Bad credit people are usually declined by Banks and major finance companies.
Quote:
Originally Posted by
kiwico
Some of the discussion on this thread is about how much of a bank HBL is. The RBNZ has HBL as a registered bank and so HBL is subject to different regulation than a Non Bank Deposit Taker. But HBL was born out of NBDTs (finance companies, building societies, credit unions and the like) so is it still run as one?.
Secondhand car retailers like
this bunch promote finance for those with bad credit and beneficiaries and bankrupts, with HBL one of two the lenders listed on their
finance page.
Being involved with activities and customers like this to me places HBL more in the NBDT / finance company area even if they are registered bank (the duck test again).
I hold but only as a small part of my portfolio because we know what happened to finance companies and the like the last time the economy slowed down. :(
Yes many lost skin in the finance company collapses but I am sure you will have noted that car dealers like that have a wide range of finance companies with whom they work.
I note Geneva finance are one of the companies they use and I think you will find that people with bad and poor credit records are referred to one of the, (putting this as kindly as I can), third or fourth tier lenders.
Iceman - Mate I can't see any issues but I am sure the other hound will find something to pontificate about at quite some length and "intrigue" us with.
Liquidity Buffer Ratio aka 'Meads Test' FY2016
Quote:
Originally Posted by
Snoopy
The following information for FY2016 is derived from note 20 in AR2016 on 'Liquidity Risk'.
1/ Contractual information is extracted from the table titled 'Contractual Liquidity Profile of Financial Assets and Liabilities.
2/ Expected information is calculated by multiplying the 'Contracted' risk by the Expected Behaviour Multiple.
3/ The Expected Behaviour Multiple is dervied from Heartlands own results, back in the day they printed both 'Contracted' and 'Expected' behaviour.
Loan Maturity |
Expected Behaviour Multiple |
FY2016 Financial Receivables Maturity: Contracted/ Expected |
On Demand |
100% |
$84.154m / $84.154m |
0-6 months |
132% |
$743.389m / $961.274m |
6-12 months |
132% |
$484.420m / $639.962m |
Note that in the above table, a 'loan maturity' represents an expected
inflow of cash from a Heartland bank perspective.
Deposit Maturity |
Expected Behaviour Multiple |
FY2016 Financial Liabilities Maturity: Contracted/ Expected |
On Demand |
3.01% |
$718.587m / $21.630m |
0-6 months |
32.4% |
$892.944m / $289.314m |
6-12 months |
36.4% |
$837.844m / $304.975m |
Note that in the above table, a 'financial liability (debenture) maturity' represents an expected
outflow of cash from a Heartland bank perspective.
If we now take the expected cash inflows and subtract from those the expected cash outflows we can examine the expected net cashflow from a 'one year in advance' perspective.
Deposit Maturity |
FY2016: 'Expected' combined Loan and Deposit Cashflow |
On Demand |
$62.524m |
0-6 months |
$691.960m |
6-12 months |
$334.987m |
Total |
$1,089.471m |
Time to update the "Liquidity Buffer ratio" for FY2016.
When dear old Colin told us all those years ago that a certain finance company was 'solid as' with reference to investing debenture money, the end result was that this cash became tied up in illiquid property developments. So although the company had enough money to pay out their debenture holders 'on paper' and appeared to be operating profitably, the debenture holders could not get their cash back. The 'Meads Test' (as christened by Snoopy) is one method of finding out if a finance sector company really is 'solid as'. The basic date I need to check this out has already been calculated (see above). So let's get going.
To check out the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:
(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding) > 10%
On the numerator of the equation, we have borrowings.
HNZ BORROWINGS
1/ Term deposits lodged with Heartland. |
$2,282.876m |
2/ Bank Borrowings |
$429.304m |
3/ Securitized Borrowings total |
$284.429m |
4/ Subordinated Bonds |
$3.378m |
Total Borrowings of (see note 13) |
$2,999.987m |
Note 13 does not contain a clear breakdown of current and longer-term borrowing amounts and their maturity dates.
Banking facilities are provided by CBA Australia but for both Australia and New Zealand. These facilities are, I believe, in relation to the Australian part of the 'Seniors Reverse Mortgage Portfolio'. These banking facilities are secured over the homes on which the reverse mortgages have been taken out. These CBA loans have a maturity date of 30th September 2019. That means they are classed as ‘long term’ for accounting purposes. Heartland can’t rely on CBA Australia as a source of short-term funds.
The information given in note 13 on the securitized borrowing facilities is as follows:
|
Total FY2016 |
Total FY2015 |
Facility Maturity Date FY2016 |
Securitized bank facilities total all in relation to the Heartland ABCP Trust 1 |
$350.000m |
$350.000m |
1st February 2017 (*) |
less Current level of drawings against this facility |
$284.429m |
$258.630m |
equals Borrowing Headroom |
$65.571m {A} |
$91.370m |
(*) I do not expect any problem in rolling this facility over for another year.
HNZ LENDINGS vs HNZ DEBENTURES
Customers owe HNZ 'Finance Receivables' of $3,113,957,000. There is no breakdown in AR2016 (note 11) as to what loans are current or longer terms. However, if we look at note 20, we can derive the expected maturity profile of total finance receivables due over the next twelve months.
|
On Demand |
0-6 Months |
6-12 Months |
Total |
Expected Receivables Due |
$84.154m |
+ $961.274m |
+ $639.962m |
= $1,685.390m |
less Expected Deposits for Repayment |
$21.630m |
+ $289.314m |
+ $304.975m |
= $615.919m |
equals Net Expected Cash Into Business |
$62.524m |
$671.960m |
$334.987m |
$1,069.471m {B} |
If more money is coming in from customer loans being repaid, than is having to be repaid to the debenture holders, then this is a good thing for debenture holder liquidity. That is the case here.
Summing up:
(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding)
= $65.571m / $1,069.471m
= 6.1% < 10%
=> Fail Short term liquidity test
On the surface this is an odd result. The expected cashflow outstanding is hugely positive, much greater than the pcp. So how can I fail Heartland on this liquidity test? One answer is that getting more net money in than in previous years could mean that Heartland might have difficulty applying that money into new loans.
|
FY2016 |
FY2015 |
Amount lent to Customers (Receivables) |
$3,113.957m (+8.8%) |
$2,862.070m |
Total Borrowings |
$2,999.987m (+6.2%) |
$2,825.245m |
Amount borrowed from Customers (Debentures and Deposits) |
$2,282.876m (+8.8%) |
$2,097.458m |
Securitized borrowing facilities have gone up by $25.799m over the same annual comparative period, while the $350m borrowing ceiling remains the same. So Heartland have upped their current period risk profile yet again by having a smaller declared available loan buffer to cover any mismatch between maturing borrowings and maturing receivables.
SNOOPY
The story remains the same
Quote:
Originally Posted by
Snoopy
The above conclusion, at first glance doesn't make sense. Here we have a mismatch with over a billion dollars worth more of loans maturing than maturing deposits to be paid out. That sounds really good, and is a record surplus from a security of deposits viewpoint. So how can I turn around and fail Heartland on this liquidity test?
Two comments:
1/ The total ability of Heartland to borrow is not declared in the Annual Report. Yes $65.571m can be borrwed from the banking syndicate in Australia. But there is no mention of what the equivalent figure is in New Zealand. This undeclared parent bank borrowing ability will very likely see Heartland pass this liquidity test. It is just on the publicly declared part of their ability to borrow that Heartland fails.
2/ I pulled this liquidity test from a time where the GFC had just happened. This meant that the real risk at the time was with debenture depositors not getting their money back becasue of liquidity issues. This kind of risk with supposedly reputable finance companies stunned me at the time. But I wonder if there is a converse kind of liquyidity risk for on the loan book now? Could it be that Heartland might have a problem lending out their depositors money?
SNOOPY
The simple answer is 'Garbage In, Garbage Out' or to put it a little more kindly:
Have you considered the possibilities that you are using the wrong inputs, failing to understand the original test and are so negatively biased towards Heartland that you can not see the facts for the fiction?
So why not sit down with a bowl of your favourite dog-food and Peanuts.
https://s-media-cache-ak0.pinimg.com...5f3d16c176.jpg
Best Wishes
Paper Tiger
I think Snoopy likes the attention
Quote:
Originally Posted by
Felonius
Percy & Tiger. Why so rude to Snoopy ?
Thanks to you Percy I am a shareholder in HBL. Determining whether it was / is a good investment is beyond me and without your excellent record & advice I would not have considered buying in. Could it be that Snoopy is generously trying to prevent us losing money on a risky investment ?
I can only assume that you have spent time reading his arguments carefully, understand the issues that he is attempting to discuss, and are quite sure that what he is saying does not make sense.
I spend little time reading Snoopy's posts. To my simple mind his views & spreadsheets appear carefully considered & well expressed. Agreed, he does seem somewhat fixated on Heartland Bank and I don't know whether it's warranted or not, but please try to be more kind (or respectful).
Felonius >> felon >> convicted of a serious crime >> robbed a bank :eek2: & got caught :t_down:?
Here is the Tiger take on the important question that Snoopy is trying to answer.
If has a result of some people actually believing Snoopy's posts that Heartland always was, currently is and always will be a failing bank, that 10% of the money on loan to Heartland is [attempted to be] withdrawn at the earliest contractual moment can Heartland actually pay them.
The answer to that would appear to be (from reading the accounts) a pretty definite YES.
Best Wishes
Paper Tiger
Liquidity Buffer Ratio or 'Meads Test' HY2017 (Part 1)
Quote:
Originally Posted by
Snoopy
This is the most imprtant calculation that most nvestors in finance companies never do. I have rechristened it the 'Meads Test'. The Meads Test is way to find out if dear old Colin says a profitable finance company is 'solid as', whether that company will run out of cash when it comes time to repay your debenture. "Liquidity Buffer Ratio" sounds a bit pompous, so I will adopt the term 'Meads Test' in the future, as I think most investors will relate to that term better.
We are looking at the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:
(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding) > 10%
Heartland provides a nice projection of forward cashflows in note 14 of IRFY2016. But these are contacted cashflows. In practice depositors roll over their Heartland debentures. And when customers repay a Heartland loan, they often take out another loan. So what we as investors need to concentrate on is the
expected behaviour of those that take out loans from Heartland and those that loan money to Heartland. Expected behaviour is not written in stone. But we can make an educated guess at this by looking at what happened in prior periods where both 'contracated' behaviour and 'expected' behaviour was tabulated. "Adjustment factors" in the table below:
HY2016 Loan Maturity (Financial Receivables) |
Contracted |
CE Factor |
Expected |
On Demand |
$31.879m |
1.000 |
$31.879m |
0-6 months |
$618,779m |
1.32 |
$816.778m |
6-12 months |
$277.017m |
1.32 |
$345.662m |
HY2016 Deposit Maturity (Financial Liabilities) |
Contracted |
CE Factor |
Expected |
On Demand |
$728.056m |
0.0301 |
$21.914m |
0-6 months |
$1,360.508m |
0.324 |
$440.805m |
6-12 months |
$498.705m |
0.364 |
$181.529m |
Now I have generated the expected cashflow data over the ensuing twelve months, I can proceeed to make some 'Meads Test' calculations.
The 'Meads Test' is way to find out if dear old Colin says a profitable finance company is 'solid as', whether that company will run out of cash when it comes time to repay your debenture. "Liquidity Buffer Ratio" sounds a bit pompous, so I have adopted the term 'Meads Test'. I think most investors will relate to that term better.
We are looking at the balance between monies borrowed and monies lent and matching up those maturity dates using a one year time horizon. The equation we are looking to satisfy is:
(Total Current Money to Draw On)/(Expected Net Current Loans Outstanding) > 10%
Heartland provides a nice projection of forward cashflows in note 14 of IRFY2017. But these are contracted cashflows. In practice depositors roll over their Heartland debentures. And when customers repay a Heartland loan, they often take out another loan. So what we as investors need to concentrate on is the expected behaviour of those that take out loans from Heartland and those that loan money to Heartland. Expected behaviour is not written in stone. But we can make an educated guess at this by looking at what happened in prior periods where both 'contracted' behaviour and 'expected' behaviour were tabulated. "Adjustment factors" in the table below:
HY2017 Loan Maturity (Financial Receivables) |
Contracted |
CE Factor |
Expected |
On Demand |
$69.655m |
1.000 |
$69.655m |
0-6 months |
$802.074m |
1.32 |
$1,058.738m |
6-12 months |
$538.448m |
1.32 |
$710.751m |
HY2017 Deposit Maturity (Financial Liabilites) |
Contracted |
CE Factor |
Expected |
On Demand |
$754.583m |
0.0301 |
$22.713m |
0-6 months |
$1,047.186m |
0.324 |
$339.288m |
6-12 months |
$889.191m |
0.364 |
$323.666m |
Now I have generated the expected cashflow data over the ensuing twelve months, I can proceeed to make some 'Meads Test' calculations.
SNOOPY