A Giant Leap Sideways for Crabkind
Quote:
Originally Posted by
Snoopy
I wouldn't have too many concerns about having Heartland as part of retirement portfolio. Indeed I may yet buy some HNZ for myself for purely that reason. My concern would be for those who drastically overweight their portfolio in HNZ shares under the assumption it is an absolutely sure thing. It isn't.
SNOOPY
It is good to see your stance on HNZ becoming a little more reasonable Snoopy.
Now you have started throwing around this $218m (originally an un-transposed $281m) of 'planned extra funding' and calling it a 'stretch' and generally giving the impression that this is a necessary but difficult thing to achieve, suggesting the disappearance of most of the companies equity and other doom and gloom.
But...
As your favourite Note 38 itself says:
"The below does not reflect a forward looking view of how the Group expects actual financial assets and liabilities to perform in the future, as it does not include new lending and borrowing."
You can probably understand that I am a bit perplexed by your assertion on this one.
Just how did you manage to jump to this conclusion, Snoopy?
HNZ is doing well and their loan/borrowing balance is not a problem for the foreseeable future.
Best Wishes
Paper Tiger
Good sarcasm went to waste
Quote:
Originally Posted by
Snoopy
...You imply PT, that Heartland will be able to reduce lending and/or the debenture money taken on board to match the cashflows desired...
Actually what I implied was that you have completely failed to understand the information in the 'expected maturity profile' part of Note 38, and this despite that they explain what the data represents.
Your assertion is based on the misunderstanding of the data and has no validity at all.
You need to understand how banking works before making such extrapolations, then you will spot the nonsense yourself before posting.
Best Wishes
Paper Tiger
Please feel free to skip this post
Table 38 - definition
The now infamous Table 38 of the Hearland New Zealand 2013 Financial Results presents outputs of two totally hypothetical scenarios applied to both the 2012 and 2013 Financial Years and presumably is required by IFRS or the Reserve Bank of New Zealand.
The Contractual Scenario can be defined as "What happens if all existing loans are repaid and all existing deposits are withdrawn at their earliest contractual dates and no new loans are made and no new deposits are taken"
The Expected Scenario can be defined as "What happens if all existing loan are repaid and all existing deposits withdrawn at the most likely date given what has historical happened and also no new loans are made and no new deposits are taken".
Table 38 - possible interpreted outputs
For the 2013 financial year if we restrict ourselves to that part of the scenarios with a time-frame of 1 year or less we can calculate that:
For the Contractual scenario there is a hypothetical net outflow of $781.1m
For the Expected scenario there is a hypothetical net inflow if $685.5m
And the difference in outcomes for the two hypothetical scenarios is $1,467.6m
If we do the same for the 2012 financial year the equivalent figures are:
For the Contractual scenario there is a hypothetical net outflow of $520.5m
For the Expected scenario there is a hypothetical net inflow if $666.0m
And the difference in outcomes for the two hypothetical scenarios is $1,186.5m
Reality check
It is worth reminding anybody who is still reading this that we are taking about hypothetical scenarios totally divorced from the real world.
It is also worth stating that the large cash outflow of the Contractual scenarios would, in the real world, result in the bank running out of cash, needing recapitialising or worse, and is thus usually regarded as not a good thing.
It is further worth stating that the large cash inflow of the Expected scenarios would result, again in the real world, in the bank having an excess of fairly unproductive cash and is also usually regarded as not a good thing. It could give the cash back to the shareholders though.
Back to the arithmetic
Should we so desire we could subtract the $1,186.5m from the $1,467.6m and come up with the result of $281.1m.
What does this figure represent?
It represents the difference between the difference of part of two hypothetical scenarios for the 2013 financial year and the difference of the same part of the same two hypothetical scenarios for the 2012 financial year.
Now that is a really useful thing to know, isn't it?
So how do you apply this stuff to the real world?
Some of you might suggest that given the expected scenario is more realistic and that it can be transferred to the real world, by adding the new loans and new deposits that are part of the reason the bank exists, and that this new model suggests that the more important issue is not so much the raising of new deposits but the making of new loans, given the excess cash that would build up.
Or what you can do is realise that in the real world it is necessary to make both new loans and new deposits in a prudent manner to be most effective. The balance you need to strike will vary depending upon what happens in the real world and that is a forever changing place.
How do you not apply this stuff to the real world?
One thing that you should not do is take the dollar differences of two hypothetical, non real world scenarios or the dollar difference of the differences of those two hypothetical, non real world scenarios and translate them directly into any form of real world dollar amount.
A particularly foolish thing to do would be to believe that an hypothetical scenario is a companies actual business plan.
Best Wishes & A Relaxing Weekend to All
Paper Tiger