We must remember analysts are only "the paid help".
They are not investors, and have no "skin in the game,"so their views lack conviction...……………...lol.
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We must remember analysts are only "the paid help".
They are not investors, and have no "skin in the game,"so their views lack conviction...……………...lol.
Counting down to the 21st September.....About 25 days to go,or just 3 weeks this Friday..
5.11% net yield and increasing yearly,means I remain "well positioned."
10cps fully imputed divie is my next milestone
$2.50,then $3.00 all will be passed at some stage, on the way to $5.00......lol.
The Australian Securities and Investments Commission have warned Heartland Seniors Finance among others offering reverse mortgages to not be bastards towards elderly underarm bowlers.
https://www.smh.com.au/business/bank...28-p5007y.html
Boop boop de do
Marilyn
As we know Heartland's RELs in NZ have the backing of Consumer NZ.So no "bastards" or "underarm bowlers" in the team,which will position them well with Australian regulators.Most probably set the standard.
The Australian Government is letting retirees take out RELs,with the draw down being added to their weekly pension payments.So they are promoting RELs,but with no lump sum draw downs.This will add awareness to retirees of RELs, and will see the whole market for RELs grow substantially.
HBL Seniors, and other providers of RELs, offer lump sum draw downs,so I expect the market will expand for them.
May help to explain why Heartland are moving to their new structure so quickly.
Quite surprised the REL business is so small compared to normal home loans. MASSIVE scope for growth in the years ahead I reckon.
Saw an interesting survey yesterday that claimed one third of American's had less than $5K saved for retirement and the average was only $84K and that's including their tax efficient 401K savings programs. Probably similar figures in Australia with plenty of baby boomers looking to tap into the equity in their houses to maintain a reasonable lifestyle in retirement.
Had another look at the look through the near term dividend and what's the yield investment case going forward today.
$1.74 less 5.5 cents back shortly = $1.685 invested on an FY19 investment case basis.
Assume some growth in divvy this year, surely they won't be so mean as to keep it the same again, say 9.5 cps this year fully imputed as always.
9.5 / 0.72 = 13.1944 cps gross / 168.5 = 7.83% gross yield.
Key point of difference with this one as compared to some other yield investment cases is their ability to steadily grow the dividend over time. Pretty solid investment case on a yield basis with low interest rtaes forecast for the foreseeable future. Trading in line with its peer group on a PE basis.
Possibly "Fake News" but I hear a good number of people reach 65 with a mortgage on their home,while the lucky ones have repaid it.
It also appears the average amount people have invested in the share market is about $30,000.
These are "well off" people.
A huge amount of people need to work well past retirement age,
Yes REL business is small fry compared to usual house mortgages.
Yes I agree there is MASSIVE scoop for growth in the years ahead for RELs.
Australia and NZ have seen,and are seeing people living in 500,000 to $1.5mil homes without the income to afford any standard of living, after paying rates,insurance and power.
RELs give them a live.Freedom to stay in their home ,and enjoy some of their capital,which after all is theirs' to do with whatever they want to.Travel,home improvements,medical procedure,grand daughter's university fees,or even heat the old house to a liveable temperature.
It is in governments interests to keep old people in their own home, and that is why governments support RELs.
[QUOTE=percy;727114]Possibly "Fake News" but I hear a good number of people reach 65 with a mortgage on their home,while the lucky ones have repaid it.
It also appears the average amount people have invested in the share market is about $30,000.
These are "well off" people.
A huge amount of people need to work well past retirement age,
Yes REL business is small fry compared to usual house mortgages.
Yes I agree there is MASSIVE scoop for growth in the years ahead for RELs.
Australia and NZ have seen,and are seeing people living in 500,000 to $1.5mil homes without the income to afford any standard of living, after paying rates,insurance and power.
RELs give them a live.Freedom to stay in their home ,and enjoy some of their capital,which after all is theirs' to do with whatever they want to.Travel,home improvements,medical procedure,grand daughter's university fees,or even heat the old house to a liveable temperature.
It is in governments interests to keep old people in their own home, and that is why governments support RELs.[/QUOTEG
Good post I think RELs will become mainstream in a few years, I think this part of the business has huge potential.
The old diversidy target not working too well for Labour at the moment. Two ministers down. Both women. Just goes to show women in power can be equally as incompetent as men. Hopefully corporations are taking this on board and reflecting that proven merit should be the sole criteria for any appointment.
Farmgate milk price down ...but Opportunity for Heartland as dairy farmers might need more working capital
I am looking forward to catching up with deputy CEO Chris Flood, and CFO David Mackrell,on Monday the 10th September,at Heartland's "Retail Investor Roadshow."
I appreciate these presentations.Always learn something.
Thanks in advance Heartland for taking the trouble.
Wonder why I haven't got one of these invites...felling left out and :( Suppose the annual meeting being in Auckland might have something to do with it...or maybe they just invite those with a seven figure sized shareholding like Winner and Percy :D
https://www.nzherald.co.nz/business/...ectid=12116824 Honestly if farmers can't make money at that price its time to move on...
NO - don't! Lets hope nobody from IRD read your post - otherwise they might join the meetings, take records and charge withholding tax on the provided snacks ;) - I am sure they could classify them as fringe benefits;
However - there might be a loophole to rescue snack-taxed shareholders. I understand that HBL invited as well non shareholders (actually all NZSA members) to these meetings - i.e. the snacks are not a dividend but just a marketing investment and can be written off HBL's tax bill. :cool:
Yes and just to remind everyone what you found. There was a tiny foot note at the bottom of page 6:
"It is a condition of Heartland Bank’s registration as a registered bank that Heartland Bank must conduct a substantial portion of its business within New Zealand. This requires Heartland Bank’s Australian assets to not exceed 33% of its total assets."
Yet if you go over to the Cameron Partners Report p23, or p64 of the 'report within a report'.
Requirement for Substantial portion of business in New Zealand (Total Assets Maximum): Not disclosed
Why did Heartland not disclose to Camerons the maximum amount of business they could do outside of New Zealand, when they knew what it was all along? Could it be that if they had disclosed this, then Cameron's would have realised that they could more than double their business in Australia with the rules as they are now? And if Cameron's had known this, then the touted advantage of removing the 'constraint on Australian funding and asset growth' would probably not be a factor for several years of organic business growth?
Of course it might be that Heartland wants to acquire a substantial existing reverse mortgage portfolio from a third party to add to their existing operations. In that case the restructure would be understandable. But if this was the case, why doesn't Heartland tell you shareholders what is in the wind?
This proposal removes the protection of Reserve Bank of NZ oversight for no good reason. It will make no difference to Heartland profitability for the next couple of years at least if you vote in down. This new arrangement is an erosion of minority shareholder oversight and protection IMO. Vote it down folks.
SNOOPY
If you had read the report from front to back,rather than back to front, you would have found it on page 6.[always read the notes]
We do not know why Camerons chose not to mention this.
Suggesting Heartland did not disclose this to them is just guess work.
Cameron's did disclose what they knew about the Heartland Financial Compliance Limits. It is in table 8, and 13 items were listed together with their limits. This presents a very complete picture of the constraints on Heartland. But the 14th item in that table (the amount of business that could have been done outside of NZ) was listed as 'not disclosed'. Heartland knew what it was, but it seems they didn't tell Camerons. They told them in great detail of the 13 other restrictions. But they did 'not disclose' the fourteenth restriction, seemingly by their own choosing. This is not guess work on my part. You have to ask yourself why?
The quote below is a liner from Cameron's 'Table 8'
Requirement for Substantial portion of business in New Zealand (Total Assets Maximum): Not disclosed
Just to be clear, I am not saying that the information wasn't disclosed. I am saying that Cameron's are telling shareholders the information wasn't disclosed, presumably because they weren't given it by Heartland. There is a big difference between those two statements!
SNOOPY
Yes I am talking about the current arrangement.
Yes the new rules will negate the 'no more than 33% of business outside of NZ' restriction, as well as removing oversight by RBNZ of the Australian assets.
But the current level of Reverse Mortgage business in Australia represents only 9.5% of total Heartland receivables, plus an unspecified, but small, amount of business lending 'on line'. It is way below 33% in total. I would guess well under half. So there is no need to make this change. The only thing the change will achieve in the short term is to remove the oversight of the Reserve Bank of NZ, a protection for shareholders. Why would you as a shareholder vote to remove the Reserve Bank of NZ oversight, when there is no short or medium term need to do so?
SNOOPY
its probably already mentioned , but if you had an opportunity to expand the aus business rapidly and by listing in aus gave you better access to the funds , that would be why you would do the restructure now.
Even if a quick purchase wasnt on the cards the aus business is growing fast so would have to do the same at some stage anyway. doing it sooner i guess gives you flexibilty to move on opportunity.
Snoopy,
you make a lot out of RBNZ's oversight as protection for shareholders. Maybe you should talk with some CBL shareholders to find out how little regard the Reserve Bank has for shareholders of the organisations they oversee.
They said themselves during the still unfolding CBL disaster that it is not their role to protect shareholders. And that's exactly how they operate. I don't know whether they added so far any value to the CBL story, but certainly not for CBL share holders. Apparently they even forced the board to break continuous disclosure rules (quite funny that ...) which resulted in shareholders being kept in the dark for 6 months about the companies situation. Well, that's what the board is saying anyway. Worthy of an unregulated third world economy ... but New Zealand? Forget the RBNZ.
Why do you think their oversight would add value for HBL shareholders? I guess, sure RBNZ might know whether they go down the river, but they would not tell anybody ... certainly not the shareholders - and they would make sure that the board keeps this knowledge confidential as well.
https://www.nzherald.co.nz/personal-...ectid=12009623
.
The bit have have emboldened may be the key point. If there is a deal on table that Heartland are not telling us about, then what they are doing makes perfect sense. But if there is a deal on the table, why not tell us about it? Commercial sensitivity? There don't seem to be people lining up to buy REL portfolios in Australia though.
That is absolutely right Percy. There are many Australian pension funds that are greatly restricted on what they can invest in by where it is listed.
SNOOPY
I have read the referenced article and I do feel for all you CBL shareholders. I see there has been a three part series on the demise of CBL in the NBR over the last three weeks (starting in that 'Rich List' issue) . Well worth a trip to the library to read it all if you aren't a subscriber.
While we can't bring CBL back, it does seems lessons have be learned though. A 40% jump in numbers on the presently 10-person team managing regulation of the industry is a start. It looks like the reason that the July orders against capital movements from CBL accounts were kept secret because there were plans to possibly sell of pieces of CBL. And they didn't want the value of the company to affected during these sales negotiations. I would say that indirectly all this would have been in shareholders interests, had a partial sale of some business assets gone through. It is really only with hindsight that you can look back and say this was not in the interest of shareholders - because nothing ended up being sold.
Back to HBL and the RBNZ. I believe one of the things that the Resreve Bank follows is cashflows, or expected cashflows. This is particualrly important in the context of the historical collapse of the NZ finance industry during the GFC. If cashflows were not a problem then a company like Hanover would still be 'solid as'. The REL business is generally highly negative in cashflow while it is still growing. Cutting the arm of the business loose that is most likely to bleed cash is a real worry for me as a potential Heartland shareholder. As the debt cycle tightens it seems to be excatly the wrong thing to do at the wrong time from a risk perspective. If the reserve bank are happy for the REL business in Australia to grow by 100% without any capital restructuring (for that is what can happen by doing no restructuring) what is wrong with that? Why does Heartland want it to grow larger than this? I am not sure that shareholders fully understand the potential risks that Heartland will be exposing them to by wanting to grow the reverse mortgage business at a faster rate than the rest of the business.
SNOOPY
Record date is 7th, when is last day to buy to get divvy plz
Wednesday 5th Sept.
HBL trading XD [ex dividend] today.
Forecast eps 13.5 cps. Forecast dividends 9.5 cps fully imputed, (gross 13.194 cps)
HBL at a year low of $1.67. Forward PE just 12.37 and forward gross yield 7.9%. PE probably lower than most of the Aussie banks and yield definitely the highest on a net basis to Kiwi investors taking into account imputation credits. 8% forecast EPS growth this year and outstanding long term prospects for loan growth through reverse home mortgages.
Looks like RBNZ is going to cut and we're in for years of ultra low interest rates. Opportunity knocks at under $1.70 to lock in good yield and dividend growth in the years ahead ? You folks be the judge.
I don't get it how cheap these are so picked up another bunch at $1.67 and $1.68. $2 end of year I reckon
I still have a few shares in the bank and today I got a reminder to vote at the meeting.
Voted against the restructure as per Snoopy's instructions, against re-electing the men and for re-electing the women and could not care about the auditors.
If this gets back down to under-priced I will add to the few.
I am not sure that I fully understand the potential risks that Heartland will be exposing shareholders to by wanting to grow the reverse mortgage business at a faster rate than the rest of the business. But after pondering on the proposal for a few days, here is my 2c worth on the topic.
There is no free lunch when a financial institution turns 'ordinary loans' into 'securitized loans'. That is the only bit that I am absolutely sure about. But where does the risk go if Heartland packages up their reverse mortgages in Australia and on sells them to Australians?
Heartland will make money because the interest they contract to receive from the reverse mortgage holder will be at a higher rate than the interest they pay out on the soon to be created Aussie bond supporting that loan.
The largest risk will be taken by the Aussie Bondholders. The Aussie bondholders will be being paid a higher than normal interest rate by Heartland (albeit still below what Heartland are getting for their reverse mortgage). But if some of those reverse mortgage loans end up being sold up and the capital released does not discharge the reverse mortgage, then those bondholders will take most -if not all- of the capital hit.
So far this sounds really good for Heartland. They clip the ticket on their REL loans and outsource much of the capital risk. Heartland's job is to match make REL loans with third parties that want to support them. But what happens if the 'matching' becomes difficult?
The ideal situation would be that the maturity terms of each reverse mortgage 'package' exactly matches the maturity terms of the equivalent third party funding package. But what would happen if there was a property market collapse? Suddenly all of those reverse mortgages that had 'responsibly' been limited to 60% of the value of the property value might overnight increase to 80% of the value of the property. And 'interest owed' by the property occupier would still be accumulating, leveraging the homeowners position even further. In that circumstance, the third party bondholders might rightly assess their risk has gone up. And they might elect to redeem rather than roll over their bonds at the end of the bond term. What would Heartland do in that circumstance?
One option (the only option?) would be to redeem the reverse mortgages early. Doesn't sound so bad. Until you realise what it means is 'sell houses' and throw old people out onto the street!
SNOOPY
The average REL loan in NZ is just over $30,000 spread over 15,000 clients.
This works out between 5% and 10% of the house capital value.
This indicates RELs are very modest sized loans, compared to the security [house] taken over.
A lot of RELs have been taken out to do up houses ie new kitchen and bathroom so the house can be sold,therefore they have been repaid when the house has been sold.
You will not see old people put out onto the street.
I think the issue is not what happens with the 'average' loan. $30,000 on a $600,000 house is only 5% of the capital value - not an issue. But an average is made up of a whole series of numbers that are higher and lower than the average. I would be concerned about those loans at the more highly leveraged end of the loan book. Even if only one or two pensioners were tipped out onto the street, would 'you' (as an institutional investor) be willing to back such a mortgage scheme by stumping up with wholesale funding for it? I see the situation as akin to investing in Casinos. 99% of customers can go for an evening at a casino and not suffer financial hardship and come away with their dignity intact. It is the 1% problem gambler that provides the ethical dilemma for investors. It will only take one or two elderly mortgage holders ending up on the street to taint the whole business.
I wouldn't expect this to happen in NZ. Heartland have a reputation to uphold and would likely bail out any pensioners that got themselves into REL trouble, out of fear that such suffering would damage the reputation of the rest of their business. But what I am talking about is what is proposed in Australia by the as yet unnamed umbrella company set up to do reverse mortgages 'over there'. Because Heartland hasn't given it a name yet, I will christen it "Heartless 'Stick it up the Ozzie Pensioners' Not a Bank Limited." There is no reputation to 'protect' with that one.
SNOOPY
We can only guess at how it might work out. Ultimately, it comes down to whether you trust the directors to do their job or not.
I do trust them and have voted for the restructure, if I didn't trust them I would sell my shares.
Heartland's stated policy is fewer large loans and more smaller size loans,so I would doubt the average would be a few $1mil loans and a huge number of $3,000 loans.Does not make sense.More likely the odd $80,000 loan and a greater number of $20,000 loans.
Some would be $50,000 for a medical operation.
People taking out RELs have a unencumbered home.They are not gearing up to buy more property.
From day one when Heartland was formed, the directors have done what they said they would do.
With a lot of their own "skin in the game", directors and management have always acted prudently,honestly,and been part of our community.
Sound leadership.Good trustworthy team.
The opportunity to back their strong organic growth in Australian RELs should be taken.
To miss this opportunity would not be in Heartland shareholders best interest.
I too will be voting in favour of all resolutions.
I am not a lawyer and didn't yet analyse a REL contract either. However - based on the information I have seen (e.g. a report in Consumer) does this last option not exist for the bank. The existing REL contracts explicitly guarantee the homeowner that they can stay in their house for life, no matter whether the house equity drops below the drawn loan.
It is the job of the bank to make sure they stay on the cautious side when approving the loan ... and if they err, they have to take that on their balance sheet.
Heartland can already grow their Reverse Mortgage business in Australia by 100% (this is a conservative estimate on my part, the true figure may be closer to 150%) by doing nothing to restructure the business. 100% is quite a lot of organic growth. It would bring Australian reverse mortgages up to 20% of the loan book. Are you saying that Heartland want to boost the Aussie REL business by even more than this? To 30% of the loan book? Or 40%? That would be quite a different business mix than exists today under the Heartland umbrella.
I am not saying that Shareholders should never approve a resolution to extract the Aussie REL mortgages from under the bank structure. I am saying there is no need to do it now, or for a couple of years. The only thing shareholders will 'gain' by doing this now is to lose the supervision of RBNZ for that part of the business.
Of course where such a restructure might make sense is if Heartland wanted to buy up an existing REL loan book from another market player. But if that is what they want to do, just come clean and let shareholders know. That way at least shareholders will know exactly what they are voting for.
SNOOPY
I think that is all correct BP. But remember the REL business of Australia will be taken outside of the bank umbrella. I think ASIC may have a say as to what goes on in Australia. But there will be no banking authority oversight. The securitized loan process mooted should transfer some of the any potential capital loss to the as yet unissued supporting bondholders. But it will be the job of the nobody to make sure "Heartless 'Stick it up the Ozzie Pensioners' Not a Bank Limited." stay on the cautious side when approving any loan ...
SNOOPY
Snoops me old mate ...you are thinking too hard about Heartlands REL activities in Oz and seeing an awful lot of things that don’t or are ever likely to exist.
Seniors Finance has been going since 2004 in Oz and no doubt the likes of APRA and ASIC have no issues with them.
Life we go on as usual whether they double their business or not ...no worries
Seniors REL business was outside of any banking umbrella when HBL brought it.
HBL and The Reserve Bank of NZ agree the REL business should be outside Heartland Bank.
Having a business outside of the bank never affected Westpac with AGC or ANZ with UDC.
So no reason Heartland Group can not own a NZ bank, and REL businesses as well.
Using the new Heartland App
Bit disappointed it doesn’t give me a Te Reo option.
Utua is pay and penapena is save
BNZ apparently gives that option
Another interesting presentation from Heartland last night.
When they first brought Seniors Reverse Equity Loan business ,they were very much aware of NZ companies failures in Australia.
They were therefore very cautious.The REL business has been an out standing success, and the growth is set to continue,particularly in Australia.
The average Australian loan is higher than in NZ,usually between au$50,000 and au$60,000,against an average RVL of 12%.They will lend up to 20% to 30% of RVL,.Nearly 70% of RELs are repaid early.Talking with Australian regulators ,any new requirements will not be an issue for Heartland.
The restructure group is to facilitate the growth in their Australian REL business.Australian REL business growth rate is much higher than in NZ,however Heartland see good prospects in NZ as well.
Heartland need 70% shareholders to vote in favour of this resolution,so if you have not already voted,please do.
Not sure about AGC. I know that UDC have their own board. But I believe that UDC is consolidated within the ANZ.NZ accounts. That is the reason that UDC as a 'separate entity' (sic) is not under supervision by RBNZ. So UDC is not outside of ANZ in any legal way.
SNOOPY
Freddagg, I accept your position, it is legitimate, and I won't attempt to change your mind.
For others reading, I believe it is also legitimate to have shares in a company and yet not agree with everything the directors do. I myself have publicly voted against what directors have suggested (in another company), yet I still retained my shares after my vote was 'lost'. I retained my shares because I thought that the overall company direction was good, even though I disagreed about one particular resolution. I have now moved on from that particular issue, even though my voiced concern at the time has largely been proved correct with hindsight. I don't feel a 'fraudulent' shareholder because I keep holding. I think internal contesting of ideas is healthy.
In this Heartland vote, I don't believe that the issue is black and white. What Heartland directors are proposing as 'new' was the status quo anyway only three years ago. And most of the directors that voted to bring the REL business within the Heartland Bank fold are still there. IOW Heartland directors have flip flopped on this issue. At the time IIRC, the benefits of having a simplified corporate structure with only one board was mentioned. If this deal goes through there will be two boards again. Progress?
SNOOPY
I am not to sure Percy that I share your enthusiasm to vote in favour of this resolution to have the Australian REL business in a separate entity.
The reason is that I notice the following, a few months ago Richard Lorraway resigned. Richard was HBL Chief Risk Officer, if one person would understand the implications of the changes I would have thought it would be Richard. Ok, maybe coincidental he left right at the time risk management of HBL is up for discussion. But why then did Richard decided since to sell all of his share holding.
Also there are 2 other directors Ellen Comerford and Venessa Stoddart without a share holding in HBL.
Does not feel that everybody in top management believes strongly in great things to come.
To counter that some directors have a serious large shareholding but this was mostly acquired quit some time ago.
Your thoughts?
Getting prepared to do that at the AGM maybe
But sadly I think all thius diversity stuff is just one big charade to give themselves the warm fuzzies or maybe they think its good 'marketing'
I still remember the horrified look the Chairman had at a AGM a couple of years ago when a shareholder said the Board was a pack of fuddy duddys ...he seriously looked shooked, in other words he just doesn't get this diversity stuff.
That Lorraway guy has probably left the office and that's why he sold his shares.
Has a habit of working for a few years and then taking a break ....travel
I wouldn't read much into him resigning ....but then a lot of risk management **** came out after he left his previous job
I spoke with CEO Jeff Greenslade and deputy CEO Chris Flood. before the meeting.In fact I had all my questions answered before the meeting started.
After the meeting I spoke with CFO David Mackrill,and Investor Relations Manager,Julia Belk..
When the restructure was first announced I was a bit disappointed HBL would not have to answer fully to The Reserve Bank of NZ.Thought that gave shareholders extra protection.I then came around to thinking OK I can see we still be able to analyse their full accounts.HBL have earnt my respect as they have always been honest with their objectives,and I have been very pleasantly surprised they do as they say they will do.
HBL have really made their REL business work.They see continuing huge growth in Australia.It is a very profitable low risk secure sector.Repeat "very profitable low risk secure sector."
To take advantage of this growth they have to restructure their structure.
The long and short of it, I went from being luke warm,to hot,and now I am boiling with enthusiasm.
I thought the previous CFO,Craig Stephen was very capable.I found him easy to talk to.His replacement David Mackrill, is also very capable and easy to talk with.Jeff Greenslade attracts capable people,including Investor Relations Manager Julia Belk.
Yes a couple of directors do not hold shares,however the other directors and management have a lot of skin on the line.
I have voted to support the proposal for pretty much the same reasons Percy has set out. HBL have proven to be reliable when setting targets and meeting them, and to date all moves made have increased the share price and/or dividends therefore they have my support.
Was pretty easy when the ROE was 5%.
Getting harder at ROE at 11%.
Guess they will have to work a bit harder when they get to an ROE of 13%.
Bring it on....lol
Be even harder if they don't get the growth in Aussie RELs, because they did not get the restructure over the line.
If you want growth with improving ROE,EPS and dividends,you must vote for it.
When Heartland applied to be a Bank the then CFO admitted it was more for marketing purposes than anything else. Gain much needed credibility and all that sort of stuff. Banks are safer than finance companies eh ...at least in the environment when finance companies were not well thought off.
Being a Bank per se has served its purpose but it is really a finance company at heart.
So breaking free from the constraints has to be good - it allows Heartland to move on and continue to grow, especially in Australia.
The only downside from a share price point of view is that the market might might see them as a finance company and not a Bank and rerate them accordingly. Maybe seen as a more ‘risky’ investment
But continued growth will offset that to a large extent, hopefully
Anyway Heartland Group sounds bigger and better than Heartland Bank
W69.
Are you attending the HBL Wellington presentation.?
I have voted in favour as I am very happy to support the proposal.
its Maori Language week mate how can you say this!!?
It is correctly pronounced Fungarei , but Whanganui stays the way it was always pronounced. No F sound just Wonganui - Maori in this region dont pronounce the H
Yes its not easy keeping up huh
Back to Heartland I have a few under a CFD, but not in my name as yet. I am quite disappointed with it technically. Been going down for the last 9 months - i cant see any compelling reason to own it at present so may ditch the few I have.
I agree with what Percy has written above. The ability to fully monitor shareholders' potential downfall with fully audited accounts will certainly be painted up in lights for everyone to see.
Yet I think Percy skirts the main risk issue which is actually cashflow. It is possible to have a highly profitable business unit that nevertheless cannot pay its bills in cash. Heartland does not have the money to fork out large Reverse Mortgage cash sums with no cashflow coming back for many years. They are looking to fix the cashflow problems by borrowing large amounts of money on the wholesale bond market in Australia. And this creates the risk that if the wholesale bond market tightens up, not only will Heartland's REL business not be able to grow. It means that Heartland will not have the money to pay the interest on the bonds they have created already. How likely is this to happen in reality? I would say that the chances are low. So if the chances are low, why worry about it? Because if it does happen the downstream damage will be severe!
The only realistic way out of such a potential pickle that I can see is that new parent 'Heartland Holdings' would have to sell all or part of Heartland Bank based in New Zealand. That could leave today's "Heartland Bank' shareholders with only a distressed REL portfolio in Australia. The question is, as a Heartland shareholder today, are you prepared to entertain that low risk with high consequences? The best way to avoid such a risk is to stick with the current structure.
No they don't. They can still grow the Australian REL business by 100% (measured by the size of the loan book) under the existing structure.Quote:
To take advantage of this growth they have to restructure their structure.
SNOOPY
70% of RELs are repaid early.
Snoopy says HBL can grow REL business in Australia 100% under existing structure.
HBL say they need new structure to grow the Australian REL business.
Difficult choice,believing Snoopy, or HBL board and management,who actually have shares [ a lot] in the business,and know the business better than anyone.
Tough decision..? ,,,lol.
Actually - I do think that Snoopy is pointing out a very real risk worthwhile considering ... and even good directors have no 20/20 foresight of what the future might bring. As well - ask CBL shareholders whether large director shareholdings are a useful indicator. On the other hand - they will tell you as well that while RBNZ oversight may or may not add value to some stakeholder interests - its value for shareholders is quite negative.
Anyway - the proposed changes are likely to improve HBL's earning capabilities if things go well - and it will increase the risks for the shareholders if things don't go well.
Classical investors decision - higher (potential) rewards vs higher risks. Everybody needs to decide for themselves which model fits better to their investment profile.
Discl: Don't hold at present and not really sure how I would vote ...
I agree BP that Snoopy has pointed out a real risk with the cashflow intensity of the REL business. No doubt about that. That's why I've just voted online for the proposed restructure to allow the Directors to seek more avenues for funding the big REL growth ahead. Yes it is a classic risk reward scenario that investors have to weigh up. I'm all for it.
For me the decoupling from RBNZ oversight is something of a worry and gives me echo's from finance company days but this is not finance company lending.
Reverse equity lending margins are FAT and growth is very high and the risk with this sort of lending is very, very low.
I wonder if this understates the opportunities for HBL in Aussie.
From the Scheme Booklet, HBL reckons the Aussie reverse mortgage business hits 35% annual growth.
On page 6, HBL notes that RBNZ limits wholesale funding to 20% and overall Aussie assets not to exceed 33% of the assets.
Absolutely, based on the HBL's current size, the reverse mortgage business has 100% growth. Assuming continued 35% growth, HBL's going to hit that upper limit within a couple more years.
Growth may be bigger if HBL can also increase its access to wholesale funding by restructuring away from the 20% wholesale funding limit.
Thoughts?
I guess I am still a bit struggling to quantify the risks.
Anybody has seen one of these REL contracts? If they cap the interest rate - or worse - fix a long term interest rate than it would be not too difficult to picture a scenario where anybody giving out these REL loans is receiving significantly less interest than they are paying to fund the capital.
Just one example .... imagine Trump crushes the Chinese economy and China does not need anymore Australian resources (coal, IO, other ores). Australia'n economy turns Argentina ... and interest rates approach 100% (give or take) annually. How safe would be a finance company holding long term (life can be long) REL loans capped at 8%?
And even if interest rates are not capped - how long at 100% interest that the principle is higher than the mortgage?
Not saying this is happening, but as said - life can be a long time, the future is impossible to predict and the risks are real.
Plenty of doomsday scenario's if one wants to let their mind wander but for me several of the directors have serious skin in the game and as Percy keeps reminding us the average reverse equity loan is very small and only a tiny percentage of the value of retiree's homes, (unlike other banks which are lending as high as 95% loans again). Maybe other banks are actually higher risk in any of the doomsday scenarios one cares to conjure up ?
Exactly.
Big difference between REL lending at 12% of LVR .and mortgage lending up to 95% of LVR.
Worth thinking about.
Heartland have.
Just received the NZSA voting intentions for undirected proxies.
By the way - a useful document with company background and reasoning for every voting recommendation. They prepare these for every ASM they are attending. If you join the NZSA (https://www.nzshareholders.co.nz/members.cfm) you will be able to read them and get future copies as well ;):
Anyway - they say that "NZSA has met with the company and is satisfied the grounds for the restructuring are justified. " They will vote in favour of the proposal.
Fun happened in UK a number of years ago.
Can't remember the exact details,but property values dropped over 10%.
Hundreds of thousands of people with no equity in their house,as they owed more than it was worth.
Banks did not sell them up,as it would have depressed values further,and meant they would have had to realise their losses.
Fun would be if Sydney,Melbourne and Auckland house prices fell more than 15%.
Think Heartland would be the last bank standing.
ps 15% [of most banks] would be their equity.
pps.Thanks Blackpeter for letting us know NZ Shareholders Assn are in favour.Positive.
I think you would be dead right there. I was quite surprised when I look at HBL's REL at little you could actually borrow against equity - there was a grand canyon chasm of head room between the two.
Contrasted with banks residential lending I am horrified how much people can borrow (80% in a "flat market) where there is a risk of properties devaluing, relative to their income and the long length of term of the loan. Came across a person the other day. Aged 54, earning $21 an hour. Got a $400k loan on a property with an RV of $475. (must have got a $500k valuation). How is that not high risk?
Yes it does. My 100% growth in Australian REL comment was based on what Heartland can do with their current structural arrangements. It wasn't a comment on the potential of the market.
Yes that's how I read it too. So why not vote for the restructuring in a couple of years, when it may actually be needed? Why the big rush to put through the restructuring now?Quote:
From the Scheme Booklet, HBL reckons the Aussie reverse mortgage business hits 35% annual growth.
On page 6, HBL notes that RBNZ limits wholesale funding to 20% and overall Aussie assets not to exceed 33% of the assets.
Absolutely, based on the HBL's current size, the reverse mortgage business has 100% growth. Assuming continued 35% growth, HBL's going to hit that upper limit within a couple more years.
Yes I imagine the Oz REL market could get a lot bigger than anyone is speculating here. But if that happens it will fundamentally change the nature of the Heartland Group. Provided Heartland keeps growing REL Australia out of proportion, the cashflow issue remains. Keep REL roughly the same size in proportion to the NZ loan book as they are now and the rest of Heartland could probably bail out any REL trouble in Australia. But once REL in Australia grows to 50% of all of the Heartland Group's business, that will no longer be an option.Quote:
Growth may be bigger if HBL can also increase its access to wholesale funding by restructuring away from the 20% wholesale funding limit.
Thoughts?
SNOOPY
I attended the Wellington Shareholder presentation last night. Spoke with CFO, Deputy CEO, Investor Relations. Anyone else there?
Based on the presentation and conversations..
The plusses
- Heartland team members spoke very well, clearly understand their business model. Expertise seems high. Strong line of sight of their revenue streams, capital sourcing and capital efficiency.
- Were able to articulate what Heartland does in terms of value for their customers and their segments
- Strong revenue growth in some products such as Motor/RELs and they demonstrated a clear way of thinking about products (eg rural livestock) and how they meet customer needs.
- Appear to do very well with intermediary relationships - from who they Partner with, why, and when in the value chain
- Soon to launch App mass market, via TV advertising their "O4B - Open For Business" SME loan origination and fulfilment. 3 mins origination (apply and approve) based on AI, credit risk logic of 100 or so data points, through their mobile app for loans $50,000 (I think they were meaning on average there). Seeking to drive 40% increase in SME base (not stated the current baseline).
- I asked about relationship with RBNZ in terms of transparency, trust etc (I have shares in CBL - so would not want a repeat with HBL) and risk of any negative review, impositions, etc resulting from proposed restructure or in general. Response was that great relationship with RBNZ, low risk of interventionism, who 'support' the proposed structure (take that with a grain of salt I think as not sure Govt Agency would 'support'..HBL might 'comply')
The minuses
- EPS Growth - Notwithstanding the predicted revenue and profitability growth, EPS likely to remain flat. Due DRP and (I assume) capital raise(s). The response here is that they are paying out more in net dividend $$ each year
- Their core IT system replacement was north of $20m. Had significant impact on their service centre, which in turn had impact on their collections and impairments resolution (as call centre staff pre-occupied with IT issues). When pressed, not an entirely convincing response that this is all put to bed..and also that the 'integration' between this core platform and the 'digital' solutions is streamlined / easily scaleable. So, was not clear if any remnant costs for this to occur in FY19
- Harmony business overall profitability and business model perhaps not where it was expected to be (by Harmony themselves). Heartland have 11% slice of this and returns are 'as expected'. However, the tone was lukewarm
Questions from the floor
- Why don't you promote further the 'kiwiness' of Heartland (Kiwibank do this) for awareness etc - Answer, we do this in our Annual Report and Corporate material. Not a key 'push' message with the current marketing budget
- Is Heartland still interested in UDC - Answer, we're not sure if it's for sale or not... but we'd be delighted to buy it
- "What are the biggest risks ahead for FY19 and mitigations".. The response ended up circular talking about the opportunities..not the risks. Deflected entirely, which was disappointing. Growth is easy to be positive about... what about regulatory, liquidity, political, GDP risks...?
- A few others, but I can't now recall.
There was a strong message for shareholders to (1) vote as 50% shareholders are needed to vote for resolution to pass and (2) to vote in favour for the restructure.
My personal take - I'm left reflecting and mulling it all today still. With a fairly decent shareholding now, I'm honestly erring towards halving it post receiving DRP, allocating this elsewhere, and buying back at some point.. The year ahead seems to me, that while there will be revenue and profit growth.. the EPS and SP may well just remain steady until such time as the new business model (if approved) is embedded. There's also increase risk (as I see it) with some of the product lines as they scale and possibly NZ economy .. their modelling for impairments and impacts are just that, modelling vs fully proven. Another unknown , I wish I had asked in hindsight, was what their plan for their people and resource looks like in the next 12 months. Investment in knowledge and training in particular, along with ability to scale and service customer needs should they grow as intended.
Oh - I asked if HBL read this forum.... Answer, YES and they even are familiar with some of the usernames...