random sample of 23 people then there is slightly better than a 50/50 chance that 2 of them share a birthday.

[Hoop]

......However:

Depending upon the future and currently unknown behaviour of the share price then it is possible that a new uptrend for ANZ has already begun.
In this case then the bull trap will turn out to be have been bull s***.

Best Wishes
Paper Tiger

.....

Today ANZ closed at 2568 down 33c (-1.3%) ....

It's now unlikely, but yes its still possible...that sometimes a bull trap isn't a trap at all, it is the following fall that ends up being short lived and quickly reverses the signals (arrows) once again creating a bear trap instead...
Isn't charting fun....full of possible surprises ..eh:D

[Zouga]

It is fascinating stuff. Your chart on the black Monday thread is also extremely helpful. I will certainly continue to develop my understanding.

[Bobdn]

I must say I do worry about my ANZ shares and have had some trouble sleeping. That extra 100m of bad loans means ANZ is only heading for a record profit of $7.3B (rather than $7.4B).

[kiwichick]

Those of you invested in ANZ shares, have you bought them on the ASX or NZX? Any benefits to choosing one over the other?

[macduffy]

Those of you invested in ANZ shares, have you bought them on the ASX or NZX? Any benefits to choosing one over the other?

Any price difference gets arbitraged away quicker than the average investor can react so it really boils down to whether the available funds to purchase are NZD or AUD and the brokerage deal that one has with one's broker. The ASX market in ANZ is bigger, of course, but there is generally enough depth and activity in ANZ on the NZX for retail investors. Or so I have found over umpteen years!

Cheers.

PS. Cash dividends are paid to shareholders with an NZ address in NZD regardless of the ASX/NZX issue.

[kiwichick]

PS. Cash dividends are paid to shareholders with an NZ address in NZD regardless of the ASX/NZX issue.

That's good to know! Thanks.

[Snoopy]

PS. Cash dividends are paid to shareholders with an NZ address in NZD regardless of the ASX/NZX issue.


Well I hold ANZ shares on the New Zealand register. I get my dividends paid directly in $A into my Australian bank account. So I guess you can choose which currency you get your dividends paid in.

SNOOPY

.

[huxley]

Any price difference gets arbitraged away quicker than the average investor can react so it really boils down to whether the available funds to purchase are NZD or AUD and the brokerage deal that one has with one's broker. The ASX market in ANZ is bigger, of course, but there is generally enough depth and activity in ANZ on the NZX for retail investors. Or so I have found over umpteen years!

Cheers.

PS. Cash dividends are paid to shareholders with an NZ address in NZD regardless of the ASX/NZX issue.


Yeah I hold on both NZX & ASX - they pay dividends in either NZD, AUD or GBP depending where your account is (the DRP is in AUD).

[Snoopy]

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 (quote)30/09/2015 (risk adj)RBNZ Required


Common Equity Tier 1 Ratio10.57.94.5+2.5


Total Tier 1 Ratio12.79.76.0+2.5


Total Tier 1&2 Ratio13.610.38.0+2.5



There has been talk on another thread about 'What is an adequate capital ratio for a bank?' On 17th September 2015, ANZ pocketed the proceeds of a capital raising to fix their own position. This capital raising was captured in the FY2015 Annual Report , with its 30th September 2015 balance date. So I think it is useful to look at a couple of key statistics before (FY2014 capital position ) and after (FY2015 capital position). That way we shareholders can see in numerical terms, what the changes were in the capital structure that ANZ managment deemed prudent.

All numbers quoted below are from the FY2015 ANZ Annual Report



FY2014FY2015Reference


Normalised Profit (A)$7,117m$7,216mp5


Shareholder Equity 'Tier 1 Capital' (B)$49,284m$57,353mp62 (Balance Sheet)


Return on Equity (A)/(B)14.4%12.6%calculated


Additional 'Tier 1 Capital' (C)$6,004m$7,423mp101 (Subordinated Debt)


Total 'Tier 1 Capital' (B)+(C)$55,288m$64,776mcalculated


'Tier 2 Capital' Perpetual Subordinated Notes (D)$1,087m$1,188mp101 (Subordinated Debt)


'Tier 2 Capital' Dated Subordinated Notes (E)$6,516m$8,398mp101 (Subordinated Debt)


'Tier 2 Capital' Discount for near dated 2019 notes (F)$0m-$271mcalculated at 20%


'Tier 2 Capital' Total (D)+(E)+(F)$7,603m$9,315mcalculated


Total Capital (Tier+Tier2) (G)$62,891m$74,091mcalculated


Return on Total Capital (Tier+Tier2) (A)/(G)11.3%9.7%calculated



That last line in the table is not one you will find in any ANZ report. Yet it is an interesting measure of how much 'equity', in the widest sense of that word, that ANZ management regard as prudent.

If, for a comparative example, you take the equivalent ROTC for New Zealand's own Heartland Bank: Net Profit $48.163m (excluding other comprehensive income) Shareholder Equity $480.125m
(for Heartland ROTC = ROE, because Heartland as yet has no subordinated bond type capital)

Then ROTC = $48.163m / $480.125m = 10.0%

This shows that the Heartland assets are being worked pretty hard. Is that just an indication of higher underlying profit margins at Heartland? Or are those Heartland assets being worked rather harder than is prudent?

SNOOPY

[percy]

So the out come of ANZ shoring up their capital is;
14.28% decline in ROE from 14.4% to 12.6% and
ROC has declined 14.16% from 11.3% to 9.7%.
Using Snoopy's figures.
So how much will ANZ's dividend reduce by.?
Yet NZ's only listed bank, is increasing both their ROE, and their dividend,and has excess capital that can be used for a further acquisition,or a return of capital to shareholders.!
As HBL shareholders know, HBL are finding very profitable niches for growth,ie Reverse Equity loans where the margins are higher than the household mortgages the Aussie banks compete for.
Establishing new on line platforms for customers ease,without having to establish high overhead branches.
More nimble,faster reacting,more growth prospects,yet with prudent practices.Staying more in tune with their customers.
Not being caught with risky sectors such as Australian mining ,Australian property market,Auckland property market,or a large exposure to dairying.
A lot safer better loan book spread.,

[Snow Leopard]

There has been talk on another thread...
...This shows that the Heartland assets are being worked pretty hard. Is that just an indication of higher underlying profit margins at Heartland? Or are those Heartland assets being worked rather harder than is prudent?

SNOOPY

Reading this is like watching your neighbour build a tree-house using rusty nails and rotten wood.

Then when he has finished being totally surprised that the entire tree falls over.

Best Wishes
Paper Tiger

[Snoopy]

Snoopy wrote:
"Heartland assets are being worked pretty hard. Is that just an indication of higher underlying profit margins at Heartland? Or are those Heartland assets being worked rather harder than is prudent?"

So the out come of ANZ shoring up their capital is;
1/ 14.28% decline in ROE from 14.4% to 12.6% and
2/ ROC has declined 14.16% from 11.3% to 9.7%.
Using Snoopy's figures.

So how much will ANZ's dividend reduce by?


Unknown, although ANZ has made a habit of not reducing dividends in the past.



Yet NZ's only listed bank, is increasing both their ROE, and their dividend,and has excess capital that can be used for a further acquisition,or a return of capital to shareholders.!
As HBL shareholders know, HBL are finding very profitable niches for growth,ie Reverse Equity loans where the margins are higher than the household mortgages the Aussie banks compete for.
Establishing new on line platforms for customers ease,without having to establish high overhead branches.
More nimble, faster reacting, more growth prospects, yet with prudent practices. Staying more in tune with their customers.
Not being caught with risky sectors such as Australian mining ,Australian property market, Auckland property market, or a large exposure to dairying.
A lot safer better loan book spread.,

A return on equity calculation, based on average shareholder equity for the year gives one measure of how well both HBL and ANZ are working their shareholder's funds:

{Note: I have added the impaired asset expense back into each company's earnings NPAT figures, to try and gain a more normalised picture of earnings.}

ANZ Group

($7,216m + 0.7($1,179m)) / (0.5 x($57,353m+$49,284m)) = 15.0%

Heartland Bank

($48.163m + 0.72($12.105m)) / (0.5 x($480.125m+$452.622m)) = 12.2%

By this measure then, it is the ANZ bank that is more efficient.

SNOOPY

[winner69]

Unknown, although ANZ has made a habit of not reducing dividends in the past.



A return on equity calculation, based on average shareholder equity for the year gives one measure of how well both HBL and ANZ are working their shareholder's funds:

{Note: I have added the impaired asset expense back into each company's earnings NPAT figures, to try and gain a more normalised picture of earnings.}

ANZ Group

($7,216m + 0.7($1,179m)) / (0.5 x($57,353m+$49,284m)) = 15.0%

Heartland Bank

($48.163m + 0.72($12.105m)) / (0.5 x($480.125m+$452.622m)) = 12.2%

By this measure then, it is the ANZ bank that is more efficient.

SNOOPY

Snoopy, more leveraged in my opinion

And Heartland seems to want to emulate them

[Snoopy]

Snoopy, more leveraged in my opinion

And Heartland seems to want to emulate them


You could say that ANZ is more leveraged than Heartland Winner. But what if you take into account all the Tier1 and Tier 2 'bond' type capital that ANZ has, and Heartland does not?

SNOOPY

[winner69]

You could say that ANZ is more leveraged than Heartland Winner. But what if you take into account all the Tier1 and Tier 2 'bond' type capital that ANZ has, and Heartland does not?

SNOOPY

So if you pretended all this 'bond type capital' was actual equity what would ANZ ROE be - closer to that of that NZ owned bank?

Bear in mind doing the comparison that if Heartland goes down this bond path their profit reduces by the amount of interest (after tax) and on same basis as above ROE would be less than the 12.2% you stated.

[Snoopy]

So if you pretended all this 'bond type capital' was actual equity what would ANZ ROE be - closer to that of that NZ owned bank?


Good question. Substituting the 'Total Capital' ( (G) in my post 269 ) for both years, so that we can calculate the average capital over the FY2015 year, gives the answer

ANZ Group - ROE ('Total Capital')

($7,216m + 0.7($1,179m)) / (0.5 x($74,091m+$62,891m)) = 11.7%

That is spookily close to the 12.2% ROE that I calculated over their respective FY2015 year. Is an ROE figure of 'about 12%' so theoretical bank sweet spot?



Bear in mind doing the comparison that if Heartland goes down this bond path their profit reduces by the amount of interest (after tax) and on same basis as above ROE would be less than the 12.2% you stated.

Yes quite true. Or, looking at it the other way, I could imagine that ANZ doesn't have all of those special bonds on issue. Then add on the interest that ANZ are paying on those bonds to ANZ's profit, working on the theory that if ANZ didn't have all those 'back up capital bonds', then they would be earning more. That would be the other way to equalise things.

This business of having 'fake capital' which is really debt but magically transforms into capital if needed, so should really be regarded as capital after all does my head in!

SNOOPY

[Bobdn]

I see in the SMH business section an analyst from UBS is predicting more bad debt provisioning. The good news is, he doesn't think dividends will be cut.

ANZ's divided is a monster at the current price. Sure it has modest imputation credits but it's so juicy who cares.

[babymonster]

JP Morgan has a pretty good result yesterday and helped the us market and helped us too. All the banks in Australia and NZ are up. Tonight will be Bank of America. Fingers crossed.

[tim23]

Sold 1/2 my ANZ bonds last week and traded them for ordinary ANZ shares - happy move so far!

[macduffy]

This morning's AFR has a headline to the effect that ANZ has "put UDC Finance on the block".

Behind the paywall, of course. Is anyone able to access?

[Tomtom]

This morning's AFR has a headline to the effect that ANZ has "put UDC Finance on the block".

Behind the paywall, of course. Is anyone able to access? This (http://www.afr.com/street-talk/anz-earmarks-udc-finance-for-sale-deutsche-on-the-job-20160415-go721l) AFR article?

[Lewylewylewy]

Hahaha, the photo at the top of that link would make a great caption contest...

Here's what I've been thinking recently... Are established banks capable of growing? In other words, are they worthy of being in a shared portfolio other than to return a stable dividend? I own a small portion of anz in my portfolio for exactly that, but I'm wondering if I'm better off ditching them and using them as a buy when low, sell when high strategy, (mid to long term trading) rather than as part of an investment strategy?

[Tomtom]

Given a good kicking today after WBC announced. ANZ publish HY results tomorrow I think.

If you where happy to hold through the Mike Smiths tenure while they where basically throwing money into a fire why get out now they are showing slightly more contrition to shareholders? Unfortunately there are very few Jamie Dimons in this world but good businesses don't need them to deliver consistent results. Hopefully ANZ have endured that period and there will be a watershed moment soon when they can revert to a historic mean in terms of performance. Back to business as usual.

[longy]

Yes... 1/2 year announcement is tomorrow. Although the SP fell 4.2% today but I thought the volume was really small.

[macduffy]

Yes... 1/2 year announcement is tomorrow. Although the SP fell 4.2% today but I thought the volume was really small.

Don't be blindsided by trading volumes on the NZX. ANZ shares listed and traded here are a fraction of the total - around 1.7m traded yesterday in Oz, about an average day's volume. Although Westpac's result looked reasonably ok - to me at least - the market obviously expected better and is now expecting similar lacklustre numbers from ANZ.

[sideline]

Don't be blindsided by trading volumes on the NZX. ANZ shares listed and traded here are a fraction of the total - around 1.7m traded yesterday in Oz, about an average day's volume. Although Westpac's result looked reasonably ok - to me at least - the market obviously expected better and is now expecting similar lacklustre numbers from ANZ.

And they got lacklustre numbers: profit down 4% (down 22% with special charges). Dividend down 7%. Where will the SP be in a few weeks time??

[sb9]

And they got lacklustre numbers: profit down 4% (down 22% with special charges). Dividend down 7%. Where will the SP be in a few weeks time??

Expect bit of shake up when ASX opens, that coupled with RBA's rate decision makes an interesting day for them.

[winner69]

A shocker really

The global funds who are short aussie banks must be rejoicing

[sideline]

Interesting price action on the NZX - what do you make of it?

[stoploss]

I see in the SMH business section an analyst from UBS is predicting more bad debt provisioning. The good news is, he doesn't think dividends will be cut.

ANZ's divided is a monster at the current price. Sure it has modest imputation credits but it's so juicy who cares.

Looks like he got that one wrong ......

[Bobdn]

Sadly, yes. Trying to look on the bright side...at least AIR has increased today.

[macduffy]

Sadly, yes. Trying to look on the bright side...at least AIR has increased today.

Even better, ANZ's shareprice is up strongly in Aust - and NZ. Market was obviously expecting a much worse result.

[babymonster]

not sure why.. maybe it's RBA rate decision leaking out? all the major banks are up today so far

[macduffy]

not sure why.. maybe it's RBA rate decision leaking out? all the major banks are up today so far

The market in all bank shares generally reacts to each result. After all, it is the best indication of business conditions in the Australian banking industry - which affects them all.

[Bobdn]

Wow, amazing. This is why I never give investment advice: I never know what's going on most of the time. I like to think of myself as the Forest Gump of investing :)

[Lewylewylewy]

Haha, nonsense! ... That's me ;)

I think that it's nice when anyone on this site shares their opinions or ideas, hope you keep it up. Even if you're wrong, it's good to get an idea about sentiment from others or something to think about.

I'm not too upset about my ANZ shares, I only have a few and think they'll generally give a better return than the bank. Also they're one of the few companies you can invest in, which if they fail, the government will (try to) bail out. Eventually they'll come good and I'll be able to sell at profit if I want, while collecting dividends along the journey.

[lawson]

From the AFR

Elliott is the first major bank chief executive to acknowledge that traditional dividend payout ratios are no longer sustainable in the current environment. ANZ has cut its interim dividend by 7 per cent and flagged a permanent shift to a lower payout ratio.

"We believe ANZ is making the right decisions, addressing many of the market's concerns. However, as has been seen numerous times in bank restructurings since the crisis these processes are never easy and invariably lead to additional earnings volatility," UBS analyst Jonathan Mott says.

Watermark Investment Funds analyst Omkar Joshi agrees ANZ is taking the right actions to address the market's concerns. Joshi specifically mentions the bank's "very strong cost control", reducing staff by 5 per cent over the year."Excluding one-off charges, ANZ also experienced positive jaws with revenue growing ahead of expenses," he says.

And the AFR's Mike Smith acknowledges that no-one can accuse Elliott of having his head in the sands in terms of the growing regulatory,competitive and political pressure facing the industry.

[Bobdn]

Thanks Lewy. DRPs certainly comfort me in dark days.

Gee, over the last few minutes it's been surging.

[macduffy]

What the AFR didn't mention - at least in the above extract - is that a new CEO such as Shane Elliott will take the opportunity to clear the decks in the first profit announcement after his appointment. Good for him, but it's much easier to take the hard decisions at that stage!

[stoploss]

Wow, amazing. This is why I never give investment advice: I never know what's going on most of the time. I like to think of myself as the Forest Gump of investing :)

Had a massive winner with AAPL from memory ..........

[sb9]

Well, hot off the press guys RBA cut their rate by 25 bps to 1.75%, I bet RBNZ will surely cut at their next meet...

[percy]

Had a massive winner with AAPL from memory ..........

Yes something to do with fruit distribution.I am trying to do the same with SCL.[nz].

[peat]

What the AFR didn't mention - at least in the above extract - is that a new CEO such as Shane Elliott will take the opportunity to clear the decks in the first profit announcement after his appointment. Good for him, but it's much easier to take the hard decisions at that stage!
from my quick perusal it seemed the result wasn't that bad, but they made it seem worse.

[stoploss]

http://www.stuff.co.nz/business/world/79780169/westpac-anz-in-australia-investigating-suspected-foreign-home-loan-fraud

How many suspect loan could there be in Auckland ?

[Tomtom]

http://www.stuff.co.nz/business/world/79780169/westpac-anz-in-australia-investigating-suspected-foreign-home-loan-fraud

How many suspect loan could there be in Auckland ? Why worry about what's going on outside the bank when it's an industry that incentives people to diminish the quality of it's own loan book? I think it was W. E. Deming who wrote that "People with targets and jobs dependent upon meeting them will probably meet the targets - even if they have to destroy the enterprise to do it." If banks have a blind spot it's looking at what is going on inside their own organisations:

Based on existing investigations and mortgage fraud reporting, 80 percent of all reported fraud losses involve collaboration or collusion by industry insiders.
Linky. (https://www.fbi.gov/stats-services/publications/fcs_report2007) Other Linky related to Australia. (http://www.abc.net.au/news/2016-04-21/fraud-rife-in-banking-system-economists-say/7348176)

Also you sort of have to expect a higher level of fraud and corruption when doing business in Asia.

[winner69]

Maybe it was his last hurrah .....or got him the boot

He's probably right though


Aitken leaves Bell Potter after jab at ANZ’s CFO appointment
10 MINUTES AGO | 10:43AM | RICHARD GLUYAS
Angus Aitken, the high-profile stockbroker and managing director of institutional equities at Bell Potter, has left the firm.

Mr Aitken’s departure follows a controversial note he sent to clients on Tuesday about ANZ Bank’s appointment of investment banker Michelle Jablko as its chief financial officer.

The headline on the note read: “that new CFO has to be one of the dumber appointments I have seen … another reason to not own this stock – Sell ANZ”.

The note went on to say that UK clients were “completely amazed” that ANZ would appoint a CFO whose last major deal was advising law firm Slater and Gordon on its $1 billion-plus acquisition of the Quindell assets in Britain.

“I would be surprised if you saw anything but selling of ANZ from UK investors let alone anywhere else,” Mr Aitken said.

It was unclear this morning whether the note played any role in Mr Aitken’s departure.

Business Spectator

[Lewylewylewy]

Anyone know when the record date for this dividend is?

[Bobdn]

Anyone know when the record date for this dividend is?

Record date was 10 May. Strike price should come in under $25 AUD for those of us in the DRP. I think there's one more trading day to go, unfortunately price has gone up about 10% in the last month which is a bit of a shame.

http://www.shareholder.anz.com/pages/dividends

[huxley]

Anyone know when the record date for this dividend is?

https://www.shareholder.anz.com/pages/dividends

[Lewylewylewy]

Thanks, the div history was particularly interesting!

[Snoopy]

UDC: For FY2015:

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


I am trying to put the information below into a format so that it can be compared with Heartland Bank (my post 7700 on the Heartland thread) over the same period.



Heartland


Date'Stressed' Loans on the books (X)
Net Financial Receivables (Impairments deducted) (Y)
(X)/(Y) Write Offs (W)
Gross Financial Receivables (Z)(W)/(Z)


EOHY2012$87.728m$2,075.211m4.23%$12.138m+$1.685m$2 ,104.591m0.66%


EOFY2012$90.489m$2,078.276m4.35%$14.636m+$3.180m$2 ,105.702m0.85%


EOFY2013$48.975m$2,010.393m2.43%$6.679m+$1.961m$2, 060.867m0.42%


EOFY2014$41.354m$2,607.393m1.59%$35.258m+$3.260m$2 ,631.754m1.46%


EOFY2015$32.824m$2,862.070m1.15%$1.555m+$1.910m$2, 893.704m0.12%




Unfortunately there are little differences in reporting standards that make this difficult.

For example, Heartland have a class of loans called 'Judgement Loans'. They pass annual judgement on these loans by rating them on a scale of 1 to 9 plus 'default'.
There is a second broad category called 'Behavioural Loans' which are separately rated, not using a scale.

UDC appear to rate all of their loans on a scale of 1 to 8 plus default (UDC prospectus December 2015, note 11d). I have previously defined UDC 'Vulnerable Loans' as classes 6,7 and 8. But category 6 is very large. So I am now going to change my mind and talk about 'Stressed Loans' which are calculated by:

Take loan total from categories 7 and 8
add 'Default' loans
less Provision for Credit Impairment.

I have redefined the 'Total Financial Assets' as listed in note 11d to be 'Net Financial Receivables'.



UDC


Date'Stressed' Loans on the books (X)
Net Financial Receivables (Impairments deducted) (Y)
(X)/(Y) Impaired Asset Expense (W)
Gross Financial Receivables (Z)(W)/(Z)


EOFY2011$126.218m$2,007.012m6.29%$15.103m
$2,049.504m0.74%


EOFY2012$96.670m$2,102.299m4.60%$10.164m$2,141.780 m0.47%


EOFY2013$86.877m$2,161.193m4.02%$12.399m
$2,198.653m0.56%


EOFY2014$95.364m$2,344.131m4.07%$18.633m
$2,375.936m0.78%


EOFY2015$82.267m$2,429.695m3.39%$12.162m$2,461.224 m0.49%



There are a couple of outlier points to note. The EOFY2011 X/Y is quite high. Over FY2014, the impairment expense for that year is larger than normal. But generally this picture is much steadier than the equivalent figures for Heartland. I realise comparing just two companies is no way to draw conclusions about one or the other verses their peers. But unfortunately most of those peers got wiped out in the GFC :-(

OK back to this comparison. The 'stressed loans' at UDC are typically three times the 'stressed loans' at Heartland when compared on a normalised basis. Furthermore the actual annual impaired asset expense at UDC is roughly twice that at Heartland. OK there are differences between the two companies. But not differences that would suggest such a wide divergence in comparative statistics. There is another key difference though!

Heartland is a listed company. But UDC is not listed. This means there are no UDC performance shares to vest for UDC managers. No incentive to massage the UDC loan books. The UDC accounts tell a consistent story in a way the Heartland accounts do not. IMO the UDC are consistent in presenting a picture of 'real' profits in the way the Heartland accounts may not , if Heartland have deliberately underestimated their 'Stressed' debts.

SNOOPY

[percy]

Snoopy,
Google kpmg fips.
Last quarterly review was December 2015,but should give you enough information for another 2/10 chapters.

[Snoopy]

Snoopy,
Google kpmg fips.
Last quarterly review was December 2015,but should give you enough information for another 2/10 chapters.

Thanks for that. I see KPMG's preferred metrics are:

1/ Impaired Asset Expense/Average Gross Loans and Advances
2/ Collective Provision/Net Loans and Advances
3/ Total Provision For Doubtful Debts/Gross Loans and Advances

Those are looking at 'Impaired Asset Expense' and 'Debt Provisions'. I am interested in 'impaired asset expense' myself because this is the actual money said goodbye to each year. IMO consideration of 'Impaired Asset Expense' gives a better picture of 'Real Profit' than the 'Provision for Impairment' (the amount added to the doubtful debt pool, to make an acceptable doubtful debt balance) that is normally used in finance company income statements.

But what interests me is those debts that are being monitored before they go bad. It seems to me that once a debt becomes partially impaired there is less the finance company can do. Working with companies and their 'stressed loans' seems to me a more useful statistic when forecasting future 'finance receivable' health. But KMPG don't seem to bother about considering that!

SNOOPY

PS Am unclear what the difference between 'Collective Provision' and 'Total Provision For Doubtful Debts' is. Would appreciate any enlightenment.

[percy]

Start with Google;
IFRS9.

[Snow Leopard]

If you had not poo-poo'ed my suggestion that those KPMG type metrics were more useful than the those you were dreaming up then I would have been willing to enlighten you by suggesting that you look at Note 7 on Page 46 of the UDC Finance Limited Prospectus of 17-Dec-15 [UDC Secured Investments No69].

But you did so I am not.

And if you are still none the wiser then I suggest you give up on the financial analysis completely and just stick with the Ice Hockey.

https://www.unibw.de/hochschulsport/snoopy-icehockey.jpg

Best Wishes
Paper Tiger

[Snoopy]

If you had not poo-poo'ed my suggestion that those KPMG type metrics were more useful than the those you were dreaming up then I would have been willing to enlighten you by suggesting that you look at Note 7 on Page 46 of the UDC Finance Limited Prospectus of 17-Dec-15 [UDC Secured Investments No69].


PT I am not trying to design something 'better' than KPMG. I am sure the KPMG ratios capture very well what they are trying to measure. I have designed a slightly different ratio becasue I am measuring something different. I am looking a a level of loans less troublesome than impaired that for which I have coined the term 'stressed loans'. AFAIK KPMG do not deal with 'stressed loans'.

SNOOPY

[Bobdn]

Good time to own banks if those banks are ANZ, WBC CBA and NAB. All other banks, not so much it seems.

[huxley]

Good time to own banks if those banks are ANZ, WBC CBA and NAB. All other banks, not so much it seems.

ANZ results out 2nd of November.. what are we thinking? Another 80cent AUD dividend?

Mine just sit in the DRP

[Bobdn]

yes, I think 80 cents. I'm in the DRP as well so not terribly happy about ANZ's 20% increase over the last six months :)

[Snow Leopard]

Good time to own banks if those banks are ANZ, WBC CBA and NAB. All other banks, not so much it seems.

I am with you 100% on that except for CBA, NAB & WBC.

Oh, & BEN & BOQ

Best Wishes
Paper Tiger

[Bobdn]

Wow, tetchy. I take it you don't own any ANZ?

[Snow Leopard]

ANZ is one of my Oz bankers and ANZ is one of my Kiwi bankers.

The Australian Fund for Older Tigers had some BEN, think it had some ANZ when it was younger as well. Wish it still had the BEN.

I was disputing whether holding or buying, NAB and especially CBA & WBC is currently a good idea.

Best Wishes
Paper Tiger

[Bobdn]

Ah, got it :)

[BlackPeter]

If you happen to be that day in Christchurch and want to hear Tony Carter (board member of ANZ NZ) speaking - here is your opportunity: http://www.sharetrader.co.nz/showthread.php?10332-NZSA-Canterbury-meetings-amp-seminars&p=639524&viewfull=1#post639524

[Bobdn]

NZD is dropping like a stone against the AUD. Yay.

[tim23]

One of my few bright spots for the week happy holder swapped half my bonds for shares in march so far so good!

[Bobdn]

Nice one Tim, huge increase since March

[huxley]

ANZ group to sell some retail banking franchises in SE Asia. Focusing on its institutional business instead..

http://phx.corporate-ir.net/external.file?t=2&item=o8hHt16027g9XhJTr8+weNRYaV9bFc2rMd0Q/AXw4zsH6ROKvqY+XN+HlyFqfLXjmE4EUC8NsmDDHc0eyMs+d3S hoSo+WfzXcZYA9ktXc+wYFkHSfCoR1H1NrFHWghKiyqXipBw9C oiaMe9iQIW9vw==&cb=636134675478989927

[Bobdn]

Only bright spot for me today is ANZ. Good to see the 80 cent dividend.

[Biscuit]

Only bright spot for me today is ANZ. Good to see the 80 cent dividend.

Geez they swamp you with info eh? I am going to be reading into the night. Never seen a company so keen to compare second half with first half results, must be trying to tell us something?

[macduffy]

Normal procedure with the banks to compare the two halves but particularly interesting in view of the many abnormal, one-off? items involved here.

They did a good job in preparing the market for the result - one of the few green spots in a sea of red today. Under-promise and (slightly) over-deliver!

[winner69]

Don't know whether this is more than just interesting

Enough reason for yanks to short aussie banks

@Hedgeye: Bubble in Australian and Canadian banks?
-The assets of Canada & Australia's top 4 banks are 2X GDP.
-In the US, ba… https://t.co/2l79WZASnt

[macduffy]

There's a huge difference between Aust top 4 banks and those of the USA. In Australia, the "others" would barely muster 10% of the business between them, I would think?

Not so in the USA where the top 4, although big and powerful, are challenged by a host of other players with a significant share of the overall banking business.

[Snoopy]

The December 15th 2015 UDC Prospectus release, at last gets the details of what happened at UDC during FY2015 out into the public arena.

https://www.udc.co.nz/pdf/UDC_Prospectus_69.pdf

The 'profit before tax' is listed as $79.323m (p34). But this includes a provision for credit impairment of $10.427m which I would remove to get the picture of ongoing operational performance. So I get EBT of $89.750m.

Now go to note 4 (p43) on interest expense. There is underlying interest over and above what is due to debenture holders of $18.951m.

So total underlying EBIT = $89.750m + $18.951m = $108.701m

Now turn to page 45 (note 6) and you will see total net loans and advances of: $2,347.163m

So the operating margin based on the end of year loan balance book is:

$108.701m/$2,347.163m = 4.63%

A significant improvement on FY2014 and it continues the improvement from a 3.87% margin in FY2012



Can't find a 'prospectus 70' that details the performance of UDC over FY2016.

It also seems that the previous links to past year prospectuses that I have given have been wiped by the company. However, some relevant financial statements may be found here:

https://www.udc.co.nz/investing/important-documents

Looking at

https://www.udc.co.nz/pdf/Full-Financial-Statements-2016.pdf

The 'profit before tax' is listed as $81.417m (p3). But this includes a provision for credit impairment of $7.418m which I would remove to get the picture of ongoing operational performance. So I get EBT of $88.835m.

Now go to note 3 (p10) on interest expense. There is underlying interest over and above what is due to debenture holders of $18.398m.

So total underlying EBIT = $88.835m + $18.398m = $107.233m (near flat, slightly down on FY2015)

Now turn to page 12 (note 6) and you will see total net loans and advances of: $2,573.030m (nearly a 10% rise on FY2015). Yet despite the big rise in business, underlying operating profit has actually decreased.

The operating margin based on the end of year loan balance book is:

$107.233m/$2,573.030m = 4.17%

Put in context, the operating margin over the last few years has gone like this:



FY20164.17%


FY20154.63%


FY20144.41%


FY20134.02%


FY20123.87%



I am always suspicious of companies that try to obliterate their financial history. In this instance you can see why. The long trend of increasing margins has ended. It isn't surprising that UDC management don't want this fact widely broadcast to their existing debenture holders. The 8th December 2016 news release from UDC trumpeted the 'record FY2016 profit' only and made no mention of the shrinking operating margins.

With a likely sale of UDC from under the ANZ umbrella, S&P have reduced UDC's long term credit rating by three notches from AA- to A-. This is still better than the likes of Heartland Bank. But I think it is fair to say that UDC have lost their long held 'premium' over other finance company players in the NZ finance market. Something to reflect on for long term UDC debenture holders?

SNOOPY

[Snoopy]

Time to normalise the UDC figures for 2015 so they can be compared more directly with the likes of Heartland Bank.

Heartland in FY2015 had selling and administration expenses of $68.403m (Heartland FY2015 report 'Selling & Administration Expenses', note 5). UDC had total operating expenses of $32.278m (UDC prospectus note 4). That is a difference of $36.125m. The two are comparable in that they have a similarly sized loan book (UDC:$2,347.183m, Heartland $2,862.070m). If we add the operating cost difference figure onto the UDC cost structure, what would that do to the UDC operating margin on assets?

FY2015: ($108.701-$36.125+ $10.464)/$2,347.183 = 3.53%

Note: UDC do not have a branch network of their own, but operate through ANZ bank branches in New Zealand. The $10.464m added back represents the adding back of 'fees paid to related parties' (ANZ). These are part of the $36.125m 'extra operating expenses (p43 note 4). The $10.464m could be thought of as a contribution to the ANZ branch network that allows UDC to carry on business as normal. But what I am interested in is the difference in operating cost of a finance company with and without a branch network. So this $10.464m which largely reflects a branch network allowance must be removed from my comparison.

This calculation shows the underlying margin at UDC to be slightly improved from FY2014's 3.37%.


Time to normalise the UDC figures for 2016 so they can be compared more directly with the likes of Heartland Bank.

Heartland in FY2016 had selling and administration expenses of $69.872m (Heartland FY2016 report 'Selling & Administration Expenses', note 5). UDC had total operating expenses of $31.623m (UDC Financial Statement 2016, note 4). That is a difference of $38.249m. The two are comparable in that they have a similarly sized loan book (UDC:$2,573.030m, Heartland $3,133.957m). If we add the operating cost difference figure onto the UDC cost structure, what would that do to the UDC operating margin on assets?

FY2016: ($107.233-$38.249+ $10.011)/$2,573.030 = 3.07%

Note: UDC do not have a branch network of their own, but operate through ANZ bank branches in New Zealand. The $10.011m added back represents the adding back of 'fees paid to related parties' (ANZ). These are part of the $38.249m 'extra operating expenses (calculated above, using figures from Financial Statements 2016, note 4). The $10.011m could be thought of as a contribution to the ANZ branch network that allows UDC to carry on business as normal. But what I am interested in is the difference in operating cost of a finance company with and without a branch network. So this $10.011m which largely reflects a 'branch network allowance payment' must be removed from my comparison.

This recent year trend in the underlying margin at UDC is



FY2016 3.07%


FY2015 3.53%


FY2014 3.37%


FY2013 2.58%




SNOOPY

[Snoopy]

An update on the post financial crisis profitability trends. The Heartland comparative figures only start from FY2012, because that is when Heartland started to exist in its current form.



UDCHeartland


EBTLoan BookEBT/Loan BookEBTLoan BookEBT/Loan Book


FY2009$34.024m$1,829.156m1.86%


FY2010$45.012m$1,968.771m2.29%


FY2011$46.382m$1,948.552m2.38%


FY2012$58.476m$2,014.473m2.90%$29.377m$2,078.276m1 .41%


FY2013$66.787m$2,065.117m3.23%$36.540m$2,010.376m1 .82%


FY2014$83.501m$2,272.081m3.68%$57.416m$2,607.393m2 .20%


FY2015$89.750m$2,347.163m3.82%$76.304m$2,862.070m2 .67%



Reference for data (UDC): (p32 of 2015 prospectus (No.69) , p33 of 2014 prospectus) (Profit before Income tax & Credit Impairment, Net loans and advances)
Reference for data (Heartland): AR2015, AR2014 Statement of Comprehensive Income Operating profit, Statements of Financial Position)





UDCHeartland


EBTLoan BookEBT/Loan BookEBTLoan BookEBT/Loan Book


FY2009$34.024m$1,829.156m1.86%


FY2010$45.012m$1,968.771m2.29%


FY2011$46.382m$1,948.552m2.38%


FY2012$58.476m$2,014.473m2.90%$29.377m$2,078.276m1 .41%


FY2013$66.787m$2,065.117m3.23%$36.540m$2,010.376m1 .82%


FY2014$83.501m$2,272.081m3.68%$57.416m$2,607.393m2 .20%


FY2015$89.750m$2,347.163m3.82%$76.304m$2,862.070m2 .67%


FY2016$88.835m$2,573.030m3.45%$87.689m$3,113.957m2 .82%



Note:

1/ UDC data for FY2016 is drawn from the 'UDC Finance Annual Report 2016' 'Statement of Comprehensive Income' (EBT) and 'Balance Sheet' (Loan Book Balance).
2/ Heartland Bank data for FY2016 'Statement of Comprehensive Income' (EBT) and 'Statement of Financial Position' (Loan Book Balance).
3/ All EBT figures are before 'credit and impairment charge'.

Note that the absolute figures year to year are not comparable between UDC and Heartland. This is because Heartland has a physical branch structure whereas UDC works out of ANZ bank branches. The inter company year on year trend is interesting though. For the first time we see Heartland's earnings to loan book ratio rising, as the equivalent UDC metric is falling. For all previous comparative periods this measure has been moving in the same direction for both UDC and Heartland.

SNOOPY

[Snoopy]

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 (FY2015)UDC (FY2015)


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.




HNZ (FY2016)UDC (FY2016)


Agriculture Forestry & Fishing: $680.680m (19.7%) $494.192m (18.6%)


Mining: $14.912m (0.4%) $11.428m (0.4%)


Manufacturing: $88.412m (2.7%) $66.429m (2.5%)


Finance & Insurance: $339.646m (9.8%) $88.535m (3.3%)


Retail & Wholesale Trade: $296.550m (8.6%) $342.734m (12.9%)


Households: $1,498.261m (43.3%) $640.521m (24.1%)


Property & Business Services $405.469m (11.7%)$133.353m (5.0%)


Transport & Storage: $26.715m (0.8%)$460.450m (17.3%)


Other Services: $110.747m (3.2%) $418.199m (15.7%)



Total for Heartland $3,461.4m (100%) , with the collectively impaired assets yet to be adjusted for. This equates to a loan book YOY growth of 6.5%.

Total for UDC $2,655.8m (100%), with credit impairment already adjusted for. This equates to a loan book YOY growth of 9.3%.

My question is, can any of the underperformance of UDC in 'underlying earnings terms' be explained by the markets both UDC and Heartland are lending into?

Looking at the year on year figures, comparing each company to itself one year earlier, I am struck by the following observations:

1/ Heartland's rural loan book grew by 19% YOY. UDC's rural loan book only grew by 8% YOY. One explanation is that Heartland was more generous in rolling over marginal rural loans. This was confirmed on p7 of Heartland AR2016

"Despite the difficult circumstances facing the dairy industry, Heartland continues to support existing clients – which was the primary reason for the growth."

Some might see that as a high risk strategy, as this rollover growth decreased cashflow. Recent dairy price recovery in particular suggests that if a high risk gamble was made, it has paid off.

2/ Heartland's 'finance & insurance' book shrunk by 10% YOY. UDC's 'finance & insurance' book grew by 2% YOY. In big picture terms, finance and insurance is far more important to Heartland (nearly 10% of all business vs only just over 3% for UDC). Curiously the shrinkage of 'finance and insurance' at Heartland came in the year that Heartland acquired the 50% of Marac Insurance (general insurance and income protection) they did not own for $2.3m (a small fish acquisition?). So it must be the 'finance' bit of 'finance & insurance' that did most of Heartland's sector shrinking. Reading through the Heartland annual report, I can't find a mention of any business unit shrinking. So I am mystified as to where the shrinkage in the 'finance & insurance' book at Heartland came from. Given the evidence is that this shrinkage probably did Heartland more good than harm I am interested in solving this riddle. Any ideas? Did Heartland wind up some less profitable loans to large businesses during the year? (refer to p26 of Annual Results 2016 presentation).

3/ UDC are very up front that financing construction is part of their business mix. Heartland do not report 'construction' as a separate business category. So I have combined UDC's 'Construction' figures into the broad 'other services' basket.

UDC construction loans totalled $355.757m at EOFY2016, up from $344.072m at EOFY2015, and a not insignificant 13% of the total loan book. This construction increase of 3% YOY, is well below the average 9.3% YOY growth for the whole of UDC. One explanation for this modest growth is that some construction projects have become problematic. Developer margins have shrunk and UDC margins on these developments have shrunk consummately. Many fortunes have been made on property over the years. But less well advertised is that many have been lost through risky property development. I have heard anecdotal evidence that property developments around Auckland have been shelved. Are UDC feeling the construction pain?

SNOOPY

[Snoopy]

Can't find a 'prospectus 70' that details the performance of UDC over FY2016.

It also seems that the previous links to past year prospectuses that I have given have been wiped by the company. I am always suspicious of companies that try to obliterate their financial history.


According to the HY2016 UDC news sheet, regulations may be to blame:

"Another development that we are currently working towards is transitioning to the new Financial Markets Conduct Act 2013 (FMCA). The FMCA overhauls existing securities and financial markets laws. For UDC this means a change to the offer documents that are produced and instead of a Prospectus and an Investment Statement there will be single product disclosure statement. In addition, all UDC’s material information will be available on a public register known as the Disclose Register where all similar offers will be available to view. We hope to be in a position to transition in the next few months but will keep you posted."

Personally I don't buy it. It should be possible to satisfy legal requirements without obliterating your comparative measures of company history and a formal annual commentary.

SNOOPY

[percy]

Snoopy,
I have always looked at UDC results and taken them as an indicator of how HBL will be performing,as both businesses are in the same sector and very well run.
However,this year it is different,because UDC is being put up for sale.This means the buyer will want to look at their accounts.I take it they will therefore have to show an "honest" factual set of accounts.This will mean the "special" tie up with ANZ will have to be unwound.Maybe the accounts for the last 3 years will have to be redone.?
So comparing HBL which is growing and has "clean" accounts,with UDC which has to tidy up their business and accounts could be another futile exercise.
The worthwhile exercise will be comparing the ratios UDC is sold for,with HBL's...
I expect that will raise a few eyebrows.!
The fun question is why do ANZ want to sell UDC to the Chinese, and not HBL,and what will that mean to UDC's staff and customers?
I expect the answers to all questions is,Heartland Bank is "well positioned."

[Snoopy]

Snoopy,
I have always looked at UDC results and taken them as an indicator of how HBL will be performing,as both businesses are in the same sector and very well run.
However,this year it is different,because UDC is being put up for sale.This means the buyer will want to look at their accounts.I take it they will therefore have to show an "honest" factual set of accounts.


With finance companies I have always associated 'honesty' with taking a realistic view on compromised loans and the amount of money realistically recoverable. Interestingly, the annual provision for bad loans at UDC was lower in FY2016 than FY2015. That in turn allowed UDC to declare a higher NPAT YOY, even though the underlying profit (before bad loan provision) was lower. However, I have yet to do my more forensic analysis on UDC's bad debt position.



This will mean the "special" tie up with ANZ will have to be unwound. Maybe the accounts for the last 3 years will have to be redone?


Rather vaguely in the latest 'Product Disclosure Statement', UDC disclose that up to 20% of their exposure is to related parties as a percentage of capital (p15). These related parties include ANZ (big surprise there ;-P). It wouldn't surprise me if 19.9% of related party exposure relates to ANZ, with ANZ being the 100% owner of UDC.

So could UDC suffer a sudden 20% decline in business overnight if it is sold? This is possible, although no doubt there will be an earn out provision for whoever buys UDC if profits remain above a certain target. In that circumstance it wouldn't make sense for ANZ to suddenly pull all their related business from UDC.



So comparing HBL which is growing and has "clean" accounts,with UDC which has to tidy up their business and accounts could be another futile exercise.


Personally I still think the comparison still has merit, although I acknowledge your concerns are realistic and the UDC window dressing is something to be watched.



I expect the answers to all questions is, Heartland Bank is "well positioned."


I could have explained the relative performance of both by saying the Heartland outperformance was due to "the brilliance of Heartland CEO Geoff Greenslade." Some investors here I imagine would be very satisfied with such an explanation. For myself, I like to look for the layer below that, just in case Geoff was to make an untimely exit under the wheels of a bus (not that I would wish for such a thing, but accidents do happen).

SNOOPY

PS Happy new year to you Percy

[percy]

Snoopy,
Happy new year to you too Snoopy.
Yes JEFF Greenslade has done a great job,but really what I guess I am trying to convey is ,the past year UDC have had to concentrate on getting their business ready for sale,while Heartland have been able to concentrate on growing their business.Very different objectives.Some one buying UDC must know what UDC is without ANZ.
To me it means UDC have had their hands tied,and that is the real reason HBL have outperformed them.

[Bobdn]

Good start to the New Year for ANZ (ASX). Up 1.5% so far. From the SMH

"ANZ is selling its stake in a Chinese bank for $1.8 billion, will use proceeds to beef up Tier 1 capital"

For more check out: http://www.smh.com.au/business/banking-and-finance/banks-in-us185-billion-retreat-from-asia-20161214-gtapf2.html

[Snoopy]

Updating the actual bad debt write offs in relation to the size of the loan book at the end of FY2015. Section 7 in the UDC 2015 prospectus is named "Provision for Credit Impairment". Bad debts actually written off are compared against the 'provision for loan impairment' stated on page 32, the 'Summary Financial Statement', which were $10.427m (FY2015) and $11.733m (FY2014).



UDCBad Debt Write OffNew Bad Debt Provision


FY2010$17.343m


FY2011$4.891m


FY2012$10.164m$6.031m


FY2013$12.399m$7.123m


FY2014$18.633m$11.733m


FY2015$12.162m$10.427m



Actual write offs are down, coming off a spike from FY2014

Putting these actual write offs as a percentage of the end of year loan book gives them better context.

FY2012: $10.164m/$2,014.473m = 0.505%
FY2013: $12.399m/$2,065.117m = 0.600%
FY2014: $18.633m/$2,272.081m = 0.820%
FY2015: $12.162m/$2,347.163m = 0.518%

This is an improvement back towards FY2012 values.

For comparative purposes, it is informative to look 'over the fence' to Heartland Bank. Note 6 (AR2015) details impaired asset expense as follows:

FY2012: $5.642m
FY2013: $22.527m
FY2014: $5.895m
FY2015: $12.105m

Normalize these against the total finance receivables

FY2012: $5.642m/ $2078.3m = 0.271%
FY2013: $22.527m/ $2010.4m = 1.12%
FY2014: $5.895m/ $2607.4m = 0.226%
FY2015: $12.105m/ $2862.1m = 0.423%

It is interesting to see that Heartland's write offs are increasing whereas UDC write offs are decreasing. The overall write offs for Heartland are nevertheless still less in percentage terms than UDC.



UDC Debt Write OffHeartland Debt Write Off


FY20120.505%0.271%


FY20130.600%1.12%


FY20140.820%0.226%


FY20150.518%0.423%





Updating the actual bad debt write offs in relation to the size of the loan book at the end of FY2016. Section 7 in the UDC 2016 Financial Statements is named "Provision for Credit Impairment". Bad debts actually written off are compared against the 'provision for loan impairment' stated on page 3, the 'Statement of Comprehensive Income'.



UDCBad Debt Write OffNew Bad Debt Provision


FY2010$17.343m


FY2011$4.891m


FY2012$10.164m$6.031m


FY2013$12.399m$7.123m


FY2014$18.633m$11.733m


FY2015$12.162m$10.427m


FY2016$11.055m$7.418m



Actual write offs look to be in a range of $10m to $12m, excluding the spike from FY2014

Putting these actual write offs as a percentage of the end of year loan book gives them better context.

FY2012: $10.164m/$2,014.473m = 0.505%
FY2013: $12.399m/$2,065.117m = 0.600%
FY2014: $18.633m/$2,272.081m = 0.820%
FY2015: $12.162m/$2,347.163m = 0.518%
FY2016: $11.055m/$2,573.030m = 0.430%

For FY2016, UDC has the lowest percentage of write offs for the last five years.

For comparative purposes, it is informative to look 'over the fence' to Heartland Bank. Note 6 (AR2016) to work out the latest details of 'impaired asset expense' as follows:

FY2012: $5.642m
FY2013: $22.527m
FY2014: $5.895m
FY2015: $12.105m
FY2016: $13.501m

Normalize these against the total finance receivables

FY2012: $5.642m/ $2078.3m = 0.271%
FY2013: $22.527m/ $2010.4m = 1.12%
FY2014: $5.895m/ $2607.4m = 0.226%
FY2015: $12.105m/ $2862.1m = 0.423%
FY2016: $13.501m/ $3114.0m = 0.434%

The nomalised write offs for UDC and Heartland have very curiously converged to close agreement!



UDC Debt Write OffHeartland Debt Write Off


FY20120.505%0.271%


FY20130.600%1.12%


FY20140.820%0.226%


FY20150.518%0.423%


FY20160.430%0.434%



SNOOPY

[Biscuit]

The nomalised write offs for UDc and Heartland have very curiously converged to close agreement!
SNOOPY

Curiously converged, or just very similar on average?

[Snoopy]

Curiously converged, or just very similar on average?


You could certainly argue that bad debts, as in actual debt write offs as a percetage of the loan book, have now converged to the same percentage of the loan book for both UDC and Heartland. For two 'similar' companies in the NZ finance market that is exactly what I would expect.

I wrote 'curioiusly converged' because I don't understand why they were so different in previous years. If the annual impaired asset expense was not the same (2012 to 2015 inclusive), then I would take this as evidence that the two companies were not strictly comparable. And maybe the fact that the impaired asset write off as a percentage is now the same is just a one year anomoly? If the two companies are different, then I would like to understand 'how'. Any theories out there?

My theory is this (hot off the press). The Aussie banks have been under pressure to hold more capital to prop up their loan books. By having the NZ finance arm as a separate company, the ultimate ANZ parent in Australia, does not need the keep extra capital on their own balance sheet to support UDC. However, with a large collection of 'risky loans' shuffled off and tied up together in a UDC box, it would be natural to expect a higher percentage of loans than the finance industry average to be written off. Hence the reason UDC has had a comparatively high rate of loan write offs. Plausible?

SNOOPY

[Snoopy]

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


JudgementTotal


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


BehaviouralJudgementTotal


ArrangementNon Performing RepossessionRecoveryGrade 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:



UDCHeartland


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$1,111.892m3.46%$2,141,780m1.79%$8.032 m$287.118m2.80%$2,086.303m0.785%


2013$37.460m$1,265.765m2.95%$2,198,653m1.70%$15.96 1m$278.051m5.74%$2,026.337m0.788%


2014$31.805m$938,899m3.38%$2,375.936m1.34%$14.999m $159.338m9.41%$2,622,392m0.571%


2015$31.529m$1,018,134m3.10%$2,461.224m1.28%$16.43 3m$149.011m11.0%$2,878,513m0.571%





Note 11d (page 17 UDC Financial Statements for FY2016), 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


JudgementTotal


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


2016$1,127.677m +$96.727m +$17.657m$1,242.061m



The grade 6 and 'more risky' categories for EOY2016 added up represents a fraction of the total loans outstanding as follows:

$1,242.061m / $2,684.750m = 46.3% of total loan assets.

The Credit impairment provision on the books, not yet removed from the above total, is noted as $28.909m (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 'more risky' 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:

$204.029m / $3,135.203m = 6.51% of total loan assets.

Some impairment ($16.259m) (Note 18b) has already been taken onto the book over the years. Add to this a reverse mortgage fair value adjustment of ($4.987m) This total impairment of $21.246m represents

$21.246m / $175.428m = 12.1% of the Grade 6 (monitor) and below grade assets.



Heartland Vulnerable Loans


BehaviouralJudgementTotal


ArrangementNon Performing RepossessionRecoveryGrade 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


2016$14.923m$6.507m$7.171m$125.902m +$20.434m +$16.904m +$12.188m$204.029m



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



UDCHeartland


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$1,111.892m3.46%$2,141,780m1.79%$8.032 m$287.118m2.80%$2,086.303m0.785%


2013$37.460m$1,265.765m2.95%$2,198,653m1.70%$15.96 1m$278.051m5.74%$2,026.337m0.788%


2014$31.805m$938,899m3.38%$2,375.936m1.34%$14.999m $159.338m9.41%$2,622.392m0.571%


2015$31.529m$1,018,134m3.10%$2,461.224m1.28%$16.43 3m$149.011m11.0%$2,878.513m0.571%



2016$28.909m$1,242.061m2.33%$2,684.750m1.08%$21.24 6m$204.029m10.4%$3,135.203m0.678%



SNOOPY

[Biscuit]

You could certainly argue that bad debts, as in actual debt write offs as a percetage of the loan book, have now converged to the same percentage of the loan book for both UDC and Heartland. For two 'similar' companies in the NZ finance market that is exactly what I would expect.

I wrote 'curioiusly converged' because I don't understand why they were so different in previous years. If the annual impaired asset expense was not the same (2012 to 2015 inclusive), then I would take this as evidence that the two companies were not strictly comparable. And maybe the fact that the impaired asset write off as a percentage is now the same is just a one year anomoly? If the two companies are different, then I would like to understand 'how'. Any theories out there?

My theory is this (hot off the press). The Aussie banks have been under pressure to hold more capital to prop up their loan books. By having the NZ finance arm as a separate company, the ultimate ANZ parent in Australia, does not need the keep extra capital on their own balance sheet to support UDC. However, with a large collection of 'risky loans' shuffled off and tied up together in a UDC box, it would be natural to expect a higher percentage of loans than the finance industry average to be written off. Hence the reason UDC has had a comparatively high rate of loan write offs. Plausible?

SNOOPY

I don't think that is indicated by the data. Simply because: 1. over the 5 years they are not on average different; 2. in the last two years they have been very similar so you would need to argue that even if they were in fact different in earlier years, something specific has changed in the last two years to make those recent years not representative of the underlying difference. My thoughts from your data is that they are much the same.

[macduffy]

I don't think that is indicated by the data. Simply because: 1. over the 5 years they are not on average different; 2. in the last two years they have been very similar so you would need to argue that even if they were in fact different in earlier years, something specific has changed in the last two years to make those recent years not representative of the underlying difference. My thoughts from your data is that they are much the same.

Furthermore, it would seem to be a strange move by ANZ to sell off its finance arms - Esanda had been sold previously - if it had been using them to quarantine its more risky loans from the increased/increasing capital requirements these days. I think that you're following a false scent there, Snoopy!

[Snoopy]

Furthermore, it would seem to be a strange move by ANZ to sell off its finance arms - Esanda had been sold previously - if it had been using them to quarantine its more risky loans from the increased/increasing capital requirements these days. I think that you're following a false scent there, Snoopy!

Good point Macduffy, re Esanda.

But to further explain, my thinking was on the following lines. If the ANZ parent was a fully New Zealand owned company, then having a 100% owned subsidiary UDC woudl not change the risk required to be presented to ANZ shareholders. That's because the 100% owned subsidiary UDC would have to be consolidated into the 'parent' ANZ New Zealand accounts anyway. However, ANZ is fundamentally an Australian commpany. Could it be that they are not required to consoldiate an obscure NZ sudsidiary (UDC) from a shakey country in the South Pacific (New Zealand) in the ultimate parent Australian ANZ accounts? Anyone know?

SNOOPY

[macduffy]

I think so, Snoopy. The Basel 111 documentation seems to me to imply that if profit accounting for a subsidiary is included in a bank's published results then that subsidiary is also included in the capital requirements calculations. Happy to be corrected or confirmed on this.

[Snoopy]

UDC Debt Write OffHeartland Debt Write Off


FY20120.505%0.271%


FY20130.600%1.12%


FY20140.820%0.226%


FY20150.518%0.423%


FY20160.430%0.434%


Average0.574%0.495%


Average Removing Highest Outlier0.513%0.339%





I don't think that is indicated by the data. Simply because: 1. over the 5 years they are not on average different; 2. in the last two years they have been very similar so you would need to argue that even if they were in fact different in earlier years, something specific has changed in the last two years to make those recent years not representative of the underlying difference. My thoughts from your data is that they are much the same.

I guess you could look at the data and see that they are all fractions of a percent and so not much different. Note that I have added a couple of averages to the data chart one showing a 14% difference , the other showing a 34% difference, between what some may see still as 'small figures' in the grand scheme of things.

However, if I was to express the data in a different way, as a percentage of profits, you can see that the numbers I am talking about (teh annual impaired asset expense) are not so small.

UDC FY2016

$11.055m / $58.537m = 18.9%

Heartland FY2016

$13.501m / $54.164m = 24.9%

In practical terms, if Heartland are under-reporting their bad debts by up to one third, they are presenting a false PE picture to the market. They could be overstating their annual profit by around 8%. If a 'well informed market' prices Heartland shares at $1.50, that would mean a 'better informed market' would value the Heartland share price at $1.38. Being falsely lead to believe that your Heartland shares are worth 8% more than they actually are, I would think might be of great interest to Heartland investors. And it all comes about because of what some would see as a 'tiny' difference bad debt valuation.

Of course even we dogs can sometimes see patterns when none actually exist. So I wouldn't discount your alternative view that here really is no difference in the figures Biscuit.

SNOOPY

[Snoopy]

I am trying to put the information below into a format so that it can be compared with Heartland Bank (my post 7700 on the Heartland thread) over the same period.



Heartland


Date'Stressed' Loans on the books (X)
Net Financial Receivables (Impairments deducted) (Y)
(X)/(Y) Write Offs (W)
Gross Financial Receivables (Z)(W)/(Z)


EOHY2012$87.728m$2,075.211m4.23%$12.138m+$1.685m$2 ,104.591m0.66%


EOFY2012$90.489m$2,078.276m4.35%$14.636m+$3.180m$2 ,105.702m0.85%


EOFY2013$48.975m$2,010.393m2.43%$6.679m+$1.961m$2, 060.867m0.42%


EOFY2014$41.354m$2,607.393m1.59%$35.258m+$3.260m$2 ,631.754m1.46%


EOFY2015$32.824m$2,862.070m1.15%$1.555m+$1.910m$2, 893.704m0.12%




Unfortunately there are little differences in reporting standards that make this difficult.

For example, Heartland have a class of loans called 'Judgement Loans'. They pass annual judgement on these loans by rating them on a scale of 1 to 9 plus 'default'.
There is a second broad category called 'Behavioural Loans' which are separately rated, not using a scale.

UDC appear to rate all of their loans on a scale of 1 to 8 plus default (UDC prospectus December 2015, note 11d). I have previously defined UDC 'Vulnerable Loans' as classes 6,7 and 8. But category 6 is very large. So I am now going to change my mind and talk about 'Stressed Loans' which are calculated by:

Take loan total from categories 7 and 8
add 'Default' loans
less Provision for Credit Impairment.

I have redefined the 'Total Financial Assets' as listed in note 11d to be 'Net Financial Receivables'.



UDC


Date'Stressed' Loans on the books (X)
Net Financial Receivables (Impairments deducted) (Y)
(X)/(Y) Impaired Asset Expense (W)
Gross Financial Receivables (Z)(W)/(Z)


EOFY2011$126.218m$2,007.012m6.29%$15.103m
$2,049.504m0.74%


EOFY2012$96.670m$2,102.299m4.60%$10.164m$2,141.780 m0.47%


EOFY2013$86.877m$2,161.193m4.02%$12.399m
$2,198.653m0.56%


EOFY2014$95.364m$2,344.131m4.07%$18.633m
$2,375.936m0.78%


EOFY2015$82.267m$2,429.695m3.39%$12.162m$2,461.224 m0.49%



There are a couple of outlier points to note. The EOFY2011 X/Y is quite high. Over FY2014, the impairment expense for that year is larger than normal. But generally this picture is much steadier than the equivalent figures for Heartland. I realise comparing just two companies is no way to draw conclusions about one or the other verses their peers. But unfortunately most of those peers got wiped out in the GFC :-(

OK back to this comparison. The 'stressed loans' at UDC are typically three times the 'stressed loans' at Heartland when compared on a normalised basis. Furthermore the actual annual impaired asset expense at UDC is roughly twice that at Heartland. OK there are differences between the two companies. But not differences that would suggest such a wide divergence in comparative statistics. There is another key difference though!

Heartland is a listed company. But UDC is not listed. This means there are no UDC performance shares to vest for UDC managers. No incentive to massage the UDC loan books. The UDC accounts tell a consistent story in a way the Heartland accounts do not. IMO the UDC are consistent in presenting a picture of 'real' profits in the way the Heartland accounts may not , if Heartland have deliberately underestimated their 'Stressed' debts.


During FY2016 'Heartland New Zealand Limited' and 'Heartland Bank Limited' combined into a single listed entity.

Heartland in their breakdown of the 'Asset Quality of Financial Receivables' (AR2016 Note 19a) list the following three mutually exclusive problem loan categories.

a/ Loans at least 90 days past due.
b/ Loans individually impaired.
c/ Restructured assets.

these loans are partially written off, and accounted for in the 'Provision for Impairment' (a separate listing category, d/).

My definition of a Heartland 'stressed loan' total can be calculated as follows:

'Stressed Loan Total' = (a)+(b)+(c)-(d)

The column (W) lists the actual dollar amount in bad debts written off over that period, as detailed in AR2016 note 19e.



Heartland


Date'Stressed' Loans on the books (X)
Net Financial Receivables (Impairments deducted) (Y)
(X)/(Y) Write Offs (W)
Gross Financial Receivables (Z)(W)/(Z)


EOHY2012$87.728m$2,075.211m4.23%$12.138m+$1.685m$2 ,104.591m0.66%


EOFY2012$90.489m$2,078.276m4.35%$14.636m+$3.180m$2 ,105.702m0.85%


EOFY2013$48.975m$2,010.393m2.43%$6.679m+$1.961m$2, 060.867m0.42%


EOFY2014$41.354m$2,607.393m1.59%$35.258m+$3.260m$2 ,631.754m1.46%


EOFY2015$39.066m$2,862.070m1.36%$1.555m+$1.910m$2, 893.704m0.12%


EOFY2016$37.851m$3,113.957m1.21%$12.010m+$6.653m$3 ,135.203m0.60%



The objective here is to take the Heartland figures and compare those to the equivalent figures for UDC. There are little differences in reporting standards that make this difficult.

For example, Heartland have a class of loans called 'Judgement Loans'. They pass annual judgement on these loans by rating them on a scale of 1 to 9 plus 'default'.
There is a second broad category called 'Behavioural Loans' which are separately rated, not using a scale.

UDC appear to rate all of their loans on a scale of 1 to 8 plus default (UDC Financial Statements 2016, note 11d). I have previously defined UDC 'Vulnerable Loans' as classes 6,7 and 8. But category 6 is very large. So I am now going to change my comparative and talk about 'Stressed Loans' which are calculated by:

Take loan total from categories 7 and 8
add 'Default' loans
less Provision for Credit Impairment.

I have redefined the 'Total Financial Assets' as listed in note 11d to be 'Net Financial Receivables', because they have already had their 'Provision for Credit Impairment' deducted.



UDC


Date'Stressed' Loans on the books (X)
Net Financial Receivables (Impairments deducted) (Y)
(X)/(Y) Impaired Asset Expense (W)
Gross Financial Receivables (Z)(W)/(Z)


EOFY2011$126.218m$2,007.012m6.29%$15.103m
$2,049.504m0.74%


EOFY2012$96.670m$2,102.299m4.60%$10.164m$2,141.780 m0.47%


EOFY2013$86.877m$2,161.193m4.02%$12.399m
$2,198.653m0.56%


EOFY2014$95.364m$2,344.131m4.07%$18.633m
$2,375.936m0.78%


EOFY2015$82.267m$2,429.695m3.39%$12.162m$2,461.224 m0.49%


EOFY2016$85.475m$2,655.841m3.22%$11.055m$2,684.750 m0.41%



The key point to note here is that the 'impaired loan expense' / 'write offs' (represented by letter 'W' in each case) only occur when that portion of the loan has gone through the whole loan review system and is 'done and dusted'. OTOH 'Stressed Loans' are very much a judgement call by management.

They may
1/ recover,
2/ stay stressed or
3/ have to be written off.

As a shareholder in either ANZ or Heartland, I would hope that management would have a robust process that identifies problem loans before they have to be written off. So as a shareholder I would hope such loans were seen as 'stressed' before an actual write off was declared. So how to check that this is what happens in reality? One way is to look at the 'stressed loans' for both companies on an annual trending basis and see how this compares with the equivalent trend in write offs.

In the case of both UDC and Heartland, the normalised stressed loan percentage is consistently going down. However, the actual write offs per year are not going down in proportion. One interpretation of this is that both companies are assuming a lower number of loan write offs will be necessary in the future (because stressed loans are reducing). However, because this is not happening, this could suggest that both companies are pumping their declared results by making insufficient stressed asset provisioning for the future.

Alternatively it could mean that both companies are getting much better at identifying what are really stressed loans, and that allows them to have relatively lower stressed asset monitoring.

SNOOPY

[Snoopy]

UDCBad Debt Write OffNew Bad Debt Provision


FY2012$10.164m$6.031m


FY2013$12.399m$7.123m


FY2014$18.633m$11.733m


FY2015$12.162m$10.427m


FY2016$11.055m$7.418m





I have been plastering a fair bit of data on this thread of late. Like all data you can choose to interpret it in different ways. But now I want to change tack and tell a few stories. Dig into these cautionary tales and you might get an insight into what I think all this data means.

-----

The modern school teacher is under a lot of stress. Badly behaved pupils are a distraction for those who want to learn. Yet just becasue a pupil is badly behaved this does not mean it is a permanent condition. In simple terms a badly behaved pupil will:

a/ Come right
b/ Continue to be badly behaved
c/ Become so badly behaved that expulsion is the only resort left.

Generally bad behaviour will require some kind of monitoring. I would like to contrast the approach of two different schools. In a futile attempt to keep their identities secret, let's call them 'School H' and 'School U'.

'School H' has a strong monitoring regime but has a policy of keeping classes together. 'School U' also has a strong monitoring regime. But, unlike 'School H', the badly behaved students are transferred to a special stand alone classroom. There they can receive special attention away from their well behaved classmates. Some say there is no such thing as a 'well behaved' or 'badly behaved' pupil. Even the best pupil has the potential to go off the rails. But by putting the known badly behaved pupils out of sight, the bad behaviour problem can seem less to the casual school visitor. In 'School U', rather than wait for a pupil to 'go bad', we can instead consider those pupils in the normal class that are vulnerable. 'Vulnerable' is a term that is subject to a teachers judgement. So when the school inspectors come around, the teachers can adjust the number of 'vulnerable pupils' to make the class look better.

Back in 'School H' the teachers have no such luxury. If bad behaviour deteriorates, there is no half way 'holding pen'. Those pupils go out on the street. Yes it looks bad to the school inspectors. But really bad pupils must go. Contrast this to 'School U' where the really bad pupils in the separate class are quietly let out of the back door of the bad room. The school inspectors often don't see the 'bad room' buried out the back of the school. It is there if they look, but many choose not to. The pupils slipping out of the back of the bad room are quietly out of sight of the public eye.

In 'School H' bad pupils are thrown out of the front door by the deputy headmaster. In 'School U' propensity to badness is adjustable at the discretion of the teachers. There is an old expression 'Bad will ultimately bust out!" But if you can keep how bad things are getting out of the public eye for a while, and that gets the headmaster a pay rise as a result, why not do it?

SNOOPY

PS Just in case you haven't joined the dots. 'School H' represents 'Heartland bank', 'School U' represents 'UDC Finance', the 'bad pupils' are the 'bad loans' and the 'bad pupils classroom' is the UDC bad loan provisioning system.

[Bobdn]

I have been plastering a fair bit of data on this thread of late. Like all data you can choose to interpret it in different ways. But now I want to change tack and tell a few stories. Dig into these cautionary tales and you might get an insight into what I think all this data means.

-----

The modern school teacher is under a lot of stress. Badly behaved pupils are a distraction for those who want to learn. Yet just becasue a pupil is badly behaved this does not mean it is a permanent condition. In simple terms a badly behaved pupil will:

a/ Come right
b/ Continue to be badly behaved
c/ Become so badly behaved that expulsion is the only resort left.

Generally bad behaviour will require some kind of monitoring. I would like to contrast the approacjh of two different schools. In a futile attempt to keep their identities secret, let's call them 'School H' and 'School U'.

'School H' has a strong monitoring regime but has a policy of keeping classes together. 'School U' also has a strong monitoring regime. But, unlike school H the badly behaved students are transferred to a special stand alone classroom. Ther they can receive special attention away from their well behaved classmates. Some say there is no such thing as a 'well behaved' or 'badly behaved' pupil. Even the best pupil has the potential to go off the rails. But by putting the known badly behaved pupils out of sight, the bad behaviour problem can seem less to the casual school visitor. Rather than wait for a pupil to 'go bad', we can instead consider those pupils in the normal class that are vulnerable. 'Vulnerable' is a term that is subject to a teachers judgement. So when the school inspectors come around the teachers can adjust the number of vulnerable pupils to make the class look better.

Back in School H the teachers have no such luxury. If bad behaviour deteriorates, there is no 'holding pen'. Those pupils go out on the street. Yes it looks bad to the school inspectors. But really bad pupils must go. Back in School U the really bad pupils in the separate class are quietly let out of the back door. The school inspectors often don't see the 'bad room' buried out the back of the school

SNOOPY

Snoopy,is ANZ a big part of your portfolio?

[Snoopy]

Snoopy,is ANZ a big part of your portfolio?

ANZ is one of my bigger holdings, yes. And the weird thing is, I know less about ANZ now that when I first invested in ANZ all those years ago ;-P

SNOOPY

[Snoopy]

The definition of a 'write off' is not ambiguous. When an asset is gone it is gone! Other categories of loan risk are more fluid. There is not a consistant nomenclature for players in the industry to use. I have used the term 'vulnerable loans ' to mean something lesser on the problem scale than 'stressed loans'. But both of these are lesser problem child categories than the term 'Write Off'. Specifically for UDC and Heartland, the definitions that I have used look like this:



UDC Finance CategoriesHeartland Behavioural CategoriesHeartland Judgement Categories


Snoopy 'Vulnerable Loans'
Loan Categoriy 6
plus Loan Categories 7 and 8
plus 'Default' loans
{Note: There is no loan category 9}

Arrangement
plus Non Performing/Repossession
plus Recovery
Grade 6 - Monitor
plus Grade 7 - Substandard
plus Grade 8 - Doubtful
plus Grade 9 - At Risk of Loss



Snoopy 'Stressed Loans'
Loan Categories 7 and 8
plus 'Default' loans
less Provision for Credit Impairment.
{Note: There is no loan category 9}

a/ Loans at least 90 days past due
plus b/ Loans individually impaired .
plus c/ Restructured assets.
less d/ Provision for Impairment

a/ Loans at least 90 days past due
plus b/ Loans individually impaired .
plus c/ Restructured assets.
less d/ Provision for Impairment



The above definitions are not definitive. I am simply tabulating them so that readers can get a comparative sense of what I am talking about.

'Vulnerable Loans' was my first attempt at deciding what kind of loans might be considered to be 'at risk' of going bad. The problem was that 6.51% of Heartland loans were considered 'vulnerable' by my definition whereas 46.3% of UDC loans met by definition of 'vulnerable'. Clearly there was a disconnect. Comparing equivalent figures 'UDC to Heartland' was not going to work. All was not lost though. The trends within each individual company 'year to year' were worth following.

In both the Heartland 'Judgement' and 'Behavioural' loan portfolios, the provision for collectively impaired assets was taken off ther table after all the loan categorization judgements were made. The 'Finance Receivables' as listed on the 'Statement of Financial Position' has the collective impairment provision removed from the books.

With UDC the provision for collectively impaired assets was again taken off the table after all the loan categorization judgments were made (note 11d). The 'net loans and advances' as listed on the 'balance sheet' has the collective impairment provision removed from the books.

However, in neither case did I remove the credit impairment from my 'Vulnerable Loan' statistic.

In my second statistic I did remove the credit impairment from my newly named 'Stressed Loans' category. I am not sure if that was an improvement or not! Effectively I am saying that an impaired loan written 'off the books' is no longer stressed. I am also drawing a line in the sand between 'Stressed Loans' and 'Impaired Loans'. I thought this was useful as I wanted to see if the movement of 'Stressed Loans' and 'Impaired Loans' showed a distinct correlation over time between my self defined 'Stressed' and 'Impaired' categories. The idea here was that if a loan (or more correctly portion of a loan) started out 'stressed' before it became 'impaired', one might expect a time slipped correlation between the two. However, 'stressed loans' might be more a 'judgement watch' event which is dependent on the biases of management. OTOH an impaired loan would surely require some management intervention that directly flows through to the account. So there exists the possibility that staff could downplay the number of 'stressed loans' to make the books look better than they really are to management.

For Heartland particularly in FY2014 and FY2016, the write offs are a very high percentage of the stressed loans. For example the 'Cover Ratio' ('Normalised Stressed Loans' to 'Normalised Write Offs') has shrunk from 11 at EOFY2015 to just to 2 at EOFY2016. And one explanation for this might be that the 'Stressed Loans' are being seriously underestimated by Heartland in FY2016 (nothing to worry about in immediate company performance terms in that ). But consequently the 'Impaired Loans' of the future might be being underestimated too. And that could be cause for concern by Heartland shareholders.

SNOOPY

[Bobdn]

One of my bigger holdings too. Second biggest after Genesis

[Biscuit]

One of my bigger holdings too. Second biggest after Genesis

I bought a few ANZ shares after the GFC knocked the Aussie banks (probably irrationally -tarred with the same brush). Still hold, but have never bought more than a very small holding because I simply could not understand their financials - they are way too complicated for me to make head nor tail of, and I nearly only invest if the accounts are straightforward.

Many years ago, when I was a nipper, I owned shares in Capital Markets (NZ public company, set up and majority owned by the merchant bankers Fay, Richwhite and Co). I eventually sold as they didn't seem to me to be going anywhere. I wondered at the time if Capital Markets was set up by F,R & Co to spread the pain on their poorest performing deals, but I didn't have any reason to think that except a naturally suspicious mind. I guess if ANZ were using UDC to gild the lily, then you would see that in the debt write-off data.

[Bobdn]

Wish I had had the good sense to buy straight after the GFC.

[macduffy]

Wish I had had the good sense to buy straight after the GFC.

Yes, retrospective investing is the best kind!

My biggest "miss" was not buying enough WBC after the big slump in that bank's shares in the early "90's!

[Biscuit]

Wish I had had the good sense to buy straight after the GFC.

My average buy in was around $20, but that was back in 2009 so pretty crappy investment really. They did well initially I think but gone nowhere for a few years now.

[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 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.NZUDCUnderlying 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.



FY2014FY2015


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




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:

1/ Slightly rearrange the ANZ (NZ) categories (ANZ September 30th 2016 Bank Disclosure Statement, p29) so that they correspond to those listed in the UDC FY2016 Financial Statements. THEN
2/ I need to subtract the UDC equivalent figures (page 17, UDC FY2016 Financial Statements) to get the underlying ANZ bank figure.

(Note: Receivables for UDC in industry groups are listed after provisions for credit impairment are taken into account. OTOH, receivables for ANZ.NZ industry groups are listed before allowances for credit impairment are taken into account. This means the UDC figures are lower than they would be on a 'like for like' comparative figure basis. However the error is only 1.1% overall, not enough to undo the validity of this exercise in my judgement)

The results are below:




All ANZ.NZUDCUnderlying ANZ.NZ


Agriculture forestry, fishing and mining:$21,420m(11.8%)
$506m(19.0%)
$20,914m(11.4%)



Business and property services:$14,275m(7.7%)
$133m(5.0%)
$14,142m(7.7%)



Construction:$2,367m(1.3%)
$356m(13.4%)
$1,136m(1.1%)



Entertainment, leisure and tourism:$1,744m(0.9%)
$8m(0.3%)
$1,736m(0.9%)



Finance and insurance:$31,956m(17.2%)
$89m(3.3%)
$31,867m(17.4%)



Government and local authority:$12,373m(6.6%)
$0.5m(0.0%)
$12,373m(6.7%)



Manufacturing:$5,651m(3.0%)
$66m(2.5%)
$5,585m(3.0%)



Personal & Other lending:$87,719m(47.1%)
$694m(26.1%)
$87,025m(47.4%)



Retail and Wholesale:
$6,177m(3.3%)
$343m(12.9%)
$5,834m(3.2%)



Transport and storage:$2,584m(1.4%)
$460m(17.3%)
$3,124m(1.2%)



Total:$186,266m(100%)$2,655m(100%)$183,611m(100%)



The following inter-year table shows how UDC is funded by its 100% owner ANZ



FY2014FY2015FY2016


UDC Shareholder Capital$341.412m$365.462m$423.247m


ANZ Committed Credit Facility$280.000m$395.000m$595.000m


Debenture Investments From Public$1,569.247m$1,736.026m$1,591.711m




SNOOPY

[macduffy]

All good stuff, Snoopy, but carefull that you don't miss the wood for the trees here. Well and good to analyse accounts of ANZ NZ and UDC but remember that the investment here is in ANZ Group - despite being listed on the NZX - and that NZ accounts for around 14.75% of group income these days.

[macduffy]

15.7% return for 2016. Not too bad, eh, Biscuit?

http://www.theage.com.au/business/banking-and-finance/anz-shares-the-pick-of-the-big-four-in-2016-20170108-gto0xz.html

[tim23]

There was a pretty good opportunity about April last year I swapped my Anz bonds for ords paid $24.50 thats about 40% plus 2 decent dividends as well.

[Biscuit]

15.7% return for 2016. Not too bad, eh, Biscuit?

http://www.theage.com.au/business/banking-and-finance/anz-shares-the-pick-of-the-big-four-in-2016-20170108-gto0xz.html

Doing well now it's led by a kiwi eh? I always liked the idea of a "super-regional bank" and the push into asia. It never really got traction but was a point of difference.

[Snoopy]

My average buy in was around $20, but that was back in 2009 so pretty crappy investment really. They did well initially I think but gone nowhere for a few years now.


You might want to reconsider your position Biscuit.

Looking at historical figures on yahoo, ANZ was trading at around $NZ20 per share in June/July 2009. Closing price now is arond $NZ33. Checking back on my dividend records I think you have received a total of $A11.25 in dividends over the seven year you have held, lets say $NZ12 gross or $NZ8.4 net. From my rough calculations you have more than doubled your money (after tax) over seven years. Given all the turbulance in Australian markets of late, I would suggest that what you have here is an outstanding investment result, almost certainly in the upper quartile of the buy and hold investment universe. Far from 'going nowhere', ANZ was of the best investments you could have possibly made over that period. You have nothing to feel sorry about.

SNOOPY

[Biscuit]

You might want to reconsider your position Biscuit.

Looking at historical figures on yahoo, ANZ was trading at around $NZ20 per share in June/July 2009. Closing price now is arond $NZ33. Checking back on my dividend records I think you have received a total of $A11.25 in dividends over the seven year you have held, lets say $NZ12 gross or $NZ8.4 net. From my calculations you have more than doubled your money over seven years. Given all the turbulance in Australian markets of late, I would suggest that what you have here is an outstanding investment result, almost certainly in the upper quartile of the buy and hold investment universe. Far from 'going nowhere', ANZ was of the best investments you could have possibly made over that period. You have nothing to feel sorry about.

SNOOPY

Yes, I will admit that of the shares I bought in 2009 and still hold, ANZ is certainly not the worst (that title belongs to AMP - the only reason I have not sold is because I bought in with one of my sons, so I have not got around to sorting that out - pretty lame excuse). ANZ was a screaming buy in 2009 and I think is still a reasonable hold today. Many shares were a screaming buy back then though, and many have done a lot better than ANZ. But yes, I do not regret buying ANZ.

[Snoopy]

Yes, I will admit that of the shares I bought in 2009 and still hold, ANZ is certainly not the worst (that title belongs to AMP - the only reason I have not sold is because I bought in with one of my sons, so I have not got around to sorting that out - pretty lame excuse). ANZ was a screaming buy in 2009 and I think is still a reasonable hold today. Many shares were a screaming buy back then though, and many have done a lot better than ANZ. But yes, I do not regret buying ANZ.

I would suggest to you that given the company risk profile, ANZ being a quasi boring utility, there isn't a single share that has done better than ANZ. Yes of course some others have done better in a 'looking back with the benefit of hindsight' way. But these are liable to be much riskier smaller players that had peer group shares that crashed over the same time period. I put it to you that in a risk adjusted way, ANZ is actually the best share in your portfolio, full stop! If you had put all of your share investment capital in ANZ in 2009, and done nothing in the intervening period, then you would have more capital today than you actually do now!

SNOOPY

[macduffy]

ANZ being a quasi boring utility

Really? I'm sure that WBC shareholders didn't feel that they had one in the early 90's when WBC shares were marked below $5 and there was real concern about the future of the bank!

:ohmy:

[Biscuit]

I would suggest to you that given the company risk profile, ANZ being a quasi boring utility, there isn't a single share that has done better than ANZ. Yes of course some others have done better in a 'looking back with the benefit of hindsight' way. But these are liable to be much riskier smaller players that had peer group shares that crashed over the same time period. I put it to you that in a risk adjusted way, ANZ is actually the best share in your portfolio, full stop! If you had put all of your share investment capital in ANZ in 2009, and done nothing in the intervening period, then you would have more capital today than you actually do now!

SNOOPY

The other boring utility I bought in 2009 and still hold was CEN, which is still down 20% even with dividend reinvestment (which means it is actually worse performing than my AMP shares). But I doubt I would have more capital in my share portfolio if I had put it all into ANZ because of course I have not held most of my 2009 shares continuously but have bought and sold many times which has been more profitable. I guess it does show that I have never considered ANZ to be seriously overvalued in that time. But then I have never considered CEN to be overvalued either (which was also a mistake).

[Snoopy]

Really? I'm sure that WBC shareholders didn't feel that they had one in the early 90's when WBC shares were marked below $5 and there was real concern about the future of the bank!

:ohmy:

I said 'quasi utility' in that like a power connection and a phone connection and a roof over your head, every 21st century citizen must have a bank account. ANZ, like WBC, is part of the Australian Government 'four pillars' banking policy. I can't remember all the details of WBCs early 90s situation. But I think there was an implicit guarantee that the government woudl bail deposit holders out. That didn't help WBC shareholders at the time of course. But I don't think that even in the market's darkest days, there was ever a prospect that one of the four main Ozzie banks would close up. 'Too big to fail' being the classic Australian term.

SNOOPY

[Snoopy]

All good stuff, Snoopy, but carefull that you don't miss the wood for the trees here. Well and good to analyse accounts of ANZ NZ and UDC but remember that the investment here is in ANZ Group - despite being listed on the NZX - and that NZ accounts for around 14.75% of group income these days.


Yes quite right to remind ANZ shareholders that UDC is really a minnow within a minnow as far as the ANZ parent in Australia is concerned. But I do think that the UDC position is particularly interesting, given that it is up for sale and ANZ can arrange the books at UDC however they see fit. Perhaps the biggest surprise is that putting FY2015 and FY2016 industry sector leding side by side, there is very little proportional change (taking into account the growth in the UDC loan book). But take note of the detail given in note 9 of the UDC financial report 2016 on UDC borrowings.

"The interest rate on the committed credit facility at 30 September 2016 was 3.07% (30 September 2015 3.95%). The current credit facility expires on 28 September 2018. The company can extend the terms of the credit facility subject to arrangement to ANZ bank NZ.

The amount of the committed facility was increased to $1,800m on 24th November 2016."

All this smells to me like UDC is being primed for sale. A 3.07% interest rate for a company operating in the risky end of the loan market? 3.07% sound 'crazy low' to me for that kind of lending. Granted ANZ own 100% of UDC. So they can charge whatever interest rate they like to UDC and no-one on the ANZ or UDC board will bat an eyelid. The increased size of the facility means that UDC can almost get away with not having any debenture holders! Why borrow from a debenture holder at 3.6% when you can get away with only paying 3% if you borrow that money off the parent bank?

Having these kind of low interest rates locked in for two years, in a climate where interest rates look to have bottomed, is bound to boost UDC profitability forecasts. And that will equate to a higher sale price for UDC, should it be sold. But are UDC really paying market interest rates on their borrowings? And if they are not, what does that say about any underlying sale price that might be achieved for UDC?

SNOOPY

PS For a comparison here is my take on the interest rate being paid by Heartland Bank over their FY2016 (YE 30th June 2016) .

Interest expense: $118.815m
Borrowings SOFY2016: $2,825.245m
Borrowings EOFY2016: $2,999.987m

Average Interest Rate Paid
= $118.815m / ($2,825.245m + $2,999.987m)*0.5
= 4.1%

[macduffy]

I said 'quasi utility' in that like a power connection and a phone connection and a roof over your head, every 21st century citizen must have a bank account. ANZ, like WBC, is part of the Australian Government 'four pillars' banking policy. I can't remember all the details of WBCs early 90s situation. But I think there was an implicit guarantee that the government woudl bail deposit holders out. That didn't help WBC shareholders at the time of course. But I don't think that even in the market's darkest days, there was ever a prospect that one of the four main Ozzie banks would close up. 'Too big to fail' being the classic Australian term.

SNOOPY


Yes, too big to fail, perhaps, but for Westpac shareholders the concern was that the heavily discounted rights issue needed to right the ship might "fail" and that a marriage with another of the big four might be ordained, to the disadvange of WBC shareholders. We can be rather relaxed about it now but at the time it was a serious concern, as evidenced by the bargain price at which the shares and rights traded.

[percy]

Yes, too big to fail, perhaps, but for Westpac shareholders the concern was that the heavily discounted rights issue needed to right the ship might "fail" and that a marriage with another of the big four might be ordained, to the disadvange of WBC shareholders. We can be rather relaxed about it now but at the time it was a serious concern, as evidenced by the bargain price at which the shares and rights traded.

I seem to remember it only took one boardroom appearance by Kerry Packer and Al "chainsaw" Dunlap,for the Westpac board to regain focuss.!

[Snoopy]

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% of gross value loans on issue

-------

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.



The annual provision for loan impairment at UDC (page 3 UDC Finance Annual Report 2016) is: $7.418mm down 29% on the high previous year figure $10.427m from FY2015 .

From note 6 (Net Loans & Advances) the resultant provisions on the books without bad debts already written off, with reference to the whole EOFY2016 loan book is:

$28.909m /($2,573.030m+$28.909m+$139.730m+$8.950m) = 1.05% 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 2016 update to the Reserve Bank)

($622m-$28.909m)/ ($114,623m -$2,573m)= 0.53%

-------

Compare that to Heartland (HNZ AR2016, Note 11 'Finance Receivables' )

($21.161m+$4.987m)/ $3,140.105m = 0.83% of gross value of loans on issue.

-------

Multi year trends of the above statistics are in the table below



FY2013FY2014FY2015FY2016


UDC: Loans Impaired/Gross Value of Loans1.55%1.31%1.25%1.05%


ANZ.NZ excluding UDC: Loans Impaired/Gross Value of Loans0.88%0.67%0.56%0.53%


Heartland Bank: Loans Impaired/Gross Value of Loans2.45%0.93%1.09%0.83%



SNOOPY

[Snoopy]

I guess it does show that I have never considered ANZ to be seriously overvalued in that time. But then I have never considered CEN to be overvalued either (which was also a mistake).


The relatively poor performance of CEN in recent years can be put down to the uncoupling of 'growth' and 'power usage' in the wider economy. Overshadowing that was the actual or potential shut down of much of NZs heavy industry, casting doubt on the future price path of power. The future price of power has traditionally 'ratcheted up' with the construction of each new incremental power station. With no significant new power stations given the green light, this has produced the current flat outlook for power prices. I am not sure without the benefit of hindsight, how obvious all of this was. So I am not sure how clear it was that Contact was overvalued in the past.

I fell into the same trap as you Biscuit, although I bought my first (small) bite of Contact way back at float time, and became dazzled by the stellar early performance of this 'growth' share.. Investing in the DRP was good for tax reasons IIRC. Unfortunately many of those tax effective DRP purchases subseqently went under water! Yet, despite it all, in capital terms I am more or less back at the 'break even' point. I don't believe power prices will remain flat forever though. IMO our day as Contact shareholders will come again! But I can't tell you exactly when that day will be!

SNOOPY

[macduffy]

Multi year trends of the above statistics are in the table below



FY2013 FY2014 FY2015 FY2016
UDC: Loans Impaired/Gross Value of Loans 1.78% 1.48% 1.43% 1.19%
ANZ.NZ excluding UDC: Loans Impaired/Gross Value of Loans 0.88% 0.67% 0.56% 0.53%
Heartland Bank: Loans Impaired/Gross Value of Loans 2.45% 0.93% 1.09% 0.83%


Thanks, Snoopy, interesting numbers. The big improvement on UDC's previous year's 1.43% wouldn't indicate that ANZ is using the finance coy to quarantine impaired loans - but then, perhaps all three of the above are taking a slightly more relaxed view of their loan books this year!

[huxley]

UDC sold to HNA Group...
https://www.nzx.com/companies/ANZ/announcements/295406

[Snoopy]

I bought a few ANZ shares after the GFC knocked the Aussie banks (probably irrationally -tarred with the same brush). Still hold, but have never bought more than a very small holding because I simply could not understand their financials - they are way too complicated for me to make head nor tail of, and I nearly only invest if the accounts are straightforward.


My problem with investing in banks is that they all do amazingly well between crises. Then at crisis time they suddenly announce.

"Whoops we've lost a few billion. Can you shareholders please bail us out please?"

rather than trying to understand everything that a bank does, I have become convinced that the key to it is understanding those bad loans, or perhaps more correctly those loans that have a 'propensity to go bad' (because if a loan has already gone bad it's too late). This doesn't equate to becoming an ultimate doomsdayer. It would be easy to arouse yourself into a "scardey cat state" where you can imagine a domino like collapse of loans and the whole bank falling over. Instead I am trying to take a more measured appraoch by taking the banks own 'measurements of stressed and or vulnerable loans.

p51 of the September 2016 ANZ.NZ reserve bank declaration shows that this is no easy task though:

-------

Implementation of the advanced internal ratings based approach to credit risk measurement

The Banking Group adheres to the standards of risk grading and risk quantification as set out for Internal Ratings Based (IRB) banks in the RBNZ document Capital Adequacy Framework (Internal Models Based Approach) (BS2B). Under this IRB Framework banks use their own measures for calculating the level of credit risk associated with customers and exposures, by way of the primary components of:

Probability of Default (PD): An estimate of the level of risk of borrower default graded by way of rating models used both at loan origination and for ongoing monitoring.

Exposure at Default (EAD): The expected facility exposure at default. Total credit risk-weighted exposures include a scalar of 1.06 in accordance with the Bank’s Conditions of Registration.

Loss Given Default (LGD): An estimate of the potential economic loss on a credit exposure, incurred as a consequence of obligor default and expressed as a percentage of the facility’s EAD. For Retail Mortgage exposures the Bank is required to apply the downturn LGDs according to loan to value (LVR) bands as set out in BS2B. For farm lending exposures the Banking Group is required to adopt RBNZ prescribed downturn LVR based LGDs, along with a minimum maturity of 2.5 years and the removal of the firm-size adjustment.

For exposures classified under Specialised Lending, the Banking Group uses slotting tables supplied by the RBNZ rather than internal estimates.

------

My reading of that is that banks are allowed to risk manage their loans with whatever system they like to devise themselves. As long as they have a system, it doesn't really matter what it is. This explains why I have been having trouble comparing loan standards between different finance companies and banks.

SNOOPY

[Big Blind]

UDC sold to HNA Group...

That would mean tougher competition for people like Heartland

[macduffy]

That would mean tougher competition for people like Heartland

I think we'll have to wait and see on that. While HNA Group may or may not be more competitive than ANZ on the loan side in this business segment, HNA may find that it also needs to pay a little more for its local funding if UDC depositors become uncomfortable about the loss of the "moral comfort" of ANZ's parentage.

[Bobdn]

http://www.smh.com.au/business/banking-and-finance/anz-shares-the-pick-of-the-big-four-in-2016-20170108-gto0xz.html

Interesting article detailing the bank shares you should have bet.

[Snoopy]

UDC sold to HNA Group...
https://www.nzx.com/companies/ANZ/announcements/295406

Detail below

-----

ANZ today announced an agreement to sell UDC Finance, the asset finance business of its wholly owned subsidiary ANZ Bank New Zealand, to HNA Group, a global company focused on tourism, logistics and financial services. The sale reflects a continued focus by ANZ on simplifying its business and capital efficiency.

ANZ New Zealand CEO David Hisco said: “The sale of UDC is consistent with our strategy to simplify the bank and is a good outcome for customers and staff. HNA Group is one of the world’s largest asset finance and leasing companies, and it intends to preserve UDC’s operations including offering continued employment to all staff.”



Sale PricePremium to Net Assets (30/09/2016)Price-to-Book Ratio (UDC net assets 30/09/2016)


~NZ$660m~NZ$235m~1.6 times



The transaction also includes the Esanda name and trademarks in Australia and New Zealand. The additional consideration for the name and trademark sale is not material to ANZ.

The UDC sale is subject to closing steps and conditions including engaging with investors on the replacement of the Secured Investment program and regulatory approvals. Completion is expected late in the second half of the 2017 calendar year.

------

Am I reading my highlighting correctly? Is "replacement of the secured investment program" code for all existing NZ debenture holders being paid out, and all funding to come from the Chinese in future?

SNOOPY

[Snoopy]

I think we'll have to wait and see on that. While HNA Group may or may not be more competitive than ANZ on the loan side in this business segment, HNA may find that it also needs to pay a little more for its local funding if UDC depositors become uncomfortable about the loss of the "moral comfort" of ANZ's parentage.


Take a look at how UDC was financed at balance date Macduffy.



FY2016


UDC Shareholder Capital$423.247m


ANZ Committed Credit Facility$595.000m


Debenture Investments From Public$1,591.711m



As a result of the purchase announced today, that UDC shareholder capital will pass to HNA.

From the Financial Report for FY2016 we learn that the amount of the ANZ committed facility was increased to $1,800m on 24th November 2016. (post balance date). That gives a headroom facility of:

$1,800m - $595m = $1,205m

I reckon that is more than enough to repay all maturing debentures until the deal goes through in the second half of FY2017. ANZ have agreed to fund UDC with a loan as low as 3% until the takeover date. Then the Chinese will be able to use their muscle to keep funding this finance company at unrealistically low interest rates until the competition cracks. The Chinese could continue a borrowing program in New Zealand. But with their own cheaper finance from offshore, why would they? I think it is all over for UDC debenture investors and potentially very stiff competition coming to other 'local' finance companies, including Heartland Bank!

SNOOPY

[macduffy]

Am I reading my highlighting correctly? Is "replacement of the secured investment program" code for all existing debenture holders being paid out, and all funding to come from the Chinese in future?


Could be. It could also mean getting investors to accept an alternative form of secured investment. Or something else.

[pierre]

I think it is all over for UDC debenture investors and potentially very stiff competition coming to other 'local' finance companies, including Heartland Bank!

SNOOPY
HBL investors heading for the hills in panic (not) - 4,928 shares sold so far this morning!

[winner69]

HBL investors heading for the hills in panic (not) - 4,928 shares sold so far this morning!

Probably relieved as anything in that Jeff did not got over excited and over pay for UDC

[percy]

Probably relieved as anything in that Jeff did not got over excited and over pay for UDC

So very true,however,for reasons best known to ANZ, Jeff never got a look in.
Pity as I think HBL/UDC would have been good for NZ.

[macduffy]

So very true,however,for reasons best known to ANZ, Jeff never got a look in.
Pity as I think HBL/UDC would have been good for NZ.

Did HBL ever approach ANZ and make a bid for UDC? If so, I must have missed that somehow.

[percy]

Did HBL ever approach ANZ and make a bid for UDC? If so, I must have missed that somehow.

At HBL's agm they said they had approached ANZ,but never heard back from them.
The Chairman told me after the meeting, they expected ANZ were selling it to the Chinese.
Although Heartland always said they would be keen to buy UDC,I got the impression they did not seem to be concerned to be missing out.

[macduffy]

Thanks, percy. Perhaps the vibe was that the Chinese group was going to offer more than HBL was prepared to pay? Overall, I don't see the change of UDC ownership as a negative as far as HBL is concerned.

[Snoopy]

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-centre/investor-information/

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



For retail mortgages: 30-09-2013For retail mortgages: 30-09-2014For 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: 30-09-2013For other retail: 30-09-2014For 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

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-centre/investor-information/

(The following tables are updated from page 53 of the ANZ NZ September 30th 2016 Reserve Bank disclosure).



For retail mortgages: 30-09-2012For retail mortgages: 30-09-2013For retail mortgages: 30-09-2014For retail mortgages: 30-09-2015For retail mortgages: 30-09-2016


Grades 0-3:0.2%0.2%0.2% 0.2%0.2%


Grades 4: 0.46% 0.46% 0.46% 0.46% 0.46%


Grade 5: 0.93% 0.93% 0.93% 0.92% 0.92%


Grade 6: 2.12% 2.11% 2.04% 2.02% 2.00%


Grade 7,8: 5.35% 5.40% 5.24% 5.27% 5.13%





For other retail: 30-09-2012For other retail: 30-09-2013For other retail: 30-09-2014For other retail: 30-09-2015For other retail: 30-09-2016


Grades 0-2: 0.1% 0.1% 0.1% 0.1% 0.1%


Grades 3-4:0.29%0.29%0.30%0.26%0.26%


Grade 5:1.10%1.12%1.13%1.00%0.99%


Grade 6:2.50%2.67%2.60%2.39%2.11%


Grade 7,8:10.07%11.25%9.56%8.79%7.86%



Overall observation? A continuing small risk reduction from year to year in the higher risk categories (mostly Grade 6 and above). Yet despite the reserve bank telling us of the risks of an inflated housing market, ANZ are seeing less risk in their retail mortgages than last year. I find that a bit strange.

SNOOPY

[Biscuit]

Overall observation? A continuing small risk reduction from year to year in the higher risk categories (mostly Grade 6 and above). Yet despite the reserve bank telling us of the risks of an inflated housing market, ANZ are seeing less risk in their retail mortgages than last year. I find that a bit strange.
SNOOPY

Possibly a result of increased restrictions around home loan lending?

[Snoopy]

Possibly a result of increased restrictions around home loan lending?

Could be Biscuit. The thing is though, if it has become harder to get a mortgage, this might imply that those that no longer qualify for a mortgage would go for an 'other retail' loan. So on balance 'other retail' might be expected to be riskier for FY2016 than FY2015. Yet the risk for 'other retail' loans has fallen as well! One explanation is that those denied a mortgage have moved to a different lending institution. So ANZ has got risk off the books by losing those customers. But if that had happened, one might expect the 'non mortgage' retail loan book to shrink.

Go back to my post 362 on this thread and you will see that overall ANZ.NZ loans for 'Personal & Other Lending' have gone from $85,202m (FY2015) to $87,719m (FY2016). That is an increase of 3.0%. If people roll over their houses , on average, every seven years and house price inflation is 21%, then one might expect an increase of 21/7 = a 3% increase in the residential Mortgage book per year. If house price inflation is not that high (and nationwide I don't think it is) , one could infer that more 'non mortgage' retail lending is going on. IOW, ANZ are increasing the size of their 'non mortgage' retail loan book. Yet the 'other retail' loan risk is falling?

I am having trouble making sense of it all. Just as well I am not a banker in 'real life'.

SNOOPY

[Biscuit]

I am having trouble making sense of it all. Just as well I am not a banker in 'real life'.

SNOOPY

Your attempts to make sense of it are very admirable, personally I would not dare try.

[Biscuit]

... if it has become harder to get a mortgage, this might imply that those that no longer qualify for a mortgage would go for an 'other retail' loan....
SNOOPY

I'd think two things at least would happen as LVR restrictions were introduced and increased: 1. people who were about to be locked out, stepped up and took out a mortgage before the rules changed; and 2. people who were locked out dug deeper for longer (or hit on their parents) to achieve the new ratios. Both effects probably have improved the margin of safety on new loans over time and the margin of safety on old loans gets steadily larger over time with house inflation and principle reduction.

[Snoopy]

Thanks, Snoopy, interesting numbers. The big improvement on UDC's previous year's 1.43% wouldn't indicate that ANZ is using the finance coy to quarantine impaired loans - but then, perhaps all three of the above are taking a slightly more relaxed view of their loan books this year!

Yes the drop from 1.43% impaired to 1.19% impaired over the period of a year is a significant improvement. However, while I am concerned about the level of loan impairment in finance companies, once a loan becomes impaired it is already out in the open for all to see and there is little that can be done. My concern is more over the level of 'stressed loans'(*), or those just shy of being impaired. IMO 'Streesed loans' are worth spending managment time on to make sure they do not become impaired. Unlike impaired loans, 'stressed loans' are subject to managment discretion during categorization. It is easier to manipulate the size of 'stressed loans' on the books than to manipulate the quantum of 'impaired loans'.

With UDC in FY2016 (my post 352 on this thread) the ratio of 'stressed loans' to 'actual write offs' was 3.22/0.41 = 7.9 for FY2016, slightly up on the 3.39/0.49 = 6.9 for FY2015. Contrast this with the equivalent statistics for Heartland 1.21/0.6 = 2.0 (FY2016) 1.36/0.12= 11.3 (FY2015). This indicates to me that Heartland are being far more lax with their definition of 'stressed loans.' Not an issue for Heartland now of course. But if Heartland are likely underestimating their 'write offs' in the future becasue of this, then lax classification of 'stressed loans' today will come back to bite them. I have no such concerns with the UDC treatment on 'stressed loans'.

(*) 'Stressed Loan' is defined by Snoopy for the purposes of this discussion as 'Loan Categories 7 and 8' plus 'Default' loans less Provision for Credit Impairment. Note that this definition of 'stressed loans' removes 'loan impairments' to a separate and dintinct loan category

SNOOPY

[Snoopy]

I'd think two things at least would happen as LVR restrictions were introduced and increased: 1. people who were about to be locked out, stepped up and took out a mortgage before the rules changed; and 2. people who were locked out dug deeper for longer (or hit on their parents) to achieve the new ratios. Both effects probably have improved the margin of safety on new loans over time and the margin of safety on old loans gets steadily larger over time with house inflation...


Yes, excellent point Biscuit. Because most mortages are not rolled over in any one year, house price inflation actually pays a large part in reducing risks for banks on the 6/7 (or so) of mortages that are not rolled over. I hadn't considered the point before that house price inflation is really good for trading banks, assuming of course that any possible subsequent house price collapse level also increases with the overall level of house price inflation.



and principle reduction.


LOL, I find that statement very amusing! I am going to assume this is a spelling error and you meant 'principal'. Because if you actually meant 'principle reduction', that means you are saying that as house prices increase, then the lenders become less scrupulous with shareholder funds and more inclined to accept lies from their lying 'borrowing customers' about their ability to repay the loan!

SNOOPY

[Biscuit]

LOL, I find that statement very amusing! I am going to assume this is a spelling error and you meant 'principal'. Because if you actually meant 'principle reduction', that means you are saying that as house prices increase, then the lenders become less scrupulous with shareholder funds and more inclined to accept lies from their lying 'borrowing customers' about their ability to repay the loan! SNOOPY

Well spotted. I did indeed mean principal reduction, although logically the longer a customer has successfully serviced a loan the more inclined the bank should be to view them as lower risk? So, maybe I am right either way?

[Snoopy]

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 BookFY2012FY2013FY2014FY2015


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%)

SNOOPY




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

Time to update what is now a five year funding picture showing what sectors ANZ in New Zeland is lending their money to.

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

FY2016 information is from the September Quarter Report to the Reserve Bank, corresponding to the end of the financial year for ANZ bank in New Zealand



ANZ (New Zealand) Loan BookFY2012FY2013FY2014FY2015FY2016Five Year GrowthFive Year Geometric Average Annual Growth


Agriculture$19,071m$18,842m (-1.2%)$18,811m (-0%)$19,717m (+4.8%)$19,787m (+0%)
+3.75%+0.74%


Forestry, fishing and mining$1,260m$1,850m (+46.8%)$2,049m (+10.8%) $2,014m (-2.0%) $1,633m (-19.0%)
+29.6% +5.32%


Business and property services$11,706m$11,334m (-3.2%)$12,051m (+6.3%)$13,681m (+13.5%)$14,275m (+4.3%)+21.9%[/TD]+4.04%


Construction$2,059m$2,154m (+4.6%)$2,154m (+23.2%) $2,170m (+0.7%) $2,367m (+9.1%)
+15.0%+2.83%


Entertainment, leisure and tourism$1,697m$1,389m (-18.1%)$1,294m (-6.9%)$1,386m (+7.1%)$1,744m (+25.8%)
+2.77%+0.55%


Finance and insurance$19,245m$18,412m (-4.3%)$20,254m (+10%)$27,569m (+36.1%)$31,956m (+15.9%)
+66.0%+10.7%


Government and local authority$13,433m$9,910m (-26.2%)$11,363m (+14.6%)$12,229m (+7.6%)$12,373m (+1.2%)
-7.89%-1.53%


Manufacturing$5,591m$5,051m (-9.6%)$5,312m (+5.2%)$5,925m (+11.5%)$5,651m (-4.6%)
+1.07%+0.21%


Personal lending$58,664m$63,492m (+8.2%)$70,098m (+10.4%)$80,935m (+15.5%)$83,256m (+2.9%)
+41.9%+7.25%


Retail trade $2,964m $2,859m (-3.5.%) $3,026m (+0.5.8%) $3,046m (+0.7%) $2,970m (-2.5%)
+0.202%+0.04%


Transport and storage$2,416m$2,147m (-11.1%)$2,264m (+5.4%)$2,470m (+9.1%)$2,584m (+4.6%)
+6.95%+1.35%


Wholesale trade$2,653m$2,704m (+1.9%)$2,695m (-0%)$2,739m (+1.6%)$3,207m (+14.8%)
+20.9%+3.87%


Other$4,792m$4,577m (-4.5%)$4,093m (-5.6%)$4,267m (+4.3%)$4,463m (+4.6%)
-6.87%-1.34%


Total$145.551m$144.315m (-0.8%)$155,174m (+7.5%)$178,148m (+15%)$186,266m (+4.6%)
+29.1%+5.24%



Over the five year picture it is very clear that 'Finance and Insurance' and 'Personal Loans' are the two categories that are driving loan portfolio growth, even if persoanl lending has slowed over the past year. What is more of a surprise is the very low growth in the loan book of Agriculture, supposedly the backbone of the country!

So how useful is the above information? Given that ANZ is New Zealand's largest bank, ANZ is probably the best single company proxy for the whole New Zealand economy. If you are an NZX investor, it might pay to be looking in those sectors that are powering the overall loan market forward. A growth company in a growth sector might face less headwinds than a growth company in a flat sector.

SNOOPY

[Snoopy]

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 Ratio10.57.94.5+2.5


Total Tier 1 Ratio12.79.76.0+2.5


Total Tier 1&2 Ratio13.610.38.0+2.5



Today I want to update the ANZ New Zealand banking covenants for September 30th 2016 quarter (corresponding to the EOFY). ANZ New Zealand includes their wholly owned subsidiary UDC finance.

The document I am referencing is the:

"ANZ bank New Zealand Limited Annual Report and Disclosure Statement for the year ended 30th September 2016, Number 83 issued November 2016"

Page 49, note 29 contains the information on capital adequacy.

The information supplied is as follows:

Common Equity Tier 1 ratio: 10.0% (vs RBNZ minimum of 4.5% + 2.5% buffer)
Total Tier 1 ratio: 13.2% (vs RBNZ minimum of 6.0% + 2.5% buffer)
Total Tier 1 & 2 ratio: 13.7% (vs RBNZ minimum of 8.0% + 2.5% buffer)

The ANZ.NZ Tier 1 capital ratio has gone down slightly again in New Zealand over the year, and no new share capital injection initiative is apparent from the accounts. Total equity has increased to $12,710m, an increase of 2% due to an increase retained earnings.

From N0te 17 on Subordinated Debt, The ANZ New Zealand operation has been shored up by the issue of a new tranche of ANZ convertible notes, dubbed "ANZ New Zealand Internal Capital Notes 2."

• On 15 June 2016, the Bank issued 9.38m million convertible notes (ANZ NZ ICN2) to the NZ Branch at NZ$100 each, raising NZ$938 million.

This issue is 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 $114,623m (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: $8,725m/$114,623m = 7.6%
Total Tier 1 ratio: $11,505m/$114,623m = 10.0%
Total Tier 1 & 2 ratio: $11,973m/$114,623m = 10.4%

Those figures are a different to those precedingly calculated. That is because the Tier 1 and Tier 2 capital figures have been 'risk adjusted' before they went into my first 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



30/09/2016 (risk adj)30/09/2016 (book value)RBNZ Required


Common Equity Tier 1 Ratio10.07.64.5+2.5


Total Tier 1 Ratio13.210.06.0+2.5


Total Tier 1&2 Ratio13.710.48.0+2.5



A multi year picture of capital adequacy is shown below:



FY2012FY2013FY2014FY2015FY2016


Quoted Common Equity Tier 1 RatioN/A10.4%10.7%10.5%10.0%


Quoted Total Equity Tier 1 Ratio10.8%10.8%11.1%12.7%13.2%


Quoted Total Equity Tier 1 & 2 Ratio12.5%12.4%12.3%13.6%13.7%



It is interesting that although the Common Tier 1 equity has been weakening, other tier 1 (including preference shares) and tier 2 capital has been issued to strengthen the balance sheet.

SNOOPY

[Snoopy]

There has been talk on another thread about 'What is an adequate capital ratio for a bank?' On 17th September 2015, ANZ pocketed the proceeds of a capital raising to fix their own position. This capital raising was captured in the FY2015 Annual Report , with its 30th September 2015 balance date. So I think it is useful to look at a couple of key statistics before (FY2014 capital position ) and after (FY2015 capital position). That way we shareholders can see in numerical terms, what the changes were in the capital structure that ANZ managment deemed prudent.

All numbers quoted below are from the FY2015 ANZ Annual Report



FY2014FY2015Reference


Normalised Profit (A)$7,117m$7,216mp5


Shareholder Equity 'Tier 1 Capital' (B)$49,284m$57,353mp62 (Balance Sheet)


Return on Equity (A)/(B)14.4%12.6%calculated


Additional 'Tier 1 Capital' (C)$6,004m$7,423mp101 (Subordinated Debt)


Total 'Tier 1 Capital' (B)+(C)$55,288m$64,776mcalculated


'Tier 2 Capital' Perpetual Subordinated Notes (D)$1,087m$1,188mp101 (Subordinated Debt)


'Tier 2 Capital' Dated Subordinated Notes (E)$6,516m$8,398mp101 (Subordinated Debt)


'Tier 2 Capital' Discount for near dated 2019 notes (F)$0m-$271mcalculated at 20%


'Tier 2 Capital' Total (D)+(E)+(F)$7,603m$9,315mcalculated


Total Capital (Tier+Tier2) (G)$62,891m$74,091mcalculated


Return on Total Capital (Tier+Tier2) (A)/(G)11.3%9.7%calculated



That last line in the table is not one you will find in any ANZ report. Yet it is an interesting measure of how much 'equity', in the widest sense of that word, that ANZ management regard as prudent.

If, for a comparative example, you take the equivalent ROTC for New Zealand's own Heartland Bank: Net Profit $48.163m (excluding other comprehensive income) Shareholder Equity $480.125m
(for Heartland ROTC = ROE, because Heartland as yet has no subordinated bond type capital)

Then ROTC = $48.163m / $480.125m = 10.0%

This shows that the Heartland assets are being worked pretty hard. Is that just an indication of higher underlying profit margins at Heartland? Or are those Heartland assets being worked rather harder than is prudent?


Just in case the message has been lost. It is not possible to invest in ANZ (New Zealand) or UDC from a direct equity perspective. It is possible to invest in the ultimate parent though, and this ANZ in Australia. For convenience of NZ investors, ANZ (Australia) is listed on the NZX.

All FY2016 numbers quoted below are from the FY2016 ANZ Annual Report



FY2014FY2015FY2016Reference


Normalised Profit (A)$7,117m$7,216m$5,889mp5 (Financial Highlights)


Shareholder Equity 'Tier 1 Capital' (B)$49,284m$57,353m$57,924mp64 (Balance Sheet)


Return on Equity (A)/(B)14.4%12.6%10.2%calculated


Additional 'Tier 1 Capital' (C)$6,004m$7,423m$9,493mp104 (Subordinated Debt)


Total 'Tier 1 Capital' (B)+(C)$55,288m$64,776m$67,390mcalculated


'Tier 2 Capital' Perpetual Subordinated Notes (D)$1,087m$1,188m$1,190mp104 (Subordinated Debt)


'Tier 2 Capital' Dated Subordinated Notes (E)$6,516m$8,398m$11,281mp104 (Subordinated Debt)


'Tier 2 Capital' Discount for near dated 2019 notes (F)$0m-$271m-$245m2019 notes calculated at 20%


'Tier 2 Capital' Total (D)+(E)+(F)$7,603m$9,315m$12,226mcalculated


Total Capital (Tier+Tier2) (G)$62,891m$74,091m$79,616mcalculated


Return on Total Capital (Tier+Tier2) (A)/(G)11.3%9.7%7.4%calculated



That last line in the table is not one you will find in any ANZ report. Yet it is an interesting measure of how much 'equity', in the widest sense of that word, that ANZ management regard as prudent. Since EOFY2014 ANZ capital of all kinds has increased by nearly 25%!

If, for a comparative example, you take the equivalent ROTC ('Return On Total Capital') for New Zealand's own 'Heartland Bank': Net Profit $54.164m (excluding other comprehensive income) Shareholder Equity $498.341m (for Heartland ROTC = ROE, because Heartland as yet has no subordinated bond type capital)

Then ROTC = $54.164m / $498.341m = 10.9%


SNOOPY

[Snoopy]

A return on equity calculation, based on average shareholder equity for the year gives one measure of how well both HBL and ANZ are working their shareholder's funds:

{Note: I have added the impaired asset expense back into each company's earnings NPAT figures, to try and gain a more normalised picture of earnings.}

ANZ Group

[(Declared Normalised Profit) + (Impaired Asset Expense {tax adjusted})] / [Averaged Annual Shareholder Equity]
= ($7,216m + 0.7($1,179m)) / (0.5 x($57,353m+$49,284m)) = 15.0%

Heartland Bank

[(Declared Normalised Profit) + (Impaired Asset Expense {tax adjusted})] / [Averaged Annual Shareholder Equity]
($48.163m + 0.72($12.105m)) / (0.5 x($480.125m+$452.622m)) = 12.2%

By this measure then, it is the ANZ bank that is more efficient.


A return on equity calculation, based on average shareholder equity for the year gives one measure of how well both HBL and ANZ are working their shareholder's funds:

{Note: I have added the impaired asset expense back into each company's earnings NPAT figures, to try and gain a more normalised picture of earnings.}

ANZ Group

[(Declared Normalised Profit) + (Impaired Asset Expense {tax adjusted})] / [Averaged Annual Shareholder Equity]
($5,889m + 0.7($1,929m)) / (0.5 x($57,353m+$57,927m)) = 12.6%

Heartland Bank

[(Declared Normalised Profit) + (Impaired Asset Expense {tax adjusted})] / [Averaged Annual Shareholder Equity]
($54.164m + 0.72($13.501m)) / (0.5 x($480.125m+$498.341m)) = 13.0%

Heartland has now overtaken our parent bank of (ANZ Australia) in the operating efficiency stakes!

SNOOPY

[Snoopy]

The definition of a 'write off' is not ambiguous. When an asset is gone it is gone! Other categories of loan risk are more fluid. There is not a consistant nomenclature for players in the industry to use. I have used the term 'vulnerable loans ' to mean something lesser on the problem scale than 'stressed loans'. But both of these are lesser problem child categories than the term 'Write Off'. Specifically for UDC and Heartland, the definitions that I have used (for stressed loans) look like this:



UDC Finance CategoriesHeartland Behavioural CategoriesHeartland Judgement Categories


Snoopy 'Stressed Loans'

Loan Categories 7 and 8
plus 'Default' loans
less Provision for Credit Impairment.
{Note: There is no loan category 9}


a/ Loans at least 90 days past due
plus b/ Loans individually impaired .
plus c/ Restructured assets.
less d/ Provision for Impairment

a/ Loans at least 90 days past due
plus b/ Loans individually impaired .
plus c/ Restructured assets.
less d/ Provision for Impairment





The above definitions are not definitive. I am simply tabulating them so that readers can get a comparative sense of what I am talking about

I did remove the credit impairment from my newly named 'Stressed Loans' category. I am not sure if that was an improvement or not! Effectively I am saying that an impaired loan written 'off the books' is no longer stressed. I am also drawing a line in the sand between 'Stressed Loans' and 'Impaired Loans'. I thought this was useful as I wanted to see if the movement of 'Stressed Loans' and 'Impaired Loans' showed a distinct correlation over time between my self defined 'Stressed' and 'Impaired' categories. The idea here was that if a loan (or more correctly portion of a loan) started out 'stressed' before it became 'impaired', one might expect a time slipped correlation between the two. However, 'stressed loans' might be more a 'judgement watch' event which is dependent on the biases of management. OTOH an impaired loan would surely require some management intervention that directly flows through to the account. So there exists the possibility that staff could downplay the number of 'stressed loans' to make the books look better than they really are to management.


I now wish to expand my examination of 'stressed loans' to include the ANZ Bank as a whole. Banks work on International Standards to identify creditworthiness of loans. Unfortunately the most common international standard seems to be that each bank should set their own standard. The unfortunate consequence of that is that I have to introduce yet another definition of 'what is a stressed loan' for the ANZ Bank.



UDC Finance CategoriesHeartland Bank CategoriesANZ (Oz parent) Categories




Snoopy 'Stressed Loans'
Loan Categories 7 and 8
plus 'Default' loans
less Provision for Credit Impairment.
{Note: There is no loan category 9}


a/ Loans at least 90 days past due
plus b/ Loans individually impaired .
plus c/ Restructured assets.
less d/ Provision for Impairment


a/ Loans past due but not impaired.
plus b/ Loans restructured.






The guiding principle behind my definition of a 'stressed loan' is that such loans should not include loans or portions of loans already classified as impaired. In the case of ANZ, this is easy because the 'Impaired Loans' as shown in the ANZ Annual Report 2016 p114 are already shown as a separate and distinct loan category. So how does the five year picture for the 'stressed loan' position of the ANZ Bank unfold? And could we have used this picture to predict the capital raising of FY2015 before it was announced?


SNOOPY

[Snoopy]

So how does the five year picture for the 'stressed loan' position of the ANZ Bank unfold? And could we have used this picture to predict the capital raising of FY2015 before it was announced?






"Stressed' Loans on the books (X)Net Financial Recivables (Impairment deducted) (Y)(X)/(Y)Impaired LoansGross Financial Recivables (Z) (W)/(Z)


FY2012$11,639m$425,188m2.74%$2,635m$427,823m0.6159 %


FY2013$12,099m$481,575m2.51%$2,311m$483,886m0.4776 %


FY2014$12,319m$520,859m2.37%$1,552m$522,141m0.2972 %


FY2015$13,142m$569,535m2.31%$1,403m$570,938m0.2437 %


FY2016$14,052m$575,139m2.44%$1,368m$576,507m0.2373 %



The above chart shows a steady decrease in 'impaired loans' as a percentage of all loans. The rights issue capital injection happened just prior to the end of FY2015. But the impaired loan picture was steadily improving before then.

Contrast this to the 'stressed loan' picture, steadily getting worse in dollar terms. However in percentage terms it was falling too (until FY2016), albeit not as fast as the percentage picture of impaired loans.

So my predictor statistic, for checking out the likelihood of a capital raising has failed its purpose :-(. Or has it?

SNOOPY

[Snoopy]

So my predictor statistic, for checking out the likelihood of a capital raising has failed its purpose :-(. Or has it?



To answer my own question, we need to back to the Chairnan's address from the Annual Report of 2015. This from the paragraph headed "Strengthening Capital":


------

"During the year the Financial System inquiry found that Australia has sound financial system which provides a strong plautform for the Australian economy. The inquiry also recommended that Australian banks should be 'unquestionably strong.'

"Capital is one measure of strength and subsequently the "Australian Prudential Regulation Authority" increased the capital allocated against Australian home lending which applies from July 2016."

"In response to the changing regulatory, ANZ continued to strengthen its capital position."

-----

The message I take from this is that ANZ never believed they had a problem with housing lending. But APRA decided that an extra degree of robustness should be built into the financial system. So they manadated that more capital should be held by banks. This was a regulatory change, not feeding from any actual problem in bank lending. But mandated because if there was a serious housing downturn, then there might be a problem in the future. Accounts do not reflect a problem that might exist outside of their risk assessment guidelines. So it is unreasonable to expect any prior warning indicators (such as my 'stressed loans') to fire. "Stressed loans" is meant to cover existing loans that need attention, not loans that might need attention in the future. In summary, I don't think it is worth dismissing my indicator because it failed to forsee a regulatory change by APRA.

More supportive of what I am doing is a statement from the FY2016 Chairman's Report.

--------

"The environment for banking is becoming more difficult. The sector is facing lower revenue growth and after many years of improving credit quality is seeing debt provisioning returning to something closer to the long run average."

--------

Taking the historical perspective, from the FY2016 accounts, the numbers say that debt provisioning was reducing over FY2016. But taking the forward view, as reflected by growing 'Stressed Loans', the future provisioning debt indicator is showing that provisioning may well grow. We will know for sure when the FY2017 results are out.

SNOOPY

[macduffy]

An interesting topic, Snoopy.

APRA is due to make an early ruling on Australian requirements arising out of the new Basle capital adequacy pronouncements. Latest thinking in Aust seems to that these will be watered down somewhat and that the four "pillars" will manage without further capital raisings. In fact, a commentator recently suggested that 2017 may turn out to be a "capital management" year for ANZ involving either a buyback or a special dividend later in the year or early 2018. This seems to me to be a rather extreme possibility - but we'll see!

[Snoopy]

I aim to assess whether the ANZ Bank is a suitable candidate to which to apply the (Mary) 'Buffett' growth model .

Parent ANZ, incorporated in Australia, describes the operation of their business in the FY2016 Annual Report as follows:

1/ Raising funds through customer deposits and wholesale debt markets.
2/ Lending those funds to customers in both the 'personal lending' (personal home loans, credit cards, overdrafts) and business (corporate and institutional lending).
3/ Operating 'funds management', 'insurance' and 'superannuation' divisions.

The business is based around strong Australian and New Zealand foundations, leveraging 'geographic footprint' and 'market leading service'.

The business objectives are to support:

1/ Australian and New Zealand homeowners and small business customers,
2/ Regional Trade and Capital Flows for business customers via the IIB ("International and Institutional Banking Division".)
3/ A 'digital ready infrastructure'.

Major Competitors in this sector are listed in order by $A revenue (interest income).

1/ Commonwealth Bank of Australia: $33,817m
2/ Westpac Bank: $31,822m
3/ ANZ Bank: $29.951m
4/ National Australia Bank $27,629m

Conclusion: As number three in the market, ANZ passes the first Buffett Point test.

SNOOPY

[Snoopy]

The trend below is required to track higher for five years with one setback allowed.



Financial YearNet Sustainable Profit (A)Shares on Issue EOFY (B)eps (A)/(B)


2012$6,132m2,744m$2.24


2013$6,599m2,757m$2.39


2014$7,111m2,757m$2.58


2015$7,130m2,903m$2.46


2016$6,834m2,927m$2.33



Result: Fail Test

SNOOPY

PS Readers may notice a divergence between some of these 'eps' figures and those published elsewhere. The figures I use are 'normalised' by a number of adjustments. For example the FY2016 and FY2015 'normalised profits' are calculated as follows (Most adjustments may be found under the 'Non Interest Income' (Note 4) and 'Expenses' (Note 5) sections of the "FY2016 Annual Report":



FY2016FY2015


Declared NPAT 'Cash Profit'$5,889m$7,216m


add Movement on other Financial Instruments at fair value through profit & loss +0.7x $214m -0.7x $241m


add Impairment charge from AMMB Holdings Berhaud +0.7x $260m


remove Gain on selling stake in Bank of Tianjin -0.7x $29m


remove Gain on Ensada divestment -0.7x $66m


remove Loss on CVA methodology change +0.7x $237m


add back Restructuring charges +0.7x $278m +0.7x $31m


add back Amortising & Impairment of Other Intangibles +0.7x $83m +0.7x $88m


add back Software Amortisation Policy Change (Incremental) +0.7x ($556m- $188m)


Total$6,834m$7,130m



Not everyone may agree with the way I have done these adjustments. But if you want a picture of the ongoing profitability of ANZ you have to do them. I see that someone has quoted the eps figure from the 4-traders website for FY2016 as $1.89 per share.

If you just pull the headline profit figure out of the annual report of $5,709m and divide by the number of shares on issue I get:

$5,709m / 2,927m = $1.95

Not sure how they got down to $1.89. But I would describe that figure as seriously misleading (a 20% error) and not reflective of the underlying performance of ANZ for FY2016. I just wanted to make the point of not believing everything you read on some of these websites! Even using ANZ's preferred metric of cash profit this is down by 18% YOY. The impression might be that ANZ has a disastrous year. Yet taking out the 'one off' adjustments, my representative profit declined by only 4%. An unwelcome development, but not something that I would dub a major concern.

When making these adjustments it is not always clear which pieces of data should be adjusted. I am working from something called the 'cash profit'. AR2016 p18 shows that to make the bridge between ''statuatory profit' and 'cash profit' you make the following adjustments:

a/ Allow for treasury share dividends.
b/ Correct for Revaluation of policy liabilities
c/ Correct for economic hedges
d/ Correct for revenue hedges
e/ Correct for 'Structured credit intermediation trades'

These adjustments have already been made if you start with 'cash profit'. So when perusing Note 4 and Note 5, I paid particular attention not to adjust for these items again, as to do so would have been 'double counting.' Did I get all my adjustments right? I can't say. But I have tried to be consistent with my adjustments. In a multi-year comparison I think being consistent is more important than chasing down the last decimal point of accuracy.

SNOOPY

[Snow Leopard]

...I see that someone has quoted the eps figure from the 4-traders website for FY2016 as $1.89 per share.

If you just pull the headline profit figure out of the annual report of $5,709m and divide by the number of shares on issue I get:

$5,709m / 2,927m = $1.95

Not sure how they got down to $1.89. But I would describe that figure as seriously misleading (a 20% error) and not reflective of the underlying performance of ANZ for FY2016. I just wanted to make the point of not believing everything you read on some of these websites!

ANZ FY2016 Annual Report, Page 62, Income Statement for the year ended 30 September, Earnings per ordinary share (cents), Diluted, 189.3

You really should read the reports carefully.

Paper Tiger

[percy]

ANZ FY2016 Annual Report, Page 62, Income Statement for the year ended 30 September, Earnings per ordinary share (cents), Diluted, 189.3

You really should read the reports carefully.

Paper Tiger

Oh no,he has done it again!!
"Seriously misleading"....lol.

[Snoopy]

Oh no,he has done it again!!
"Seriously misleading"....lol.

Firstly thanks to PT for pointing out where the reported 'eps' figure came from.

"Earnings per ordinary share (cents), Diluted, 189.3"

'Diluted' means that whoever did the calculation has taken into account outstanding ANZ options that are about. Personally I don't do that because:

1/ There is no guarantee options will ever be exercised (although I admit in the case of a well performing stable business they usually are).
2/ It makes the eps calculation more complicated, as it means you have to dig through the annual report to find the options, rather than just taking the number of shares on issue now at face value.
3/ In many cases the options are only as small percentage of the shares on issue anyway, and leaving them out of the calculation doesn't change things that much.

By adding the options in, and using a headline earnings figure, eps drops from 195 to 189, a drop of 3%. I think most reasonable people would see that this 'error' (if you want to call it that) is not material.

OTOH a change of nearly 20% for FY2016, using the normalising assumptions I made is very material.

SNOOPY

[Snoopy]

The table is required to have an ROE figure of >15% for five years in a row, with one setback allowed.



Financial YearNet Sustainable Profit (A)Shareholder Equity EOFY (B)ROE (A)/(B)


2012$6,132m$41,240m14.9%


2013$6,599m$45,603m14.5%


2014$7,111m$49,284m14.4%


2015$7,130m$57,353m12.4%


2016$6,834m$57,927m11.8%



Result: Fail Test

By way of comparative observation though, despite ANZ ROE suffering a declining trend while the Heartland ROE trend is rising, the ANZ ROE in absolute terms remains noticably superior to Heartland

SNOOPY

[Snoopy]

What we are looking for here is the ability to raise margins at above the rate of inflation over some time period longer than two years back to back.



Financial YearNet Sustainable Profit (A)Gross Interest Revenue (B)Net Profit margin (A)/(B)


2012$6.132m$30,538m20.1%


2013$6.599m$28,627m23.1%


2014$7,111m$29,524m24.1%


2015$7,130m$30,526m23.4%


2016$6,834m$29,951m22.8%



Result: Pass Test

The average 'net profit margin' for five years was 22.7%. The comparative figure for Heartland was 16.7%

SNOOPY

[Snoopy]

What we are looking for here is the ability to raise margins at above the rate of inflation over some time period longer than two years back to back.



Financial YearInterest Income (A)Interest Expense (B)EOFY Finance Receivables (C)Gross Interest margin [(A)-(B)]/(C)]


2012$30,538m$18,428m$427,823m + $13,969m2.74%


2013$28,627m$15,869m$483,264m2.64%


2014$29,524m$15,714m$521,752m2.65%


2015$30,526m$15,910m$562,173m2.60%


2016$29,951m$14,856m$575,852m2.62%



Result: Fail Test

Note: I have made an adjustment to the EOFY receivables for FY2012. This is because there was a change in accounting policy in FY2013 which I have retrospectively applied to FY2012. As far as I can figure out this change relates to bringing assets from the balance sheet of associate companies, in which ANZ has a significant influence as to who is on the board, onto the ANZ balance sheet. Note 39 in AR2013 lists the significant associates of ANZ as

1/ AMMB Holdings Berhad, Malayasia, 24% voting interest
2/ PT Bank Pan Indonesia, Indonesia, 39% voting interest
3/ Shanghai Rural, China, 20% voting interest
4/ Commercial Bank, China, 20% voting interest
5/ Bank of Tianjin, China, 18% voting interest
6/ Saigon Securities, Vietnma, 18% voting interest
7/ Metrobank Card Corporation, Philippines, 40% voting interest

The collective assets of all associated businesses are then listed. But there is no way to know what proportion of those assets are 'financial receivables' and so determine the incremental amount that should be added to the FY2012 balance sheet to reflect the change in accounting policy. So I have simply assumed there is not too much change between FY2012 and FY2013. I have taken the revised figure we do know about (FY2013) and applied the same incremental difference to the FY2012 result.

The interesting thing about this test 4b, compared with 4a, is that for the first three years even though the interest margin remained flat (actually decreased a bit), the net profit margin rose. This is indicative of costs being taken out of other parts of the business to boost profits, while interest margin was near constant. The last two balance dates have had the cash from the recent ANZ 'cash issue and placement' brought onto the books. Holding more cash at the bank for the same sized loan book is a sure way to decrease bank profitability. (it also makes the bank more resilient in case of a market shock, the purpose of the recapitalisation exercise). And as we can see this effect. In FY2015 and FY2016 , the net profit margin of the bank has indeed reduced.

SNOOPY

[Snoopy]

This is the summary for those millennials who are 'attention span challenged'. Warren Buffett's scanning of the 'growth potential' of a company can be summarized in four quick questions.

Q1/ Does ANZ Bank have a top three market position in the markets in which it chooses to operate? (Ref: my post 410)
A1/ Yes

Q2/ Does ANZ Bank have a 'normalised profit' increasing 'earnings per share trend'? (Ref: my post 411)
A2/ No

Q3/ Does ANZ Bank have a record of earning a superior ( >15% ) return on shareholder equity? (Ref: my post 415)
A3/ No

Q4/ Does ANZ Bank have the capability of operating at increasing Net Profit margins? (Ref: my post 416)
A4/ Yes

Overall Conclusion

ANZ is not able to satisfy all the requirements to apply Warren Buffett's compounding growth model. This does not mean that ANZ is necessarily a poor investment going forwards. It just means that ANZ must be analyzed in a different way. It might be sensible to regard ANZ as a pure 'dividend play' from here.

SNOOPY

[percy]

Time for another game of "Spot The Difference".
This time it is banks ROE.[thank you for the correct figures www.4-traders.com
...................2017.........................20 18
ANZ.............11.7%........................11.7% ...No improvement there.More effort please.
CBA..............16.1%........................15.7 %..Oh dear,going backwards.These boys must try harder.
NAB...............13.4%.......................13.2 %Same comments as CBA.
WBC..............13.8%........................13.7 %Not as bad as NAB,or CBA.More effort please.
Well no difference between the Aussie non achievers.
Now lets see whose ROE is increasing,and we can all spot the difference...
HBL................11.4%....................12%..W ell done HBL,go to the top of the class.!.

[Snoopy]

Time for another game of "Spot The Difference".
This time it is banks ROE.[thank you for the correct figures www.4-traders.com
...................2017.........................20 18
ANZ.............11.7%........................11.7% ...No improvement there.More effort please.
CBA..............16.1%........................15.7 %..Oh dear,going backwards.These boys must try harder.
NAB...............13.4%.......................13.2 %Same comments as CBA.
WBC..............13.8%........................13.7 %Not as bad as NAB,or CBA.More effort please.
Well no difference between the Aussie non achievers.
Now lets see whose ROE is increasing,and we can all spot the difference...
HBL................11.4%....................12%..W ell done HBL,go to the top of the class.!.

If you look at the absolute figures of those forecasts you can see what is really expected to happen. Heartland is forecast to be at the bottom of the class in FY2017, wearing the dunce cap as far as ROE is concerned. Analysts looking out to FY2018 see ANZ and Heartland swapping places in the ROE stakes. But ANZ's new leadership is just bedding in, so we will see.

SNOOPY

[Snoopy]

It might be sensible to regard anz as a pure 'dividend play' from here.


The following table is based on 'earnings scenarios' based on actual earnings over the FY2012 to FY2016 years. I feel that these five years are representative of the earnings climate for ANZ going forwards.

ANZ has reported their new dividend policy is to pay 60-65% of 'Cash Profit' out as a dividend each year. I have taken the mid point of the expected payout range (62.5%) when calculating the dividend that might have been paid, had the current dividend policy been in force from FY2012.



FY2012FY2013FY2014FY2015FY2016Row Total


Normalised Profit (Snoopy)$6,132m$6,599m$7,111m$7,130m$6,834m$33,806 m


Statuatory Profit (ANZ)$5,661m$6,310m$7,271m$7,493m$5,709m$32,444m


Cash Profit (ANZ)$5,830m$6,492m$7,117m$7,216m$5,889m$32,554m


FY2017 Policy Dividend: 62.5% Cash Profit$3,644m$4,219m$4,448m$4,510m$3,680m


Actual Dividend (Below) %ge of 'Cash Profit'69.3%71.4%67.4%68.6%81.9%


Actual Dividend Paid Out$3,702m$4,088m$4,700m$4,907m$5,001m


less DRP Reinvestment($1,461m)($843m)($851m)($1,122m)($413m )


Net Dividend Paid Out$2,241m$3,245m$3,849m$3,785m$4,588m



There are a couple of points of note from this table.

1/ The historical payout percentage rate has been well above the new targeted payout percentage rate (60-65%) for the last five years. It follows that if we take the same earnings profile projected out into the future, future dividends will be less.
2/ If you include the dividends paid out and reinvested back into company shares, then the net dividend paid is well within the 60-65% payout target for future years (except FY2016). Despite this, the chairman's address in (AR2016, p6) speaks of the agony of making the decision to cut dividends going forwards and returninng the payout ratio to historical norms. I take it from this that the dividend cut from FY2016 onwards refers to the actual dividend entitlement, with no account taken of any net reduction that might come from the DRP. IOW ANZ shareholders really can expect lower dividends going forwards.

SNOOPY

[Snoopy]

The following table is based on 'earnings scenarios' based on actual earnings over the FY2012 to FY2016 years.

Note: Figures in the table below are all in Australian currency. NZ imputation credits have been converted to $A using the present day representative exchange rate of $NZ1 = $A0.95.



FY2012FY2013FY2014FY2015FY2016


Dividend Declared (final/interim) 'cps'76c(f)66c(i)79c(f)73c(i)91c(f)83c(i)95c(f)86c (i)95c(f)80c(i)


add Imputation Credit (NZ) 'cps'0c0c0c9c x 0.9510c x 0.9510c x 0.9512c x 0.9510 x 0.95c11c x 0.9510c x 0.95


Gross Dividend (NZ Perspective) 'cps'76c(f)66c(i)79c(f)81.6c(i)100.5c(f)92.5c(i)10 6.4c(f)95.5c(i)105.5c(f)89.5c(i)


Gross Annual Dividend (NZ Perspective) 'cps' (final) + (interim)$1.42$1.60.6$1.93$2.01.9$1.95


Gross Annual Dividend (Aus Perspective) 'cps' (final) + (interim), (assumes 30% franking credit) $2.02.9$2.17.9$2.48.6$2.58.6$2.50



ANZ dividends have, since FY2013, been paid with NZ imputation credits attached. These NZ imputation credits have since been maintained on all subsequent dividends. You can see from the above table though, that the NZ dividends paid to NZ shareholders are not fully imputed. This is evident when comparing gross dividends from both a New Zealand and an Australian perspective. Australian dividends are 'fully franked' (the equivalent of 'fully imputed, in NZ) for Australian tax purposes. And the much higher gross return for Australian shareholders verses their New Zealand counterparts is plain to see.

I am not clear why New Zealand shareholders have only received NZ Imputation credits since FY2013. ANZ.NZ was clearly a very profitable bank before then! Yet although all dividends declared since FY2013 have contained impuation credits, the amount of that credit is subject to the profitability of the New Zealand arm of the business. This means that if a large restructuring took place in New Zeland over a year, for example, those imputation credits we NZ shareholders do get could disappear for a year.

SNOOPY

[Bobdn]

It's my last year in the DRP as I'm retiring at the end of the year. I'll need the cash to pay for my oven fries and Netflix subscription. I hope your prediction lower dividends don't come to pass.

[Snoopy]

It's my last year in the DRP as I'm retiring at the end of the year. I'll need the cash to pay for my oven fries and Netflix subscription. I hope your prediction lower dividends don't come to pass.

To be fair, ANZ are forecasting a lower payout ratio. If earnings increase, then your dividends may not reduce in dollar terms. Incidentally my prediction of lower dividends is not just a forecast. It is happening already (check the table I compiled!)

SNOOPY

[percy]

"Spot the difference"
Banks have been great dividend payers,so lets see whether they will continue to be.
Again thanks to www.4-traders.com.for reliable figures.
..................2014...........2015.......2016.. ......2017..........2018.......2019 Increase/decrease since 2014
ANZ ........ .. 178..............181.........160.........161...... ......163.........170....minus 4.5%
CBA.............399..............418..........420. ........422............426........439.....plus 10% well done.
NAB..............195.............198..........198. ........188............187........190.....minus 2.6%
WBC..............181.............187..........188. ........185.............184........188.....plus 3.8%
Exciting times? No ,very poor.The best,CBA has/will only achieve 10%/////???
Now lets see if we can spot the real difference.
HBL..............6..................7.5........... 8.5............8.93..........9.27........10.3...PL US 71.66% Well done.

[Snoopy]

I now want to use the actual dividend data for FY2012 to FY2016 inclusive to build a 'scenario analysis' looking forwards.

The basis for my model is that market conditions over the last five years are broadly representative of what we might expect over the next five years. Yet in recent times, the capital base of the company has been expanded, because of Basel 3 international banking standards requiring a greater capital base to support the existing bank loan book. The expansion of ANZ's capital base has been as a result of a share issue, including a share purchase plan offer to existing shareholders and institutional share placement. Unfortunately for existing shareholders, this means that broadly the same income stream must now be distributed among the greater number of shares now on issue. In other words, unless there is a corresponding growth in profitability from the new share capital (there won't be, because the new capital is required to be used as a beefed up safety net), earnings per share can be expected to decrease in the future.

The following table shows what would have happened if the number of shares on issue today was constant over the previous five years.



FY2012FY2013FY2014FY2015FY2016


Gross Annual Dividend (NZ Perspective) 'cps' (final) + (interim)$1.42$1.60.6$1.93$2.01.9$1.95


Actual Number of Shares on Issue EOFY2,744m2,759m2,757m2,903m2,927m


Actual Dividend %ge of 'Cash Profit'69.3%71.4%67.4%68.6%81.9%


Scenario Number of Shares on Issue EOFY2,927m2,927m2,927m2,927m2,927m


Scenario Adjusted Gross Annual Dividend (NZ Perspective *) 'cps' (final) + (interim)$1.33.1$1.51.4$1.81.8$2.00.2$1.95



There is a problem with the table above. We have been told for a fact that to continue to meet 'modern capital requirements', the dividend will be reduced to a payout ratio of 60 to 65% of the declared 'cash profit' The table tells us that this percentage has been exceeded for all years over the past five years. This, in all likelihood, means that using the cash dividends listed above as indicative for the future means that we are going to forecast future cash dividends to be too high. So what happens if we reduce the payout ratio on those historical records down to 62.5% (the mid point of the 60% to 65% future declared dividend target range) of 'cash profit'?

* In this instance "NZ Perspective" means dividends continue to be expressed in $A, but the $A dividend is a 'gross dividend' because NZ does not recognize Australian Franking Credits. In addition NZ imputation credits are added to the $A dividend using the exchange rate $NZ1 = $A0.95.

SNOOPY

[macduffy]

If only! A nice assumption but I'm not sure that "retrospective" forecasting has much value.

:confused:

[Snoopy]

Snoopy"The basis for my model is that market conditions over the last five years are broadly representative of what we might expect over the next five years."

If only! A nice assumption but I'm not sure that "retrospective" forecasting has much value.

:confused:


I wrote that because I wanted readers to be aware of the limitations of the technique. Despite the obvious limitation that you cannot say that any one year will be like any other year, it becomes more useful when you look at historical averages over many years (for this is what I am doing). In a broadly static market I like to use 'actual data' not 'extrapolated data'. My philosophy in doing this is to recognise that while this is not a great technique to use, it still compares well when put up against every other technique available!

SNOOPY

[percy]

I wrote that because I wanted readers to be aware of the limitations of the technique. Despite the obvious limitation that you cannot say that any one year will be like any other year, it becomes more useful when you look at historical averages over many years (for this is what I am doing). In a broadly static market I like to use 'actual data' not 'extrapolated data'. My philosophy in doing this is to recognise that while this is not a great technique to use, it still compares well when put up against every other technique available!

SNOOPY

Yeah right.!>>>lol.

[percy]

If only! A nice assumption but I'm not sure that "retrospective" forecasting has much value.

:confused:

Useful, but a hindreance as markets are forward looking.
Foresight is more profitable than hindsight.!

[Snoopy]

Foresight is more profitable than hindsight.!


Yes, but in a broadly stable market, how do you create your foresight? I look to the past for future inspiration, while keeping in mind that going too far back into the past is also getting distant from today's (and tomorrow's) reality. Five years is about the shortest company history I am comfortable with if I am looking for a track record. With some companies, I look at records going ten years back. With ANZ, given the Basel 3 capitalisation requirements in force today, my judgement is that going back any further than five years in the record might not be representative of 'the modern banking environment'.

Some brokers just take last year's result for any company and add a fudge factor and call that a forecast.

If you have a better 'forward looking system', then let's hear what it is!

SNOOPY

[Snoopy]

So what happens if we reduce the payout ratio on those historical records down to 62.5% (the mid point of the 60% to 65% future declared dividend target range) of 'cash profit'?


Note:

1/ All dollar figures listed are in Australian dollars, unless specified otherwise.
2/ Because the New Zealand Dividends are not fully imputed, I am assuming the the gross value of imputation credits passed on will not be affected as the gross dividend is reduced.



Scenario FY2012Scenario FY2013Scenario FY2014Scenario FY2015Scenario FY2016Average Across Five Scenarios


Annual Declared Dividend 'cps' [(final) + (interim)] (imputation credits excluded)$1.42$1.52$1.74$1.81$1.75


Actual Dividend %ge of 'Cash Profit'69.3%71.4%67.4%68.6%81.9%


Scenario First Adjustment: Declared Annual Dividend 'cps' [(final) + (interim)] (62.5% payout ratio) (A)$1.28$1.33$1.61$1.65$1.34


Actual Number of Shares on Issue EOFY (B)2,744m2,757m2,757m2,903m2,927m


Scenario Number of Shares on Issue EOFY (C)2,927m2,927m2,927m2,927m2,927m


Scenario Second Adjustment: Normalise Dividend for Today's Number of shares (A) x [(B)/(C)] => {D}$1.20$1.25$1.52$1.64$1.34


Actual Imputation Credits (Conversion $NZ1- =$A0.95) (E) 0$(0.09 x 0.95)$(0.20 x 0.95)$(0.22 x 0.95)$(0.21 x 0.95)


Scenario Third Adjustment: Normalise Imputation Credits for Today's Number of shares (E) x [(B)/(C)] => {F}0$0.08$0.18$0.21$0.20


Gross Dividend: NZ Investor Perspective {D} + {F} $1.20$1.33$1.70$1.85$1.54$1.524



SNOOPY

[macduffy]

Yes, but in a broadly stable market, how do you create your foresight? I look to the past for future inspiration, while keeping in mind that going too far back into the past is also getting distant from today's (and tomorrow's) reality. Five years is about the shortest company history I am comfortable with if I am looking for a track record. With some companies, I look at records going ten years back. With ANZ, given the Basel 3 capitalisation requirements in force today, my judgement is that going back any further than five years in the record might not be representative of 'the modern banking environment'.

Some brokers just take last year's result for any company and add a fudge factor and call that a forecast.

If you have a better 'forward looking system', then let's hear what it is!

SNOOPY

No better system but I regard it as a waste of effort to try to forecast five years ahead. Incidentally, are you forecasting that Basel 3 is the end of the story regarding capital requirements for banks and that it will be in force, as envisaged today, five years hence, ie extrapolated 5 years out?

;)

[Snoopy]

No better system but I regard it as a waste of effort to try to forecast five years ahead.


I think you are misinterpreting what my objective is. I am using five years of historical data to forecast one year ahead.

I have labelled five scenarios as Scenario FY2012, Scenario FY2013, Scenario FY2014, Scenario FY2015 and Scenario FY2016. The underlying business metrics that generated this data came out in one year increments over five years of chronological order. However, as future scenarios, this historical order no longer has meaning. I am assuming that each scenario has the same liklihood of occurring as any other scenario. And to take this into account I am going to consider an 'annual average figure' to make my future estimates of value.

Of course since I am assuming a 'broadly static market', you could say that my prediction for five years ahead is the same as that for one year ahead, and in this sense your original assertion is correct. But as new data comes along in the interim years, that prediction for 'that year that is five years ahead' now will of course be revised.



Incidentally, are you forecasting that Basel 3 is the end of the story regarding capital requirements for banks and that it will be in force, as envisaged today, five years hence, ie extrapolated 5 years out?


I am assuming the effect of Basel 3 will be constant into the forseeable future, yes. You have to take that into consideration when assessing any predictions from my modelling.

SNOOPY

[Snow Leopard]

So when do we actually get the forecast of future earnings, dividend payout and do we get a valuation with that?

I can hardly handle the suspense any longer.

https://thumbs.dreamstime.com/x/tiger-sleeping-15885880.jpg

Best Wishes
Paper Tiger

[percy]

Yes, but in a broadly stable market, how do you create your foresight? I look to the past for future inspiration, while keeping in mind that going too far back into the past is also getting distant from today's (and tomorrow's) reality. Five years is about the shortest company history I am comfortable with if I am looking for a track record. With some companies, I look at records going ten years back. With ANZ, given the Basel 3 capitalisation requirements in force today, my judgement is that going back any further than five years in the record might not be representative of 'the modern banking environment'.

Some brokers just take last year's result for any company and add a fudge factor and call that a forecast.

If you have a better 'forward looking system', then let's hear what it is!

SNOOPY

Always start with the company's own forecasts.Then it is easy to compare results with forecasts.Some companies achieve their forecasts,other don't.I invest in those who do.
I read brokers analysts research from Craigs,Hobson Wealth,FNZC,and the odd Forbar.The good analysts talk to the companies,and their competitors.The good analysts know their sectors they cover.I attend as many AGMs and presentations as I can.I often ring companies,and either talk to the CFO or CEO.
The more research I do,the better the results I achieve.After following the market for 50 years I seem to be able to sort the wheat from the chalf.My own self employed business experience,and circle of knowledgeable business friends also helps.
I invest in sectors that have strong tail winds and avoid those who face headwinds.
I try to simplify my research,so as not to get confused or lost.Stay foccussed on what matters.

[Snoopy]

So when do we actually get the forecast of future earnings, dividend payout and do we get a valuation with that?

I can hardly handle the suspense any longer.

Best Wishes
Paper Tiger

I start from the 'Average Across Five Scenarios' 'Gross Dividend: NZ Investor Perspective'. That figure comes out at $1.524 per share. And this is one key to the valuation.

The other key figure is a bit more subjective, and you as an investor need to answer the question.

"For a bank such as ANZ, what is the gross yield that would feel comfortable with?"

You could say that banks are a quasi-utility that will be there through thick and thin. I use a 6.0% figure for those.

Yet the ANZ, like all the big 4 Aussie banks, has an ivory tower institutional division that does all sorts of high powered stuff with currencies, futures and options. Regular bank customers on the street would go into shock if they found out if they found out their safe solid bank was doing this stuff. Luckily it is so incomprehensible that even half the people who work in the ANZ institutional division do not understand what is going on. So no-one worries about it. Very occasionally it all blows up with dramatic effect, such as in the GFC. Boring bank shares I would accept a 6% yield from. But with 'institutional stuff' going on behind the scenes I would add in a further 0.5% 'risk factor' to the ANZ.

So my answer to the question I posed is 6.5%:

Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:

$A1.524 / 0.065 = $A23.44 or in NZ dollar terms

$A23.44 / 0.95 = $NZ24.67

Current share price on the NZX as I write this is $NZ30.90, which is 25% above my 'comfortable valuation'. So this means I should sell down, or does it?

SNOOPY

[Snoopy]

Always start with the company's own forecasts.Then it is easy to compare results with forecasts.Some companies achieve their forecasts,other don't. I invest in those who do.
<snip>
I invest in sectors that have strong tail winds and avoid those who face headwinds.


I feel bad butchering your reply Percy, because actually I think you have a very sound investment strategy, even though it is not the same as mine.

The only comment I would make is that by chasing 'winners' (if that is a fair simplification of what you propose above) you are liable to pay a high price for a share with a consistently good track record in a popular sector. If that track record continues further over a long time, I guess it doesn't matter if you pay a high price in the early stages. If there is a glitch in the plan such shares are slashed by earnings reduction and brutalised by PE multiple deflation, a real double whammy to your bank balance.

Being a 'value hound' I don't like paying high prices, and I definitely detest double whammies. So I don't like chasing winners, or at least winners that everyone else has discovered before me!

Good luck to you.

SNOOPY

[Snow Leopard]

I am sure that every value investor does not like, and avoids, paying a high price.

But what you regard as a high price based on your approach others see as a good entry point.

We all have our share of buys that went the wrong way don't we?

But hopefully in the long term we are all the richer, in wisdom as well as dollars.

Best Wishes
Paper Tiger

[percy]

I feel bad butchering your reply Percy, because actually I think you have a very sound investment strategy, even though it is not the same as mine.

The only comment I would make is that by chasing 'winners' (if that is a fair simplification of what you propose above) you are liable to pay a high price for a share with a consistently good track record in a popular sector. If that track record continues further over a long time, I guess it doesn't matter if you pay a high price in the early stages. If there is a glitch in the plan such shares are slashed by earnings reduction and brutalised by PE multiple deflation, a real double whammy to your bank balance.

Being a 'value hound' I don't like paying high prices, and I definitely detest double whammies. So I don't like chasing winners, or at least winners that everyone else has discovered before me!

Good luck to you.

SNOOPY

Value? Winners?
Safety insurance?
Real value to me is where eps growth is higher than the company's PE.
OK a lot of shares I have the PE is slighty higher than their PE,but that is because their sp has increased a lot since I brought them.[HBL is one]
Any shares where the PE ratio has gone to 2 or 3 times their growth rate I have sold,[ POT,AIA and FPH] are good examples.

[Snoopy]

Value? Winners?
Safety insurance?
Real value to me is where eps growth is higher than the company's PE.
OK a lot of shares I have the PE is slighty higher than their PE,but that is because their sp has increased a lot since I brought them.[HBL is one]
Any shares where the PE ratio has gone to 2 or 3 times their growth rate I have sold,[ POT,AIA and FPH] are good examples.

High PE and low growth investments, like a real bank (ANZ) that knows what cash is (one that you can hold up and run down the street with your swag bag of proceeds Beagle Boys style), look to be off your investment horizon then? As are all utilities (MEL doesn't seem to fit in with your PE/Growth rule)? Just making the observation. Not saying this is a good or bad thing.

SNOOPY

[percy]

High PE and low growth investments, like a real bank (ANZ) that knows what cash is (one that you can hold up and run down the street with your swag bag of proceeds Beagle Boys style), look to be off your investment horizon then? As are all utilities (MEL doesn't seem to fit in with your PE/Growth rule)? Just making the observation. Not saying this is a good or bad thing.

SNOOPY

Correct.I have held MEL since float in both my wife's and my portfolios.
I guess the only way I can justify holding it, is by saying I see it as a high yielding "default" bond.??
And no I have not brought more.
HLG is a share I brought a few months ago.PE approx 14. Yield over 8%.Growth I expected to be between 20% and 30%.From yesterday's announcement it looks more like 34%.Good research produces good results.
So they may not be a poor performing high street bank,but I can live profitably with them.lol.

[Snoopy]

Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:

$A1.524 / 0.065 = $A23.44 or in NZ dollar terms

$A23.44 / 0.95 = $NZ24.67

Current share price on the NZX as I write this is $NZ30.90, which is 25% above my 'comfortable valuation'. So this means I should sell down, or does it?


The answer is no, I should not sell down, or at least not sell down on this revelation. Why not? Because my analysis is done from an NZ perspective. Even though I am an NZer and live in NZ, the ANZ share price is largely driven by Australian investors living in Australia. So in my mind it makes most sense to look at this share from an Australian perspective.


Note:

1/ All dollar figures listed are in Australian dollars, unless specified otherwise.
2/ Because the New Zealand Dividends are not fully imputed, I am assuming that the gross value of imputation credits passed on will not be affected as the gross dividend is reduced.


Note:

1/ All dollar figures listed are in Australian dollars, unless specified otherwise.
2/ Because the Australian Dividends are fully franked (at 30%), I am assuming that the gross value of franking credits passed on will reduce in proportion as the gross dividend is reduced.



Scenario FY2012Scenario FY2013Scenario FY2014Scenario FY2015Scenario FY2016Average Across Five Scenarios


Annual Declared Dividend 'cps' [(final) + (interim)] (imputation credits excluded)$1.42$1.52$1.74$1.81$1.75


Actual Dividend %ge of 'Cash Profit'69.3%71.4%67.4%68.6%81.9%


Scenario First Adjustment: Declared Annual Dividend 'cps' [(final) + (interim)] (62.5% payout ratio) (A)$1.28$1.33$1.61$1.65$1.34


Actual Number of Shares on Issue EOFY (B)2,744m2,757m2,757m2,903m2,927m


Scenario Number of Shares on Issue EOFY (C)2,927m2,927m2,927m2,927m2,927m


Scenario Second Adjustment: Normalise Dividend for Today's Number of shares (A) x [(B)/(C)] => {D}$1.20$1.25$1.52$1.64$1.34



Gross Dividend: Aussie Investor Perspective {D}/0.7 $1.71$1.79$2.17$2.34$1.91$1.984



SNOOPY

[Snoopy]

I start from the 'Average Across Five Scenarios' 'Gross Dividend: NZ Investor Perspective'. That figure comes out at $1.524 per share. And this is one key to the valuation.

The other key figure is a bit more subjective, and you as an investor need to answer the question.

"For a bank such as ANZ, what is the gross yield that would feel comfortable with?"

You could say that banks are a quasi-utility that will be there through thick and thin. I use a 6.0% figure for those.

Yet the ANZ, like all the big 4 Aussie banks, has an ivory tower institutional division that does all sorts of high powered stuff with currencies, futures and options. Boring bank shares I would accept a 6% yield from. But with 'institutional stuff' going on behind the scenes I would add in a further 0.5% 'risk factor' to the ANZ.

So my answer to the question I posed is 6.5%:

Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:

$A1.524 / 0.065 = $A23.44 or in NZ dollar terms

$A23.44 / 0.95 = $NZ24.67

Current share price on the NZX as I write this is $NZ30.90, which is 25% above my 'comfortable valuation'.

I start from the 'Average Across Five Scenarios' 'Gross Dividend: Aussie Investor Perspective'. That figure comes out at $1.984 per share. And this is one key to the valuation.

The other key figure is a bit more subjective, and you as an investor need to answer the question.

"For a bank such as ANZ, what is the gross yield that would feel comfortable with?"

You could say that banks are a quasi-utility that will be there through thick and thin. I use a 6.0% figure for those.

Yet the ANZ, like all the big 4 Aussie banks, has an ivory tower institutional division that does all sorts of high powered stuff with currencies, futures and options. Boring bank shares I would accept a 6% yield from. But with 'institutional stuff' going on behind the scenes I would add in a further 0.5% 'risk factor' to the ANZ.

So my answer to the question I posed is 6.5%. From an Australian perspective though, I get a slightly different answer. The New Zealand Official cash rate is 1.75%. The Australian Official Cash Rate is 1.5%. To reflect this difference, I am reducing the yield I require from ANZ by the difference in those two figures, 0.25%. This means the new yield I am happy with is 6.25%

Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:

$A1.984 / 0.0625 = $A31.74 or in NZ dollar terms

$A31.74 / 0.95 = $NZ33.41

Current share price on the NZX when I started this exercise was $NZ30.90, which is 7.5% below my 'comfortable valuation'. This result, and giving the share price some room to breathe, tells me that ANZ is 'hold' at these prices.

From an investor perspective, I like to buy at below fair value. So what if I was in the market to buy some more ANZ? For a quasi-utility type investment this means a 20% discount to fair value, a price of $NZ26.73 for ANZ.NZX shares.

SNOOPY

[Snoopy]

NZ Owners Yield Perspective

Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:

$A1.524 / 0.065 = $A23.44 or in NZ dollar terms

$A23.44 / 0.95 = $NZ24.67

Current share price on the NZX as I write this is $NZ30.90, which is 25% above my 'comfortable valuation'. So this means I should sell down, or does it?




Australian Owners Yield Perspective

Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:

$A1.984 / 0.0625 = $A31.74 or in NZ dollar terms

$A31.74 / 0.95 = $NZ33.41

Current share price on the NZX when I started this exercise was $NZ30.90, which is 7.5% below my 'comfortable valuation'. This result, and giving the share price some room to breathe, tells me that ANZ is 'hold' at these prices.

From an investor perspective, I like to buy at below fair value. So what if I was in the market to buy some more ANZ? For a quasi-utility type investment this means a 20% discount to fair value, a price of $NZ26.73 for ANZ.NZX shares.


A large difference in valuations for ANZ (about 35% gross value), depending on whether you look at things from an NZ or Australian yield perspective.

In most Australian shares, from an NZ perspective, the difference will be even greater because.

1/ Having a profitable and significant NZ 'arm'. AND
2/ Having the will to set up your company tax affairs so that NZ investors can take advantage of it.

rules out most Aussie companies paying NZ imputation credits.

If you value dividends (I do), there is a strong incentive here to not hold any income generating shares outside of the NZX. Given the low growth outlook for Australian banks, should you replace your Aussie bank shares by transferring that money to an NZX listed fully imputed dividend paying equivalent?

I am tempted to answer 'yes', but unfortunately there is no such thing. Don't be fooled by something like 'Heartland', who can now call themselves a bank, being a kiwi equivalent to the ANZ or Westpac. Heartland's markets by and large do not overlap with the big banks and they are epochs apart on the NZ Reserve bank risk scale. This doesn't mean you should not invest in Heartland. Heartland are a very capable second tier finance industry player. Just don't make the mistake of thinking they are a substitute for one of the big banks.

In the markets, there are some sectors that are not represented with a primary listing on the NZX. To get into those sectors you effectively have to put your money offshore and take the lower dividend payments on the chin. Investing in the banking sector is one of those markets.

SNOOPY

[h2so4]

Hmm....two valuations for the same company.

I'm not sure of the logic of dividing dividend by yield to get the share price.

[Snoopy]

Hmm....two valuations for the same company.

I'm not sure of the logic of dividing dividend by yield to get the share price.


I am trying not to mystify anyone SSD. If you understand how to calculate yield, and can follow algebra, all I have done is to rearrange the 'yield' equation.

Dividend / Share Price = Yield <=> Dividend / Yield = Share Price

The reason why there are two different valuations is that if you are a New Zealand owner you get one income stream. If you are an Australian owner you get another slightly different income stream (different because of the different tax treatment).

If your income stream changes then your yield changes. Logically if you are getting a higher market yield, the company share that is giving you that yield will be worth more to you.

Of course this way of valuing a share is fairly crude. I am assuming one constant dividend stream that does not change from year to year. Rather than picking last years number, I am calculating a dividend stream based on the average of dividends paid over the last five years. If the actual dividend this year differs from that five year average, then my valuation will be out.

Furthermore I have taken no account of the business cycle. In a 'good' year my valuation will likely be too low. In a 'bad' year my valuation will likely be too high. My valuation is based around the mythical 'average' year. HTH

SNOOPY

[macduffy]

My valuation is based around the mythical 'average' year. HTH


So it's a mythical valuation, Snoopy? And the point of it is ?

:confused:

[Snoopy]

So it's a mythical valuation, Snoopy? And the point of it is ?

:confused:

No-one knows when the quintessential average year is. It is only knowable after the event. And by then everyone in the market knows it has happened. So there is nothing to be gained from investing with knowledge that all the market has and is already built into the share price.

However, if you know the banking market is cyclical, then it should pay to invest when market sentiment is at its lowest. If you know what the long term average is, then you have a good chance of identifying when the share price is low in a cyclical sense. The game is to 'accumulate' when the share price is low and 'reduce your holding' when the share price is high. One of the best ways to figure out whether today's share price is 'low' or 'high' is to look at it relative to the long term average of where the share price should be. This makes knowing what the long term average is, the one based around our mythical 'average year' (which may or may not occur in practice) a valuable thing for an investor.

SNOOPY

[Lewylewylewy]

No-one knows when the quintessential average year is. It is only knowable after the event. And by then everyone in the market knows it has happened. So there is nothing to be gained from investing with knowledge that all the market has and is already built into the share price.

However, if you know the banking market is cyclical, then it should pay to invest when market sentiment is at its lowest. If you know what the long term average is, then you have a good chance of identifying when the share price is low in a cyclical sense. The game is to 'accumulate' when the share price is low and 'reduce your holding' when the share price is high. One of the best ways to figure out whether today's share price is 'low' or 'high' is to look at it relative to the long term average of where the share price should be. This makes knowing what the long term average is, the one based around our mythical 'average year' (which may or may not occur in practice) a valuable thing for an investor.

SNOOPY

Which is exactly what I do with ANZ. I buy when it reaches $28, then I sell when it's above $31. Not a massive profit, but always a good punt because if it goes south you get nice dividends, if it goes well, you get div plus profit.

[macduffy]

One of the best ways to figure out whether today's share price is 'low' or 'high' is to look at it relative to the long term average of where the share price should be.

The problem that I have with that approach is that the "current" price is influenced by a multitude of factors - current economic conditions; competitive trends eg is a particular company gaining or losing market share; or is it ahead of or behind technological change in the industry; attitudes of regulators, etc. In short, the "long term average of where the shareprice should be" may be becoming of historical, rather than predictive, interest.

Disc: Long term holder of Aust bank shares, well before ANZ NZ was listed as a separate company - which of course was before ANZ Group bought that company out.

[huxley]

Disc: Long term holder of Aust bank shares, well before ANZ NZ was listed as a separate company - which of course was before ANZ Group bought that company out.

Huh? ANZ nz isn't listed as a separate company...

[macduffy]

Huh? ANZ nz isn't listed as a separate company...

No, but it was once. ANZ (Group) spun off the NZ arm, probably about 30 years ago, then bought it back several years later when the thinking was that a larger, unified group would have more clout in the market - " maximise the power of the larger balance-sheet" was the idea.

[Snoopy]

The problem that I have with that approach is that the "current" price is influenced by a multitude of factors -


If you look at any 'dividend capitalisation valuation' (for that is what I am doing) there is plenty that can go wrong, some of which macduffy has outlined.



current economic conditions;


This is why I have chosen to look over a five year period and take the average, effectively smoothing out the 'current economic conditions'.



competitive trends eg is a particular company gaining or losing market share;


If the long term growth is up or the long term growth is down then basing everything about a long term steady dividend stream will not work. However, I do note that many companies tend to keep their dividend streams more steady than their earnings streams.

But if gaining and losing market share ends up being an ebb and flow about an average, then assuming the market will be steady state long term will work.



or is it ahead of or behind technological change in the industry;


'Industry disruption' could smash the steady state dividend model apart. That's true.



attitudes of regulators, etc.


The current attitude of regulators, requiring banks to bulk up on their capital requirements, was to some extent the catalyst in my looking to apply a 'dividend capitalisation model'. I think it is going to be difficult to grow under current NZ and Australian bank policy settings.



In short, the "long term average of where the shareprice should be" may be becoming of historical, rather than predictive, interest.


Yes it might. Although I should point out that if you use a rolling five year window of historical results as your predictor then the model will follow some of the changes in the market, albeit with a lagging effect.

The main point though, is that if a particular valuation method no longer works, you are allowed to throw it away and use something completely different.

SNOOPY

[percy]

I find greater safety buying shares that have eps growth.They have the capacity to keep increasing their dividends.

[Snoopy]

I find greater safety buying shares that have eps growth.They have the capacity to keep increasing their dividends.


To be fair, ANZ has a very good record of long term 'eps' growth. So good, that I took my eye off the ball and just let ANZ management 'do their thing'. The problem for ANZ shareholders now is that ANZ eps growth has stalled. Yet the recapitalisation that took place in 2015 and partially contributed to eps stalling is not altogether a bad thing.

The recapitalisation trade off for shareholders is that ANZ is now 'better set up' for a market shock, like a sudden decline in house prices. As I see it, the risk return trade off is now different.

The question going forwards is, will eps:

1/ plateau at this level?
2/ resume a slower upwards climb?
3/ undergo a slow decline as new disruptive players (like Apple and Heartland) muscle in on what was once a cosy high barriers to entry market?

My best guess now is that the answer will be 1/.

If I am right, this means that the gains in ANZ share price of recent years will likely not continue. Does this matter? I would argue that if the dividend yield is still good (and I think it is), you should moderate any growth expectations and just keep harvesting those dividends.

SNOOPY

[percy]

It would appear brokers' analysts agree with you on 1/.

[Bobdn]

Happy days are here again.First-quarter profits rise to $2B. Excluding one off items, earnings are up 20 per cent year on year.

[kiwichick]

And yet the share price dropped a bit. Go figure.

[Bobdn]

Wait for the ASX to open in a few minutes :)

[kiwichick]

Yeah I've noticed that ANZ and WBC on the NZX often drop when the market opens and then increase when the ASX opens (if the ASX-listed shares increase).

[Nasi Goreng]

I think its a liquidity thing. I like to hold the ASX listed stock because even though its initially more expensive because of transfer from NZD to AUD, if for any reason I need to get out in a hurry, there will be buy orders.

Today after a quarterly results announcement, NZX has traded 30,000 shares and the spread is 18c. ASX after 20 minutes has traded 1,461,000 and the spread is 1c.

[kiwichick]

I have to agree with you. I think in future I'll gravitate towards the ASX for dual-listed companies. Provided you're not switching back and forth between currencies, I doubt that initial exchange expense will matter much long term.

[macduffy]

I have to agree with you. I think in future I'll gravitate towards the ASX for dual-listed companies. Provided you're not switching back and forth between currencies, I doubt that initial exchange expense will matter much long term.

Agree, for dual-listed Australian companies. But for the dual-listed NZ companies such as AIA, FBU, EBO, FPH etc, the NZX will generally have the deeper, more actively traded market.

[Aaron]

I have to agree with you. I think in future I'll gravitate towards the ASX for dual-listed companies. Provided you're not switching back and forth between currencies, I doubt that initial exchange expense will matter much long term.

Wouldn't you miss out on some imputation credits on dividends for the likes of ANZ and Westpac?

[44wishlists]

Which is exactly what I do with ANZ. I buy when it reaches $28, then I sell when it's above $31. Not a massive profit, but always a good punt because if it goes south you get nice dividends, if it goes well, you get div plus profit.

I do the same as well. I tried to value the stock (and other banking stocks too) using different techinical analysis methods, however, probably due to my lack of knowledges and incompetence, banking stocks are too complicated for me. So none works. I then become lazy on reading banking stocks, and just buy when its price reaches $28, and sell above $31. And fingers cross, the results are so far so good.

[macduffy]

Wouldn't you miss out on some imputation credits on dividends for the likes of ANZ and Westpac?

No, the imputation credits - when they pay them - apply to NZ resident taxpayers regardless of which register the shares are held on.

[huxley]

Up 37.1% including DRP since purchase around Jan, 2016
:)
Share price back at $34NZD

[Bobdn]

Up 37.1% including DRP since purchase around Jan, 2016
:)
Share price back at $34NZD

Sort of, thanks to a slump in the NZD over the last few days. Hopefully a NZD will soon be worth 75 cents AUD like a few years back and we'll really be in the money ;)

PS I bought some in January and February last year to average down a bit. Unfortunately I bought in at $32.40 in December 2014. A couple of months later it went to $37 and I felt on top of the world and then it sunk down to $24 so I picked up a few more. Average buy price is $28.39. It's been quite a journey.

[huxley]

What to do, eh? I guess there's an argument for buying and selling during the troughs and peaks (or at least buying during the lows).

Since I hold for the income, and I'm currently in the DRP, I guess a lower price is actually more attractive. But given my average buy in is $24.80 I'm pretty happy to have picked up a couple of parcels when I did.

I guess using the DRP might make you liable for tax? Hard to argue you weren't purchasing for capital gain if you never actually received an income while you held the stock... might just have to stick to a super long view after all.. ;)

[Bobdn]

What to do, eh? I guess there's an argument for buying and selling during the peaks and troughs (or at least buying during the lows).

Since I hold for the income, and I'm currently in the DRP, I guess a lower price is actually more attractive. But given my average buy in is $24.80 I'm pretty happy to have picked up a couple of parcels when I did.

I guess using the DRP might make you liable for tax? Hard to argue you weren't purchasing for capital gain if you never actually received an income while you held the stock... might just have to stick to a super long view after all.. ;)

The value of the shares you receive through a DRP is considered income, at least they are for my tax return each year :) I borrowed $40,000 to buy a parcel of ANZ shares (the $32.40 parcel!!) and claim a little bit of tax back. Will have it paid off in around 18 months. I should point out that just about everything I know on this subject I got on sharetrader and I'm pretty innumerate. I just trust everything I read here.

[huxley]

The value of the shares you receive through a DRP is considered income, at least they are for my tax return each year :) I borrowed $40,000 to buy a parcel of ANZ shares (the $32.40 parcel!!) and claim a little bit of tax back.

True, you always have to find a bit of cash to pay the RWT when you file your return.

[macduffy]

True, you always have to find a bit of cash to pay the RWT when you file your return.

I'm no tax expert but it seems to me that it's not the RWT that you're paying - if you are a New Zealand resident taxpayer. RWT is the (Aust) tax withheld at the time of payment. The additional (NZ) tax payable at return time is the amount assessed to "make up" the shortfall between the RWT already paid and the individual's tax liability for the year.

Incidentally, ANZ didn't deduct any RWT from recent dividends as they were fully (Aust) franked - so there will be (NZ) tax to pay on them at next return.

[Bobdn]

Big day tomorrow. Reading the SMH dividend expected to remain flat, fine by me.

ANZ is my second biggest holding after Genesis. Will try and get an early night tonight.

[Bobdn]

Wow, so the bank only makes 3.4B rather than the expected 3.5B and the market throws a tantrum. So childish.

[macduffy]

Wow, so the bank only makes 3.4B rather than the expected 3.5B and the market throws a tantrum. So childish.

Several reasons, I think.

- There'd been a fair bit of talk in the Aussie media about ANZ being the best of the breed at present and that it "might surprise on the up-side" with its profit announcement. So, another case of expectations getting ahead of reality as shown by the strong shareprice over recent weeks.

- Net interest margin was down slightly, again. That's been the trend for a while now and is hard to budge while rates remain low.

- The profit benefitted from lower provisions and better bad debt recoveries - not seen as a particularly reliable source of future contributions to profit.

Overall verdict, steady but not spectacular.

[Bobdn]

Yes, true. The stock did have a big run up of 40 per cent over the last year, not counting dividends. I guess it's not that cheap anymore.

[BlackPeter]

Wow, so the bank only makes 3.4B rather than the expected 3.5B and the market throws a tantrum. So childish.

Well, you need to put that into perspective. SP is still well above the MA30 and any other relevant MA - not sure I would call that "tantrum". It is just some speculators exiting who expected the result to be better than expectations (if this makes sense ;) ...)

[Bobdn]

Brutal two days , down a cool 16k. The good news is 1) DRP is just around the corner 2) There's some talk of a share buy back.

[BlackPeter]

Brutal two days , down a cool 16k. The good news is 1) DRP is just around the corner 2) There's some talk of a share buy back.

OK - if it breaks the MA 100 (A$30.92) I might become nervous. At this stage it looks to me still like the normal uptrend pattern (with 2 previous dips down to the MA100. Might be just this time again and offer good buying opportunities?

[Bobdn]

Thanks for the info BP. I'll hang in there at this stage and see what happens. If the bank does have enough cash to buy back shares, things might work out well over the next few years.

[peat]

slightly wonky but level perfect bearish gartley is what i see
8827

[macduffy]

FWIW, both ANZ and Westpac shareprices have dropped in May in twelve of the last thirteen years. Probably a combination of over expectation, profit-wise, and the ex-div effect later in the month.

[Bobdn]

Yeah, apparently it's a thing. This guy Richard Coppleson, reported in the SMH, said best to sell now and buy later in the year. He expects all banks' share prices to be higher by the end of the year.

I'm just staying put, XD on Monday and I'm in the DRP. Buy sell buy sell, it all becomes too exhausting.

[theace]

Whats the Divi?

[macduffy]

Whats the Divi?

80cps, ex div 8 May, record date 9 May, payable 3 July.

[n908671]

80cps, ex div 8 May, record date 9 May, payable 3 July.

Why the big gap between ex div and when it's paid (almost two months)?

[peat]

Why the big gap between ex div and when it's paid (almost two months)?

um because they are a bank and they specialise in TVM? :p

[hardt]

Westpac results on Monday, can't wait to see how the two compare...

June is the time to buy banks apparently, may pick up some ANZ when the waters warm.

Disc. holding WBC

[huxley]

new bank levy starts in six weeks will cost, 5% of the after-tax profits from Australian banks, according to NBR today..

[lawson]

They'll pass it on. They've always passed such things on in the past and the Turnbull Govt are gonna try and have window-dressing to make it look like they're not passing it on but they will in fact they already have. Starting March 17th the major Aus banks have had two rounds of rate increases on many of their lending products some increased as much as 50 basis points all while the RBA leaves the OCR unchanged. So the relevant banks have already more than covered this in the 7 weeks before it was announced.

It's quite clever everyone hates the banks, you hit the banks, the banks pass it on so you are really hitting Joe public but then the Govt can blame the banks for passing it on and being such *********. Politically clever.

[macduffy]

The market agrees. ANZ up 29c in Oz.

[macduffy]

Aussie market seems to love the Budget!

ANZ now up 37c today.

:)

[peat]

I said to a colleague the other day, "we"ll see 28"

[percy]

I said to a colleague the other day, "we"ll see 28"

In NZ or Australia.?

[peat]

I am posting in the ANZ.NZX forum so its NZ all the way. My chart earlier was in NZD as well.

[macduffy]

I said to a colleague the other day, "we"ll see 28"

So when do you think that will be, peat?

(ANZ at $31.60 today.)

:mellow:

[Bobdn]

We're in the DRP calculation period now. Hopefully will drop a little more so we can get a few more come July.

[peat]

So when do you think that will be, peat?

(ANZ at $31.60 today.)

:mellow:

Thursday 27th July

[macduffy]

Thursday 27th July

Thanks, peat. Nice to know!

;)

[peat]

Thanks, peat. Nice to know!

;)
As (I'm sure you realise) with all forward looking statements predictions are difficult especially about the future.
So the precise date was a little tongue in cheek, but I did actually apply fibonacci time analysis fwiw.

[macduffy]

As (I'm sure you realise) with all forward looking statements predictions are difficult especially about the future.
So the precise date was a little tongue in cheek, but I did actually apply fibonacci time analysis fwiw.

Thanks again, peat. Clarification not necessary :cool: but good to know that there is some method augmenting your crystal ball gazing!

[peat]

S+P downgrades whole Australian banking industry
ANZ estimates cost of levy - we estimatethat the annual financial impact of the tax would have been approximately $345 million on abefore tax basis, and approximately $240 million after tax.

Discl (no position) but I will confess pride is at stake. :p

[trader_jackson]

only 240m? how much did they make 2.9b? so less than 1% 'actual' impact, yet the share price of ANZ fell how much this month? nearly 15% or something? (mostly due to the budget tax I believe)
(Made a mistake... actually 8 ish %)

[BlackPeter]

might want to refresh your calculus lessons ...

240 m would be roughly 8.3% of 2.9 b, quite a significant take.