How do you think it will affect both HNZ and PGW share prices?
For HNZ I imagine it will come down to who the buyer is.
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How do you think it will affect both HNZ and PGW share prices?
For HNZ I imagine it will come down to who the buyer is.
On a slightly related issue (how I came to Heartland) PGC has released some results.
Compared with 2012....it certainly all seems positive. However, I am not a financial person !
Still have the pain of those in my portfolio. Just to remind me.
On the money there Paper Tiger.
In short the net position shows a large amount of liabilities falling due in the next 12 months and then a positive forecast thereafter.Quote:
38 Liquidity risk
Contractual liquidity profile of financial assets and liabilities
The following tables show the cash flows on the Group's financial liabilities and unrecognised loan commitments on the basis of their earliest
possible contractual maturity
After reading my own post I can see why you might find it confusing, yes. I think I need to back track a bit to explain where I am coming from with all this stuff. I still class myself as a learner when it comes to analyzing banks. The base line for my analysis is the quite comprehensive report which came out when PGW sold, er I mean gave away, their finance division to Heartland. There was a very comprehensive document put out by First NZ Capital and UBS on the subject. The ratios I am calculating are theirs, not things that I have dreamed up.
Now you might argue that Heartland as a whole is so different to PGW Finance, that whatever ratios I am using are too conservative. I would have some sympathy with that view. However, given that all this was worked out in the shadow of the financial crisis, the banking consortium behind PGW was very focused on not losing their capital. And guess what, so am I. So I intend to continue looking at my ratios as I am doing, but with these caveats in mind.
PT, you say that Heartlands conditions of bank registration require a risk weighted exposure (to loans and things) of $2,359,613,000 which requires $283,154,000 of Tier 1 Capital (12%).
However, in practice any bank would not allow itself to get near these 'minimum capital requirements' under conditions of normal operation. The question is then, what margin of safety should the bank allow itself when working around these minimum capital. requirements? My margin of safety is to say that there must be 20% of tier 1 capital to back up their risk weighted loan exposure. And that margin of safety is not made up by me. It is made up by parent banks wanting to be darn sure they will get their capital back!
As CJ has noted doing more lending on less capital boosts ROE, another important performance indicator. My point is that boosting lending on fixed capital is actually a two sided coin, the high side being a greater return for shareholders the under side being more risk to shareholders should some loans go bad.
However there is never any talk on the forum about this underside risk. The talk here is all about growing the loan book boosting dividends and working the capital hard. I am amazed at the short memories of investors as regards this. Because it is exactly this kind of thinking that caused the virtual collapse of the finance sector in New Zealand five short years ago.
SNOOPY
Some more clarification here. 'Tier 1' and 'Tier 2' capital are terms used to measure the quality of capital contained within a bank. Shareholders equity is Tier 1. I was using the terms Tier 1 and Tier 2 with respect to loans, which is probably a bit naughty in this context. However, the general point I would make is that the quality and quantity of capital contained within a bank must be matched to the quality and quantity of the loans that the bank makes out.
In the First NZ Capital / UBS Report the exact terminology is:
Minimum Equity Contribution:
Tier 1 Risk Share Lending: > 20%
Tier 2 Risk Share Lending: > 30%
As for Basel 3, the reason I mentioned that is because since the First NZ Capital UBS report I am using came out, there has been a trend to tighten international banking standards. Thus all things being equal you might expect the Risk Share lending requirements I have outlined to have tightened further. Or perhaps you could argue that Basel 3 is really just the international boys catching up with what the banking syndicates in New Zealand were already doing? I don't know what the effect of Basel 3 is in New Zealand and more specifically within Heartland. I only mentioned it as a point of discussion.
SNOOPY
More to the point if it really is PGW that has sold down their holding this will be why. There is no way that PGW can afford to subscribe more capital to Heartland should that become necessary. So best to sell out now at a small profit before the other shareholders recognize Heartland's coming capital crunch!
SNOOPY
PS As a PGW shareholder I would be happy with the 3.5% discount taken on the market price to get away such a significant HNZ share parcel.
Fair call PT. I hadn't got as far as note 38.
The one year maturity profile looks challenging for FY2013.
But it also looked challenging in FY2012. A wall of $520.467m of contracted net withdrawals, with $460.492m of undrawn bank and loan commitments to cover them in the event of the worst happening. They came through that one OK.
Returning to the twelve month maturity profile for FY2013, I get $781.094m of contacted net withdrawals, with only $346.702m of undrawn bank and loan commitments to cover them.
Crikey, you wouldn't want anything to go wrong, like some sort of global instability, while HNZ are renegotiating their maturing securitized debt over the next 6 months or so would you! That is a cashflow hole of $400m! You HNZ shareholders are certainly a brave lot. Hang onto your (hard) hats!
SNOOPY
Snoopy and All
You should relax a bit.
Almost? all banks have net withdrawals on the contractual profile for periods upto one year.
What UBS meant by "Tier 1 Risk Share Lending: > 20%" I do not know and can not find a copy of the report to find out.
However in an ideal world HNZ would have a Tier 1 Capital Ratio of greater 14.5% but 20% would be excessive.
At 30 Jun 13 HNZ was:
Tier 1 CR: 13.8% (min 12%)
Total CR: 13.8% (min 12%)
by comparison at 30 Jun 13 ANZ (NZ) was:
Tier 1 CR: 10.7% (min 6%)
Total CR: 12.4% (min 8%)
So although HNZ would breach it conditions earlier in a crunch it is as 'robust' as the next bank (ANZ).
Best Wishes
Paper Tiger
Snoopdog mate,
I don't own these either, and haven't looked at the report in any detail, but mate, you need to look for their 'retention' rates on rollover, which will provide some comfort to you. Banks/finance coys are always keeping an eye on this number, and can raise it or lower it by adjusting the interest rate carded. Shortfalls are easily covered by incoming new deposits, typically. (Augmented by standby facilities sitting undrawn)
Of course, things can and do go wrong, as we saw in the GFC......without the Crown guarantees, everything would have fallen over within weeks, not years, but thats another story
on the other side of the Balance Sheet, it would be fair to say also that very little of loans to customers will be repaid, other than those items structured as table loans. The big exception is personal finance/ car/ hire purchase, where it is actually quite difficult to keep new lending up with natural loan attrition, to maintain the size of the loan book
With a few million shares shuffling around today this could result in a step change in On Balance Volume which is so loved by some TA practitioners.
If the closing price is down then this will be a step down and a sign that the 'Smart Money' is getting out.
If the closing price is up then this will be a step up and the 'Smart Money' is buying in.
Otherwise if we close at 87c it will not affect the OBV and no smart money is doing anything.
Best Wishes
Paper Tiger
Note: Beware of hidden sarcasm.
I thought you and Sparky The Clown were the "Smart Money". lol.
I don't wish to sound too critical of Heartland Xerof. Actually I think they are managing their situation quite well. However, even a well executed strategy has risks and I think they are becoming apparent here.
The upside of paying out all those dividends is that the confidence of their shareholder base is increasing. Look how confident Percy has become in HNZ! The dividends will be helping keep the share price up too, which will be important if a capital raising is needed.
However, there are no free lunches here. Sure they HNZ can boost their cash reserves by touting for new term deposits at attractive interest rates. But paying above market rates will impact profits. And with $100m in securitzed debt maturing on 24th January 2014 and the other $400m of securitized debt maturing on 5th February 2014 (note 26) and with a $500m cashflow hole showing up in the next six months (note 38). Well lets just say the timing could be better.
Global interest rates look like they might go higher too, so how will that affect the amount that HNZ can borrow from their 'parent' bankers? Shareholder equity is shrinking. This next six months for Heartland will be a defining period in the company's history I feel
SNOOPY
To understand Heartland liquidity better one needs to understand Heartland better.The simple way to explain it is; Heartland borrows long and lends short.ie the opposite to most finance companies, who borrow short and lend long.
Heartland is working with their clients who need seasonal loans,livestock loans,small business who need short term finance and factoring.
Long term housing loans they put through Kiwi bank.
Xerofs post, as usual, went a long way to spell this out.He was also right on the money with retention rates.
Heartland have a history of achieving what they say they will do.It was not long ago that I posted I thought Heartland would make $30mil for year ended 31/6/2014.Heartland have come out saying they are looking to make $34 to $37mil.
Who do I believe? Snoopy,whose record is 100% wrong on this thread.?
Or Heartland whose record is 100% correct.?
No contest.! I will go with the "smart money" and listen to what Heartland say.