The six and a half year jail sentence handed down to Bridgecorp's Robert Roest, may help to focus the attention of a great deal of people who work in the financial services sector in New Zealand.
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The six and a half year jail sentence handed down to Bridgecorp's Robert Roest, may help to focus the attention of a great deal of people who work in the financial services sector in New Zealand.
He still doesn't even acknowledge he did anything wrong and tried to deflect the responsibility onto investors, can you believe it !!
Does this grossly reckless attitude mean he will still be eligible for parole after serving a third of his sentence ?
It should be 20 years in my view.
Good common sense and a realistic expectation that should be realised unless we get another major exogenous shock to the banking system in which case small banks like this are unfortunatly quite vulnerable. I'm sorry to say I forsee a moderate chance of a major international financial shock in the years ahead, which measured against your expected returns translates to this investment being only modestly attractive in my opinion...and that's leaving all my finance company baggage out of it. Reserve bank oversight adds another level of checks and balances but i'm well and truly over relying on regulatory oversight to protect my investments.
Just look at how "useful" the Trustees and auditors were with the finance company collapses and how toothless the Securities Commission turned out to be. Standard and Poors are very risk averse after their appalling fiasco with the AAA rating on CDO's and I predict they will be incredibly slow to re-rate this company to BBB where it really needs to be to get what I consider to be genuine bank status in the eyes of the international credit rating agencies.
I hope for everyone's sake we don't have a GFC MK2, not that I'm totally convinced we're out of the first one yet. Just wanted to add a bit of dissenting opinion for the sake of another point of view.
My view in summary, HNZ seems fairly priced for the expected returns and risks involved.
Those of us familiar with HNZ's lending book see Heartland "well positioned" to ride out any "banking shock".HNZ are not heavily into household mortgage loans.Most loans are to the productive sector,motor vechicle finance,and rural stock and seasonal loans.
HNZ's loans are mainly of a short term,which adds to their margin of safety.Not reliant on wholesale or overseas funding is a further strength.
WARREN WHO ??..
Only Well thought out answers.. Please..
Peter Lynch in his book Beating the Street describes his enthusiasm for locally owned banks who get their funding from local sources.
Their seem to be many investors uncomfortable with HNZ because of the finance companies history in NZ.
I think those same people don't understand HNZ business plan and likely did not attend the HNZ AGM like Percy and I did.
I talked with about 8 share holders before and after the AGM and non of them showed any concern of the direction HNZ is going.
If interested in HNZ but you feel uneasy about the finance companies history in NZ read the book and attend the next HNZ AGM.
This might work out quite profitable.
I've always been a bit skeptical about HNZ. However, after having a good read of this thread (thanks Percy for all your info and insights) and a few days digging down and doing research, I've come to agree that HNZ is "well positioned". Bought in today for a long term hold :)
Welcome Captain Dan.
If you have not done so already may I suggest you read the annual report.
The annual report can be downloaded from www.heartland.co.nz .It is written in clear simple language.It gives a clear picture of where Heartland came from,what they have achieved and where they are headed.
I have the feeling that the share price increases with every Percy post :P
End of February Heartland's half year report is due.
By that time I will be fully revigorated and in full ramping mode.!!!!!
Bring it on!!!! lol. .
I feel we need a TLA (Three Letter Acronym) for w..l p........d.... how about "WPD". I am WPD also! (although you could think this translates to "whipped", which has slightly worse connotations!)
Although I am enjoying the fun,I think any one looking to invest in Heartland should do their own research,and make up their own minds.
I started posting on Heartland really to correct what I thought was incorrect statements.I must admit to reading and listening to all of Heartland's announcements.I have also attended their agms,and presentations they have given.I have also rung the company and asked questions.I have also received excellent advice from other HNZ shareholders.One in particular, who is a retired BNZ bank manager has been very informative.
The best place to get a full picture of Heartland is by reading their annual reports.Go to www.heartland.co.nz ,then HNZ shareholders,then Documents,results &Reports,then Annual Reports.
The chairman's report is in plain language and does not take long to read.
MTF;
MFT was formed in 1970 to enable a group of motor vehicle dealers to offer car loan to their customers.
Dealers still own shares.I do not know if,or how they trade them between themselves. Not listed.
www.mtf.co.nz
http://www.interest.co.nz/business/6...nz-governor-an
Does anyone see ICBC competing in Heartland's space or (more likely) just funding commercial property development?
You would think that Heartlands target demographic are perceived to be different than ICBC, but I could be wrong. I would have thought reaching more rural areas is more up HNZ's alley way.
I suppose they expect expatriate Chinese to flock for their services as well as commercial opportunities.
I do not see them influencing Heartland's space. More opinions?
Main area of competition would be SMB finance rather than rural.
Heartland have always stated they are "niche" market operators,and they do not want to compete head on with the large banks.
I therefore think they will be operating in different parts of the financial market.
From what I read of the announcement ICBC appear to be looking at Auckland waterfront development.
Saw an opportunity to top up this morning - 85c :)
There is a very good presentation given by HNZ's Michael Jonas at NZX Emerging & Mid Cap Companies Conference.
To find the link I went to thread NZSX50 Good News ,post 1320,where Harvey Specter gave the link.
Link here: https://www.youtube.com/watch?v=x8_eCTsNU_0
Good discussion here on ROE, but I think some of you Heartlanders see ANZ on a pedestal that is higher than it should be. From a bankers perspective the amount available to loan is tied to the amount of 'tier' capital available to be loaned against. In the case of Heartland 'Tier Capital' and shareholders equity are one and the same thing. But the ANZ and the other big banks have other sources of 'Tier capital' not available to Heartland.
Perusing my latest ANZ report (from 2012) page 58 lists total shareholders equity as $41.22 billion.
Now go over to page 117 and you will $752m of US trust securities (currently also Tier 1 capital) and three issues of ANZ convertible preference shares adding up to $5,114m (I believe these currently rank as Tier 2 capital). Perpetual subordinated notes of $953m add more tier 2 capital.
Below that is a list of more subordinated notes. Those maturing five years into the future can be fully regarded as more tier 2 capital amounting to $5,265m. Those maturing in four years time ($582m) need to be discounted 20% to arrive at yet more tier 2 capital of $466m.
(Note 20% discount factor from Reserve Bank capital adequacy notes as they apply to a four year time horizon loan)
As at 30th June 2012 ANZ has $5,114m + $5,265m + $466m = $11.046b of Tier 2 capital. That is less than 50% of the available Tier 1 capital ($41,220m + 752m = $41.972b).
So all of that tier 2 capital is available to be borrowed against.
Summing up all the Tier 1 and Tier 2 capital then, ANZ has $53.018b of Tier 1 and Tier 2 capital to back up their loans.
For FY2012 the ROE based on end of year shareholders equity is:
$6,011m/$41.220m = 14.6%
(Note: Normalised ANZ profit of $6,011m comes from p5 of AR2012)
But if you do the same calculation on tier 1 and tier 2 capital, the Return on 'backing capital' is a rather lower.
$6,011m/$53,018m = 11.3%
That is close to the 10% ROE that Heartland is projected to achieve for FY2013.
In addition to this Heartland in common with all other banks will be facing the new Basel III capital conservation buffer (CCB) requirements that will increase the backup equity required to be held on the balance sheet significantly.
Even assuming all those doubtful Heartland property loans on the books coming good (no more capital destroying provisions for bad debts) , the picture that emerges here is irrefutable. Heartland has a very fully stretched balance sheet as everything stands now. There is very little room for growth beyond FY2013 with such a constrained capital base
SNOOPY
Big call? Read the latest presentation given by Michael Jonas to the NZX Emerging & Mid Cap Companies Conference.Harvey Specter gave the link post no.1320.
It is a continuation of the agm presentation.Acqusition,most probably in motor vehicle finance.
HNZ have always done what they have said they will do.Snoopy remains 100% wrong.
Again at the agm they spoke of having too much capital and very high liquidity.Again this is in complete contrast to Snoopy's posts.
Big call? No, a very simple easy call,made by reading and listening to what is being said and written.Heartland speak and write very clearly and honestly,about their business.They know their business.
In an earlier post I suggested HNZ could take over MTF with out making a call on shareholders.I stand by that statement.
nous sommes une fois de plus bien placés, je vois,
Good time to celebrate with another Milkshake I say .lol
'you people have been a lot of places, i see' or something?
You are warned I understand 1 language fluently and French is not it :D
/edit I get it now.. bahaha
This price seems to be stuck at the moment it fluctuates between 85-87, needs a kick along. Giddyup. I know im impatient what can i say.
Plain English then;
"we are well positioned."
sorry PT.!!!! lol.
The book The Galactic Pot-Healer by Philip K Dick presented a future world where a group of people are so bored that there main pleasure in life is to play a little game where they use computers to translate a phrase from language to language eventually arriving back at the original language in a much mangled form.
It appears that this nightmare scenario is finally arriving.
Best Wishes
Paper Tiger
The other comparison you Heartlanders like to make is with Westpac. The WBC Annual report for 2013 landed in my mailbox last week. Using the profit from p83, and the balance sheet equity, the Return on Equity figure for Westpac was as follows:
$6.368b / $46.618b = 13.7%
However, as with ANZ Westpac makes their loans dependent on their holding of 'total Tier capital', which includes additional elements to just shareholders equity. On p173 of this report Westpac lists the following additional Tier 1 equity.
$1,177m (Westpac Convertible Preference Shares)
$1,367m (Westpac Capital notes)
$906m (Stapled Preferred Securities)
$616m (Convertible Debentures and Trust Prepared Securities)
Add in the shareholders equity and I get total Tier 1 equity of $50.684b
In addition there is $4.886m of subordinated Tier 2 debt which I have reduced by $270m to take into account the early maturity(less than five years) of some 2015 debt, and to which must be added $378m of Tier 2 subordinated perpetual notes. That amounts to $4.994b of tier two debt in total for calculation purposes.
If you now do the same return calculation on tier 1 and tier 2 capital, the Return on this 'total backing capital' is a rather lower.
$6.368b / ($50.684b + $4.994b) = 11.4%
That is within one decimal point of the ANZ FY2012 figure.
SNOOPY
Just to bring this back to the Heartland context, here are the figures that Scotty worked out:
"For this financial year, HNZ is forecasting a profit of between $34 - 37m. By my calculations, the $34m bottom range projection equates to a 10% return on shareholder equity (88cps) which is about 9c per share. On say a pe of 12, this would give a share price of $1.08. Looking into the future, a return of 15% without any increase in equity but keeping the pe @ 12 would put the share price at $1.62."
If the bottom range figure of $34m is a 10% ROE then the top range figure of $37m is 10.9%. These figures seem entirely consistent with a smaller bank without the extra tier capital resources available to bigger banks. Why some here feel so resolute that Heartland can outperform the larger banks by so much on a tier capital basis (as a 15% ROE would imply) remains a mystery.
SNOOPY
PS I should add that since the annual report has been released NTA as of 30th June was confirmed at:
$331.2m/ $388.7m = 85c, not 88c. That in turn means the the projected ROE for FY2013, assuming NTA remains constant is forecast by Heartland themselves as between 10.3% and 11.3%.
However for those who insist on an ROE of 15% close your eyes and say "I believe, I believe, I believe." Who knows, it might just come true for you.
FY2013 looks to be shaping up quite well for Heartland. Looking further forward than that the new basal 3 Capital Conservation Buffer adding 2.5 percentage points to the amount of capital that must be held, plus another 0-2.5 percent for the countercyclical buffer means very little if any spare capital. So no growth beyond FY2013 if current dividend levels are maintained. A PE of 10 sounds about right in those circumstances.
Round figures I will go for an 11% ROE on shareholders equity of 85c giving earnings of 9.35c. A PE of ten translates that to a share price of 94c. Sounds about right.
However, all that assumes no more bad property debts that would further reduce the equity base. I would discount the share price by 10% to take account of that risk, and that leaves fair value at 85c, exactly where Heartland trades today. Heartland, a good solid company that is fairly and fully priced at 85c.
SNOOPY
I think Snoopy is on the verge of saying HNZ is a BUY .... yes a BUY
Better get in quick before the recommendation comes
If it only worth $0.85 and there is no growth then I would not touch it with a very long stick.
Best Wishes
Paper Tiger
*Take a long piece of bamboo and cut down the middle at one end, stick a little wedge in to keep the two halves far enough apart to hold a mango.
Lift bamboo up from underneath until the mango is cradled in the end.
Wiggle it a bit until the mango comes loose from the tree.
Lower bamboo and extract mango.
Meanwhile back at the Ranch , kiwigold was counting the dosh made since selling HNZ for another better placed NZX coy and wishing he had done it sooner........................his faithful chinese manservant One Hung Low lamented "its just that the stubborn old codgers back at ST could'nt see the dog for the fleas" (or is that the wood for the tree's) and how much more they could be making over yonder in greener pastures. Nevermind, as Percy say's they're well postioned and still will be this time next year, HoHoHo. Mary Xmas
Breaking down to the basics, it's time for a rhetorical question.
How many of you have stock in Heartland?
Those of you who have HNZ stock, how many of you have opened a bank account with them?
If not, why not?
While their primary focus is not in typical retail sector there should be enough interest to attract a base. The interest rate on their savings account is what attracted me.
.
From Yahoo charts I note, from 27th November 2012 to this 26th November 2013 they are up 21.43% plus dividend.
From 28th November 2011 to 26th November 2013 they are up 73.47% plus dividend.
I continue to be a " very happy stubborn old codger" and hold Heartland as I feel they a fine company with a bright future,making Percy an even wealthier "old codger."
I have a Heartland account. I like the fact that they lend out to industry whereas pretty well all the other banks mostly just lend to mortgages (percentage wise) - read their allocation figures in their reports. So I leave money in that account as just one more contribution to building up this country instead of adding to the carnage brought on by mortgage-backed house bidding wars. I heartily recommend it to others.
Heartland Quarterly release:
http://www.heartland.co.nz/news/150/...t-quarter.aspx
and would you look at that...
They have rebuilt their capital adequacy buffer from 1.76% to 2.45% in a single quarter.
Best Wishes
Paper Tiger
Yes - and market agrees with Snoopy - SP .85 :)
Well I take an interest in these things due to the horrors of finance companies during the GFC so couldn't help but notice over $80m of receiveables either more than 90 days overdue or individually impaired. I presume the latter actually recognises a specific chance of impairment ?
Couldn't see any disclosure of how much of their $1.6 billion of receiveables are overdue by less than 90 days.
I used to love how Geneva finance thought their receivables overdue by more than 90 days were really worth full value, obviously this is a joke and often they're only worth a fraction of face value.
At an educated guess i'd say there's still a fair bit of work to do to clean up the balance sheet, more than 5% of receivables seriously impaired is not a satisfactory situation in my view and could dramatically impact on the audited annual results next year.
I think a PE of 10 as suggested by Snoopy above is actually a bit on the high side for the risks involved and what will earnings really be after proper bad and doubtful debtor provisioning ?
Wow, I'm glad I opened my eyes properly on this one. Gotta do your own homework, notwithstanding how likeable Uncle Percy is :)
Quarterly disclosure notices in accordance to Reserve Bank requirements adds a huge margin of safety to Heartland for depositors and shareholders..
Growth rate will propel the PE.Excellent sustainable dividend will reward shareholders.
Adding runs to the board.
Heartland is well positioned for continued growth,there by delivering long term shareholder value.
only Q1 and they already made more than all of last year
That's good
I don't want to take sides in this lively ongoing debate! But possibly the following might be some middle ground?
1. Level for this type of business?
Looking at that latest Disclosure statement, we have Note 9 "Financial Receivables" on p15. Here we learn that there is a "provision for impairment" of 41.4m. I assume this to be the write offs on old assets announced in the last full year report. If so, then the remaining assets are those that they considered current after the write down.
In that case, the impaired and overdue assets listed on p15 are 87m, less 41.4m already provisioned = current potential impairments/overdues of 45.6m. This is 2.3% of total receivables of 1957m.
Looking at the Westpac report for September, p42 for 2012, they have 605m of 59,442 m, or about 1%. That is one big report, so sorry if I've picked up the wrong figures, don't think I have. http://www.westpac.co.nz/assets/Who-...-DS-Secure.pdf
But now look at just the "Business loan" figures for Westpac, also p42, and they are 443m of 21,788m or about 2% which is not that different to Heartland?
I wonder if Heartland is in industry and rural, not in the mortgage business, and that this type of business might always carry a slightly higher level of loans that need management? If so, then perhaps there is not a problem? Westpac seem to be doing just fine with this sort of level on their own business portfolio, and they do not seem to be trying to exit that sector?
Further, p41 of the Heartland report also shows that the net 45.6m had been 49.0m just 3 months earlier, and also after the write down, or about 2.4%. So progress is being made, over that 3 months at least, which would eliminate the difference with Westpac's business loans within a year if it continued?
2. In P&L anyway?
Also, we note in the P&L statement on p8 that Heartland included impairment expenses of 1.7m while still arriving at the profit of 8.7m in line with the year's expectations. This too might be taken as an indication that the business sector Heartland is in may require slightly higher write downs than for just mortgages, and that this has been allowed for in the profit projections and profit model?
I hadn't seen this approach discussed here before so I mention it. Sorry if it's a repeat. I'm no expert on the banking sector either.
Do the banks still carry a 1 or 2% impairment assumption across their books? this used to be common practise, just for conservatism
others used inventories to do the same thing - its called profit smoothing....not sure if it still goes on
Percy, I'm getting there - have an online high interest bizo account with them now.
Excellent achievement.
I also note Note 16;Total liquidity is $459,886,000.Very liquid.So with equity ratio of 14.59,growing profits.strong liquidity I see any reasonable acquisition being self funded.ie no need to raise cash from shareholders.
The business is on track to achieve the goals directors have set.
Now you have really made my day.
Should you be able to make it to Trevinos ,22 Riccarton Road at 7pm tomorrow night I will shout you a large drink.
I do not know the answer to your question.You may have to ring Jeff Greenslade [09] 927 9149 or Simon Owen[09] 927 9195 to get the correct answer,.
I am SO pleased that someone is willing to read the accounts thoroughly, do some proper analysis and make sensible comments based on that.
Simla you are my hero.
Now the $41.4m is not actually written-off but is amount of the $2 billiion of finance receivables that they do not expect to ever recover. (Some of this amount is based on percentages of loan categories and some is calculated on the individual assets).
Writing them off (the accounts) is the final stage when the probability becomes a certainty.
So the remaining $45.6m they do expect to eventually receive.
Well done
Paper Tiger
Note: The book value of the receivables in the accounts is the $2B less the $41.4m, i.e the value is already discounted. Writing-off a receivable does not involve further accounting losses.
It is a a bit more complicated these days, but a lot of loans are stuffed into broad categories and a percentage impairment is applied, the percentage varies by risk category.
Other loans are treated individually and a unique percentage applied for that loan.
Best Wishes
Paper Tiger
Disc: I have no account with HNZ, beaten by the Anti-Money Laundering requirements :(.
PT, thanks for the comment re provision - I thought there were usually some nuts squirrelled away for a cold winter - Snoopdog, please take note!
Percy, thanks for the kind offer, but will have to pass on the drink - I shall endeavour to get along to one or two in 2014 if possible.
Cheer up PT, you're not alone.
I tried with another bank, but the pain was such that the money went to Luxembourg and Australia instead. Both of which have the added advantage of running deposit insurance/protection/guarantee schemes - unlike the New Zealand compulsory short back'n'sides regime.
New Zealand's amateur-hour compliance culture is truly a wonder to behold.
OK, not sure whether to post this here or in the SUM thread. I've got a very modest sum to invest in something less speculative than the rest of my portfolio. The two I'm considering are HNZ and SUM but finding it difficult to make a decision. According to posters here, both may be undervalued and by all accounts should hit their strides over the next 2 years. I expect to hold for at least 3 years, and am looking for solid growth and average dividends.
Would really appreciate any insights or advice from more seasoned investors to help me make a decision. Thx
Options:
1) Buy both.
2) If you do not have enough funds for both, sell some speccy stuff and buy both.
3) If not 1) or 2) toss a coin, if you like the answer go with it, if not do the opposite.
Best Wishes
Paper Tiger
Disc: in either or situations I actually do 3) and see how I feel about the 'answer'.
SMD position looks a little worse than it did this time last year
http://www.niwa.co.nz/climate/daily-climate-maps
SMD is soil moisture deficit
Thanks Paper Tiger, percy and snapiti. The 3rd option looks fairly agreeable, but leaning a little towards HNZ for a couple of reasons - not sure how robust they are but here goes.
1) HNZ SP up 25% over 52 weeks compared to SUM at 45% leads me to believe there is possibly more upside in HNZ in the next 12 months
2) Currently more buyer depth for HNZ, and not a lot of sellers even at these highs indicate holders willing to hold for even better times ahead
3) Better yield
4) (Not sure about this one, feel free to call me out on it) Banks benefit from ridiculous QE going on around the world (see this article about China's recent efforts)
(might have just convinced myself)
Plenty of good rain in lower north as well
I keep an eye on the SMD because the key drivers of economic activity in NZ are how much moisture is in the ground, commodity prices and the NZD. Put those three inputs into a model and you get a pretty good idea of where the underlying NZ economy is heading ...and then add a bit more for the Canterbury recovery.
So not just a forecadt for primary related industries but the economy as a whole. Stood the test of time that modelling.
I have been asked by another poster to post this link http://www.stuff.co.nz/auckland/loca...s-for-new-bank
Thanks Karen1.
Reads very well, thought we would all enjoy it .
Logical Simla, but I would take issue with your original assumption. I know there has been a lot of talk about HNZ being a niche industry funder to business. However, the actual picture , as laid out in table 40a "Concentrations of Funding" from the FY2013 Annual Report, shows funding split between Finance $258.9m, Households $1.732.1m and listed bonds $106.5m.
So despite the hype, it would seem that Heartland is still largely funding real estate and property, probably a legacy of their PGC and CBS ingredients that went into the pot to make up Heartland.
SNOOPY
I fail to see how anybody can so consistently fail to understand a set of accounts and so consistently post incorrect drivel and fanciful made-up numbers.
We recently had you calculating the levels of Tier 1 & 2 capital for banks instead of just looking it up and your guess being nearly 50% higher than reality.
And now you apparently do not know the difference between lending and borrowing.
Paper Tiger