the vendor will buy $38m HNZ shares at 90cps,that's capital injection.
Printable View
Sorry perhaps I should have said "Acquistion is a swap of cash and new shares for other assets possibly including some goodwill?"
I doubt whether the new shares are getting more than $0.90 of new net tangible assets each and with 65M new shares adding to the existing 392M it is not going to drop the overall NTA much (hopefully!)
Best Wishes
Paper Tiger
Wasn't NTA June 13 only 85 cents
Damn! They did say that didn't they? - so knock 4c off all my NTA numbers then: instead of $0.93 to $0.94 lets us say $0.88 to $0.90.
Update: amended original calculation post. I am so ashamed at myself for getting it wrong - I will never be sarcastic to Snoopy ever again this week. ;)
Best Wishes
Paper Tiger
I am happy with NTA of 88cents to 90 cents.
So for those who believe NTA drives the share price the acquisition does nothing
So hope becomes the strategy .....hope that hnz will trade at a decent premium to NTA ...is hope a strategy?
Yes certainly on track.
Interestingly enough, director Bruce Irvine told me he paid about $5 for some PGC shares.So he has a lot of skin in the game to.Must admit I am well in the money by buying the majority of my shares at about 53 cents.My average cost is quickly increasing with more recent purchases.I find adding to my winners is paying off really well.
Come on perc.. You remember the 87 fiasco.. To go again in 08 !!!... Hmmmm..
Piling money into " Winners ".. ( Sorry 69 ) is not the best strategy...
When are you going to get out of Xero :--))
there are Newbies watching this very good site..
I think you mean .. Placing more into Proven Companies .. Al HNZ..
Oops Snoopy is now going to say that they have not Proven themselves..
But they are a far better long term bet than Equity Corp :-)
Disc.. Burnt by Equity Corp et al.. Learnt a little from that..
All looks good but struggling to see how this reduction in bad property debt ties in with the credit risk grading segmentation shown in the annual report (note 37d).
The Heartland press release dated 14th February 2014 (page 5) has reclassified assets into "specialized and low contestability", "bank overlap" and "non-core property". The notes at the bottom of the graph define "bank overlap" as "residential mortgages and 50% of business and rural".
The "non-core property" includes "investment properties". But in the annual report the investment properties are separated out and the remainder are mixed into the 'judgement portfolio' in an unspecified way.
I am always suspicious when the basis of comparison is changed between reporting periods. You can't help wondering what whoever did it might be trying to hide.
Move on to page 6 and we can see the 'bad rump' has reduced by $1.9m as at December 31st and the 'for sale group' has reduced by $21.4m, all since the 30th June balance date. That is good but what does it mean? Has $21.4m + $1.9m of underlying equity been freed up for new investments? Or has one form of income stream potentially made way for another? Many questions, but that will do for now.
SNOOPY
I like to do my research before buying any company.Saves any nasty surprises.
Once I have a holding, I then watch the company to make sure they are doing what I thought they would do.If they do something I don't like I sell.Should they do what I thought they would do,I hold.Should they perform better than I thought they would do,I buy more.!!
.
I dont think the detail has been released but going on other companies SPP, provided you hold more than the minimum amount (ie about $500) you should be fine. Remember however that you may not get your full $15k worth. Looking at the current shareprice, the SPP is a great offer so expect it to be many times oversubscribed based on shareholder numbers, and thats before speculators like you buy in $500 worth to apply for the full amount. ;)
Note that even a the minimum application ($2500), if all shareholders apply, it will need to be heavily scaled!!!
According to the presentation. the SPP closes on 18 February. i.e. Yesterday.
When ABA had their SPP a while ago, it was scaled back in proportion to the number of shares held on the record date. This is a lot fairer, because it means people can't just pick up a minimum holding, and go for the max. amount under the SPP. Like these people are jumping the queue. Not that I actually blame them as I have taken advantage of this situation myself in the past.
So I guess I just sit back and Heartland will send me the appropriate paperwork ?
Or do I need to go and look for something ?
Does anyone here have a quick answer.....don't want to miss out.
Thanks in advance.
Interest.co.nz
Nothing like a bit of competition ....everybody might win
First NZ Capital suggests niche player Heartland Bank faces competition from big banks looking to replace earnings lost due to LVR restrictions
http://www.interest.co.nz/business/6...-big-banks-loo
Can't elaborate as haven't paid the 365 bucks togetthissort of info
At the NZSA meeting. Jeff Greenslade gave a great presentation. Very confident and upbeat. Impressive how they exited uncompetitive mortgages and now sell profitable Kiwibank mortgages with commission and trail income. Strong variable cost model. Simon Owen their CFO also spoke well. Non core properties looking much much better. More business with higher margins now. Asset quality is much better, impairment ratio decreasing
While rear vision mirror analysis is interesting, far more important is what is happening out of the front windscreen. On 17th December 2012 Heartland achieved bank registration. But the earliest reference to becoming a bank was some time around May 2011, when what was to become Heartland was still called Building Society Holdings. Just because Heartland became a bank on 17th December 2012, doesn't mean it was structurally deficient to become a bank on 16th December 2012. All of the necessary balance sheet requirements must have been with the Reserve Bank much earlier than that. The latest published officially available figures to the Reserve Bank were those on 30th June 2012. So I think it is a reasonable assumption that the Reserve Bank were in retrospect happy with the balance sheet at that time.
Why is the above of interest? Because management are not silly and they will have made sure the latest acquisition has not upset Heartland Bank's creditworthiness with the Reserve Bank. So perhaps a little reverse engineering of the figures related to the purchase Sentinel New Zealand (Sentinel) and Australian Seniors Finance (ASF) businesses, with combined assets of approximately NZ$760m might give us a good over the shoulder look of what looks OK in the mind of a Reserve Banker.
SNOOPY
Go to the top of the class.!
Don't take your books as you will be back. lol.
Most of the relevant information is on page 27 of the February 2014 investor presentation:
------
Acquisition price $87m
First full year NPAT from acquisition ~$8‐9m
Integration costs ~$2m (post tax)
HNZ forecast FY14 NPAT $34‐$37m
HNZ forecast FY15 NPAT (after acquisition costs and expenses associated with integration) $42‐44m
-----
I note that if you add the first full year NPAT of $8m to $9m from the acquisition onto the FY2014 NPAT of $34-$37m you get $42m to $43m. This is very close to the $42m-$44m that Heartland is forecasting for FY2015.
The date for the settlement of the purchase is 1st April 2014. That means that FY2014 will only carry 3 months of earnings from this acquisition. I do note that the Heartland forecast of a profit of $34m to $37m for FY2014 was made as early as 5th June 2013, well before the Home Equity Release Portfolio acquisition. So that means the Home Equity release business will contribute a net nothing to the Heartland FY2014 result (underlying quarterly earnings of $8m/4= $2m, less $2m integration costs, so it all adds up).
OK, so forecast for NPAT for FY2014 is unchanged by acquisition. Incremental earnings of new division fully account for profit growth expected in FY2015. That means net underlying growth in FY2015 for the existing Heartland business, as forecast by Heartland themselves is nothing at all.
SNOOPY
Snoopy, The Heartland FY15 forecast is qualified with the following statement...
"Heartland’s forecast for FY2015 is yet to be finalised and more detailed financials will be available sometime following settlement of the acquisition."
So it could mean that some underlying growth will be added.
noodles
That's how I read it the first time as well.
Didn't say anything cause everybody was excited and didn't want to get Percy thinking h should delete himself from Sharetrader (like packing a sad like Sparky)
Nothing at all is ZILCH Snoopy but maybe not as all bad as it seems.
Could be 2014 HNZ is 34m (lower end) and acquisition delivers 6m (8m less costs 2m) giving 40m .....meaning HNZ profit could be up 2m to 4m
Maybe a profit downgrade hidden in this - even though the Nuplex man says coming in at lower end of guidance is NOT A PROFIT DOWNGRADE
I think we both go to bottom of class again
Please forgive my foray into reflecting on the rest of Heartland into FY2015. Back to the acquisition.
From page 29 of the February 2014 presentation:
----
The acquisition consideration of NZ$87m is being funded by Heartland:
• To the extent of NZ$48.3m in cash. Heartland is conducting a capital raising of $20m (via a Placement and SPP) to
partially fund the NZ$48.3m cash component and will fund the balance with existing balance sheet cash; and
• By issuing 43m shares to the vendor at a price of $0.90 each. All shares issued to the Vendor are subject to a minimum
12 month lock‐up escrow arrangement
Heartland has this morning successfully completed a NZ$15m equity placement.
--------
43m shares at 90c works out at $38.7m in share value. Add the $48.3m in 'cash' being paid to the seller and I get $87m, the acquisition consideration.
Heartland say they are funding the $28.3m cash component of their purchase over and above the $20m capital raising from existing cash (by definition surplus or the Reserve bank would not allow them to do it) on their balance sheet.
Now go back to page 14 of the February 2014 acquisition presentation. The portfolio size is listed as $NZ340m plus $A380m ($NZ420m at prevailing exchange rates). So the total in $NZ terms is around $760m.
The underlying capital used to support this acquisition is $NZ87m.
So the loan value to underlying capital ratio is $87m/$760m= 11.4%
Given that Heartland has undertaken to maintain capital at somewhere near this ratio anyway, and given that the rest of Heartland is by their own forecast not growing, where is the capital going to come from if they want to expand the reverse mortgage side of the business?
SNOOPY
I am not buying into this argument.!!
Forecasts over one year out are "pie in the sky" to me.
What I see is Marac,PGWFinance being joined by another substantial business,Sentinel.This purchase adds bulk to Heartland.
Two very strong parts of Heartland being joined by a third strong part.
Heartland just got a lot better.Good businesses [which these are] in growing sectors, will reward shareholders,this year,next year,and for years to come with increasing dividends.
Well done Heartland.Great acquisition.
And no doubt the 2014 numbers will include a part year for Sentinel so everything will all get mixed and people will analyse to death what grew and what contributed and what was one off or non-recurring and all that sort if crap.
The only number you can tie them down to is this EPS accretive promise.at least this takes into account the 60m new shares.
I give the benefit of the doubt and will assume they would have made $35.7m this year (no acquisition). That is 9.1 cents per share (not counting new shares the other day)
Anything less than this in 2015 (I'll forgive them fr 2014) means the EPS claim was rubbish.
But then again we will get into time weighted average number of shares to calculate EPS and that can hide a few sins anyway
Maybe just grin and bear it and don't worry about things. It'll all turn out OK
I hear what you saying Percy - there is more to the future than one years forecast eh
However with all due respect you have quoted the 34m to 37m forecast many times to remind us all what wonderful progress HNZ is making. That didn't seem "pie in the sky" to you
Never mind .....this time next year HNZ will be touting $55m for 2016. That be good news eh
So $10mil net profit will allow Sentinel to grow loan book by approx. $90mil.[which from memory is the amount they said they intended to grow the book by per year.]
As Heartland's net profit will be nearly four times this amount,they may decide to grow the loan book even more.!!
Exactly, percy, exactly
Snoopdog, compounding retained earnings is a powerful leverage tool
you should always leave a couple of those dog biscuits in your foodbowl
:D
See Slide 11 of the recent acquisition presentation
Heartland New Zealand Limited, known to its friends and shareholders as HNZ, is not a bank, but it does own one (via a not shown intermediary company).
This new HER stuff will exist outside of the bank and its subsidiaries, at least initially.
HNZ purchased $30M5 of NZ HER Loans in December 2013 (footnote on slide 9 & 14) which should thus be in the Dec 2013 half year accounts for HNZ due to be released soon, but may not be obvious.
It is unlikely that the HER Loans will appear anywhere in the Dec 2013 Disclosure Statement for Heartland Bank, as presumably they are not held by the banking group.
Once HER Loans are brought into the banking group we will find what the Risk Weighting of such assets is and thus what capital backing they need.
The future guidance suggests that this years result will be at the lower end of that $34M to $37M range.
I am not at all sure that I understand the rational for buying the Australian bit.
Best Wishes
Paper Tiger
That's how I see it as well.Quote:
Paper Tiger -The future guidance suggests that this years result will be at the lower end of that $34M to $37M range.
But all 'pie in the sky' so all OK with this company that has a bank in its stable of businesses
Australia was part of the package
You see this is where we are quite different Percy. If management give a range, I want them to deliver at the top half of that range. So for me, anything below $35.5mil will be a reduce signal. If they miss $34mil and I'm still holding, it won't be for long.
DISC: Still holding some(albeit at a reduced level)
Would you really want to be taking one of these, does'nt sound like such a great idea to me . Remember Banks don't have morals....................just the desire to earn money , lots of it, without worrying about the personal costs to their customers.
5 Reasons to Avoid a Reverse Mortgage
Watch out for these drawbacks of using a reverse mortgage to fund retirement.
One of the retirement planning resources that has gained interest in recent years is the reverse mortgage. For many retirees, it seems like a solid idea. You get access to the equity in your home, and the bank makes a mortgage payment to you. It turns your home into a source of income.
It’s a nice thought, but the truth about reverse mortgages is far from ideal. In fact, there are a few reasons to avoid getting a reverse mortgage as part of your retirement plan. Most of these reasons revolve around the fact that this type of income stream is actually a loan against your home’s equity that has to be paid back.
Here are five reasons to think twice about getting a reverse mortgage:
1. The fees are often high. Since a reverse mortgage is a loan, you are going to have loan-related fees. Origination fees and other fees on a reverse mortgage are typically rather high. A reverse mortgage is a home equity loan that isn’t decided based on your income or your credit score. As a result, there are unique risks to the lender, and some of those risks are offset by charging higher fees at the outset.
2. High interest rate. The interest rate on a reverse mortgage is often higher than the rate for a more traditional home equity loan. Between the up-front fees on the reverse mortgage and the high interest charges, you might be surprised at how little money you actually end up getting. It’s your equity, but the bank gets an awful lot of it.
3. Your heirs might not get the house. When you get a reverse mortgage, you aren’t expected to make payments on the loan. Instead, the loan is paid off when you sell your home. So, if you die, the home is supposed to be sold so that it can cover the loan amount. This means your heirs can’t have the house. It is possible for your heirs to keep the house if they pay off the reverse mortgage after you die. However, this usually means that the money has to come out of the estate, reducing the total that your children and grandchildren end up with. For someone hoping to leave a legacy, this can be a real drawback.
4. You have to repay the loan when you move out. Dying isn’t the only way that repayment on a reverse mortgage is triggered. In order to avoid making payments on the loan, you have to be living most of the time in your primary residence. You are considered “moved out” if you haven’t lived in the home for a year. This includes if you enter a long-term care facility. So, if you are no longer able to stay in your home, but you haven’t died, you have to start repaying your reverse mortgage—at a time when money is likely already tight. This can put a real strain on your budget.
5. You’re still responsible for home costs. Throughout all of this, you are still responsible for your home costs. You have to pay property taxes, keep up with the homeowners insurance, and pay for regular maintenance on the home. If you have enough equity, you can get a reverse mortgage big enough to cover all these expenses, but it can be a difficult situation nonetheless
But, but, but....
as a shareholder in HNZ, surely you will be delighted for them to write this sort of business?
I think we all would agree with you,yet govts in USA and UK say people doing this and remaining in their own home is the best thing for them.
I would not borrow money to buy a car.
Yet people are wanting to borrow money for cars,houses,farm,stock,school fees,medical expenses,boats ,planes and much more.
It is freedom of choice whether someone wants to stay in their own home or not.Sentinel are supplying a service to those who want it.They make sure the person wanting the loan get their own legal advice. Why is the demand there?
I think people having a "trusted bank" in Heartland owning Sentinel will give people more comfort/security in this product.
I suppose far too many New Zealanders have all their wealth/capital tied up in their home,so I expect Sentinel will grow very quickly with our ageing population.
Kiwigold - Agree but if people want them fine.
A much better way to do (in a one kid family) would be to gift house to kid. They then get loan taking advantage of lower interest rates and fees (maybe even a free tv) on the presumption they have a job to service. Their inheritance will be more. You should be able to structure better but you get the point.
Result out.
Net profit $16.7mil.
EPS 4.5 cents.
NTA.89cents
Dividend 2.5cents [you were right Paper Tiger]
Equity Ratio 15.3%
Non core property down to $99.2 mil and projected to be $67.5mil at 30/6/2014.
All boxes ticked.Well done Heartland,and new acquisition is both substantial and exciting, being focused on NZ's ageing property owning population.
We shareholders remain "well positioned."!!!!! [sorry Paper Tiger]
We might be "well positioned" in a number of shares. However I would like to move to "reaped big rewards" at some stage before I retire from these well positioned shares :)
Good result and look forward to the full year result.
Not everyone has offspring of course, or even rellies they like. Some offspring are not willing or able to be involved. And there might be rather a lot of older folk whose aim in life is for the cheque to the undertaker to bounce. And good for them! (OK, not so good for the undertaker.)
Yes a steady and healthy result Percy. NTA 89c according to report. Very pleasing to see the benefit of becoming a Bank clearly coming through in this report with a big reduction in cost of funds.
Non core property being worked on nicely and also exiting some lower margin and higher risk rural lending from the PGW loanbook.
But we are seeing increased competition in the business and rural sectors which they have to deal with, but they seem to be trying to stay away from direct competition with the big banks and focus more on livestock lending in the rural sector.
Motor vehicles showing a healthy increase while they continue to reduce the home mortgage book with more than 50% of the re-financing moving to Kiwibank where we clip the ticket.
So a pleasing steady as she goes result with a nice little divie. We are well positioned indeed.
I don't hold these but have looked into Sentinel reverse mortgages as a future option and if you want to use your money rather than leaving it to others who don't need the money then why not? At least you get to enjoy the fruit of your labor whilst still alive Disc-Held Marac bonds previously
NTA is at least 1.5cps higher than I calculated recently, lose one point.
I actually said that this dividend would be 2cps -lose another point.
The accounts are actually a little better than I expected at first glance.
A quick look at the disclosure statement shows that the banks tier capital ratios are 14.69% at Dec13, for those of us who like to worry about such things.
Best Wishes
Paper Tiger
I wrote the above on 7th February. Now looking at the 31st December balance sheet and in particular the heading 'investment properties'.
December 2012: $55.316m
June 2013: $58.217m
December 2013: $61.481m ( +11.1% on pcp )
That means the value of 'problem' investment properties on the balance sheet is in fact going up, and has been doing so consistently since last June.
That fact is at odds with the declared statement by Heartland:
"Heartland continues to significantly reduce its non-core property holdings"
Total Property Book
30th June 2013 - $122.3m
31 December 2013 - $99.2m
The difference in the declared gross values of the property book is because Heartland's problem property book is split between those 'investment properties' and reduced grade regular loans. The half year report does not give shareholders the detail of what is happening to the latter. But if shifting loans from problem regular loans to 'investment properties' is part of the debt reduction process that is going on, I find that distinctly uninspirational.
Looking at note 12, the provision for individually impaired assets was $5.131m, up from $3.611m in the pcp. This is an indicator that increasing losses are probably being incurred as the problem properties are (supposedly?) being wound down.
SNOOPY
Snoopy - I find your interpretation of the half year accounts very imaginative.
Best Wishes
Paper Tiger
An update from the previous reporting period, FY2013.
The underlying debt of the company according to the HY2014 statement of financial position is: $32.612m
To calculate the total underlying company assets we have to (at least) subtract the finance receivables from the total company assets. I would argue that you should also subtract the problem 'Investment Properties' and the unspecified 'Investments' from that total:
$2,492.090m - ($1,905.850m +$61.481m + $255.427m) = $269.332m
We are then asked to remove the intangible assets from the equation as well:
$269.332m - $22.891m = $246.441m
Now we have the information needed to calculate the underlying company debt net of all their lending activities:
$32.612m/$246.441m= 13.2% < 90%
Result: PASS TEST
This means the position has improved usefully over the latest half year.
SNOOPY
Results are out for HY2014 so time to update.
Updating for the half year result HY2014. The EBIT figure is not in the financial statements. So I will use 'interest income' as an indicator for EBIT, once I have taken out the selling and administration costs
EBIT (high estimate) = $100.500m-$32.417m= $68.083m
Interest expense is listed as $48.114m.
So (EBIT)/(Interest Expense)= ($68.083)/($48.114)= 1.42 > 1.20
Result: PASS TEST, a significant improvement from the FY2013 position. Perhaps that drop in interest being paid to debenture holders as a result of becoming a bank is starting to come through?
SNOOPY
Updating this number for the half year HY2014
Equity Ratio = (Total Equity)/(Total Assets)
Using numbers from the Heartland FY2013
= $382.510m/$2492.090m = 15.3%
This is an improvement on the FY2013 position. It does not include any effect from the just announced reverse mortgage acquisitions. Nevertheless the underlying loan book continues to shrink away, albeit by a miniscule 0.5%.
SNOOPY
The shrinking loan book is due to their exit from the unprofitable residential mortgages from the former building societies. Until this trend stops, I think it is a but pointless focusing on the loan book size. What is important is the Net Operating Income. This increased 13%.
I agree with you Noodles that the long term profitability of the loan portfolio is more important than maintaining the size of the loan book at any cost.
One thing that has surprised me though is the reduction in size of the rural loan portfolio. This has fallen over the past calendar year from $481m to $416m, a fall of 13.5%. By contrast the fall in 'Retail and Consumer' (including residential mortgages) has been from $946m to $906m a fall of 4.2%.
In both gross terms and percentage terms, the biggest 'shrinkage' in Heartland's loan portfolio is on the rural loan book. Proof that the real 'Heartland' of New Zealand is actually Auckland?
SNOOPY
Good point Percy. Yes Heartland could use their retained earnings to boost their loan book by far more than just their new retained capital. And $10m in retained earnings from capital could indeed allow the reverse mortgage loan book to expand by $90m. But Heartland are going to have to choose where they deploy any new retained earnings. And of course they can't boost dividends and boost retained earnings with a static earnings per share outlook. Shareholders can benefit from one or the other, but not both.
SNOOPY
Again this is their strategy, rather than a drop off in business.
"This decrease was driven by reductions in the receivables book acquired from PGG Wrightson Limited, in areas of either higher risk or overlapping competition with major banks. Heartland’s emphasis is mainly
on livestock lending with the pipeline looking good for the next few months. Livestock lending
continued to perform well, growing 10.6% over the 12 months ended 31 December 2013.
"
The above relates to the Reverse Mortgage acquisition. But we can also work backwards and see from a 'reserve bank' pair of eyes (wheels?) deduce what is considered an acceptable operating leverage ratio for the rest of the business.
Apparently, just before the purchase of the reverse mortgages, Heartland had 'surplus' cash of $28.3m on the balance sheet. If we look at the 31st December 2013 HY2014 balance sheet $178.5m in cash was there. So we can deduce that:
$178.5m - $28.3m = $150.2m
of cash is required , as part of a more comprehensive asset package, to fund all the rest of the Heartland business. Put another way, the 'total equity' (again from the balance sheet) needed to fund the rest of the Heartland business is:
$382.5m - $28.3m = $354.2m
The size of the loan book at balance date was $2,077.0m
So the equity to loan book ratio for the rest of the business, as judged acceptable under the watchful eye of Mr Wheeler, is:
$354.2m/$2,077m = 17.0%
SNOOPY
Interesting - I always thought you were off the opinion that this was too risky. Having said that, any company is a buy at the right price provided it has a positive liquidation value.
What do you consider the right price (a general range would be fine if you dont have a exact figure) as I think it would give some more insight to your detailed analysis.
Jeff was on the radio yesterday and said the NZ economy isn't as strong as most make out ...good in pockets but not that good in other areas
Also said heartland is in a low growth lending market at the moment
http://www.radionz.co.nz/audio/player/2587034
About 4.30 in
Once again there is no mention of Tier 1 or Tier 2 in the Heartland HY2014 report.
The 'best case' scenario is that all loans are Tier 1. $2,097.553m of loans are outstanding. 20% of that figure is:
0.2 x $2,076.968m = $415.4m
Heartland has total equity of $382.5m which is still below the 20% of loan target no matter what the tier classification of the loans.
Result: FAIL TEST
PS I do note that while other posters have protested at my 20% of equity to back up the loan measuring stick in the past, it is not too far away from the 17% which by implication is judged acceptable by management under the watchful eye of Reserve Bank chairman Graeme Wheeler. The reserve bank further qualifies their views that a company of Heartlands credit rating still has a 1 in 30 chance of going broke in any year. I prefer to think in business cycles and 30 years will contain around five of those. So you could restate the Reserve Bank's view as saying that HNZ has a one in five chance of going broke at the bottom of the business cycle. For me that investment risk is too high. So I am sticking to my 20% equity requirement, even if the Reserve Bank will settle for less.
Personally I do think there are lower risk options out there in this general sector generating a similar return. That is why I am not a Heartland shareholder as of now. To get me on the share register would require.
1/ A strengthening of the balance sheet. About $35m -$40m of new equity should cover this (that addresses the risk issue).
2/ A dividend yield of some 7-8% (that addresses the return issue).
SNOOPY
PS Of course it would also have to stack up favourably with other comparable investments.
Belg, when I said that Heartland had a one in five chance of going broke in any business downturn, according the Reserve bank credit ratings, I do not expect it to actually go bankrupt in such a situation. As you point out, supportive shareholders could be asked for more capital or a placement made to save the company in an extreme stress situation.
What I believe is that any future heroic supportive shareholders are almost certain to demand a discount as the price of their heroism! While HNZ remains if not short of capital, at least wearing shorts with paper thin material making up the seat of those pants, why go overboard and invest heavily now? The alternative of being one of those "heroic supportive shareholders" sometime in the future seems so much more lucrative, er I mean heroic!
SNOOPY
An equity ratio any financial insto would be proud of.Liquidity strong,supportive shareholders,and improving profits,will drive a better credit rating.
A NZ bank supporting New Zealanders.
So let us apply this metric of yours to a couple of other financial institutions:
The Heartland figures of $2,076.968 are Liabilities: Borrowings and the $382.5 is total equity (including intangibles :scared:)
ANZ: (Dec-13 Disclosure Statement)
Interest and discount bearing liabilities: $93,757M
Required equity for 20% ratio: $18,751M
Total equity: $11,832M, Ratio only: 12.6%
Westpac: (Dec-13 Disclosure Staement)
Interest and discount bearing liabilities: $61,261M
Required equity for 20% ratio: $12,252M
Total equity: $6,439M, Ratio only: 10.5%
Best Wishes
Paper Tiger
As well as the better equity ratio, Heartland shareholders get to enjoy imputated divies.
Hi percy seems your pearly whites are gleaming:). Im looking ahead and i can see a sideways movement in the s/p for a while. Be great if Heartland can refresh the reverse annuity model so the oldies see it as a viable option in future. Always are surprises but my shallow gaze doesn't see many other catalysts on the immediate horizon but steady as she goes. cheers JT
Yeah there have been unheard hints of another collapse but as to when is difficult to measure. We're currently sitting (overall) at a very high & strong level as I understand it, so it only makes sense that this "hype" will correct itself at some stage.
...Probably 5-10 years away according to an article I read a while back, however they admitted that it could be a lot longer!
Opinions?
Fair call PT, but not quite a fair comparison. Both ANZ NZ and WBC NZ have different credit ratings to HNZ. And although all three banks have NZ banking licences as approved by the NZ Reserve Bank, the terms of those licences are not equal. Heartland's terms are a bit more - er- restrictive.
SNOOPY
Just so much nicer having a fully imputed divie.!!! lol.
I would take the ratios you have calculated. But instead of comparing them with each other, for each one measure the 'headroom' between the actual figure and the minimum figure that the Reserve Bank of NZ requires for each specific bank under examination.
SNOOPY
OK, thanks for that PT. What your table is telling us is that assuming equal stability of capital, it is Heartland that has the greater capacity to leverage its existing business for its existing capital base.
This is where the analysis gets a bit chicken and egg. The higher RBNZ capital requirement for HNZ is because HNZ is perceived as having a less stable capital base. However the calculation assumes that the capital base is stable, because the equity base used is a fixed number. So if the Tier 1 capital of Heartland were to change, for the worse or for the better, the RBNZ 12% requirement is still stuck in the immediate historical past. Ultimately the capital requirement for HNZ may approach the 8% of ANZ and Westpac (the optimistic scenario). Then Heartland will be able to leverage their existing capital even more, greatly affecting the ability of Heartland to grow off its current capital base in a positive way.
However, if Heartland has a significant loss of capital, and because it is small that might include the collapse of the property market in Queenstown (for example) that 12% buffer erquirement could suddenly look very close. And those heroic shareholders might face another call on funds.
I guess what I am saying is that on that one raw figure Heartland looks best. But that one figure does not consider the sensitivity of alternate futures that may play out.
SNOOPY
Alternative futures look more challenging for Australian Banks than NZ's Heartland.
Australian Mining Industry;In decline.
Australian Manufacturing,In decline.
Australian Automotive Industry,In decline.
Australian Retail Stores.In decline.
Australian Qantas.In decline.
One wonders whether Australian banks will look after Australian interests before NZ intersts.Will NZ Reserve Bank ask the Australian Banks to shore up their capital ratios for their NZ subsidiaries?
The future for Heartland looks a lot more secure to me.! New Zealanders serving New Zealanders.
Fixed that for ya. You'll be right apart from in a serious collapse when the default rate on car loans of which Heartland has HEAPS goes absolutly ballistic.
You've got no idea in the heat of the last GFC how many leased and heavily encumbered luxury cars were simply left at the airport when people left the country for Australia. Unlike housing, its relativly easy to walk away from cars.
Full page advert in the NZ Herald today for their Reverse Mortgages - did not take them long.
I know they are available at several other Banks and other "finance" institutions, but you very rarely see them advertised
Herald ad is
Also advertising hard out on the rock for livestock purchases,and no repayments for 18 months if i remember correctly.