Never do anything by half-measures
Quote:
Originally Posted by
Roger
I found this bit quite interesting NBT. Curiously HNZ made no extra provision for bad debts in the dairy sector despite having an average LVR based on farm values as at 30 June of 65%, (remember farm values have fallen 17% since then so current LVR is probably into the mid late 70% range now). How is it that HNZ think they're immune to this dairy issue but all the other banks think otherwise ?
All HNZ have done is kick this can down the road and this must inevitably come back to bite them in subsequent year's financial results. GDT auction results overnight are expected to show a 5% fall according to the futures, (article in Herald this morning). This dairy sector is not out of the woods by any stretch of the imagination. Bankers massive bonus's for the FY15 year couldn't possibly have had something to do with this apparent dairy under-provisioning, surely not...
I find your whole rant 'quite interesting' Roger.
HNZ made a large increase to provisions for bad debts, some of which related to dairy farmer loans (from FY accounts)
They increased their provisioning in the rural sector, even though the quality of the rural loan book improved over the year (from FY accounts).
The 65% was actually 61% (from NZX announcement).
They do not think they are immune to anything (from FY accounts & NZX announcement etc).
I am sure that Heartland will have segments of their business that under-perform and others may well over-perform.
There will come a time when their year on year profit will fall and there is the [currently remote] possibility of worse things.
Best Wishes
Paper Tiger
Is simply hoping for a recovery in Dairy a prudent approach ?
So yesterday Paper Tiger alleged they'd made significant extra provisioning in their financials for the exposure to Dairy losses in their FY15 accounts.
Can you please direct me to where exactly in the accounts this is done ?
The financials all look lovely, beautiful pictures and images and even the Maori translation. They're sure to include a good gender, age and ethnicity balance in their photo's too...all very lovely and tremendously politically correct...must be trying to win the annual report of the year award surely ?
But scratch beneath the glossy surface and one wonders if they simply haven't put lipstick on an otherwise somewhat unattractive situation.
From my read all the provisioning has gone into other areas.
From note 19(e) in the accounts where they lump all agricultural loans together, (they don't appear to separate out dairy loans from my read) we get total provision for impaired loans both individually impaired and collectively impaired in 2014 of $2.114m on total loans in this sector of $490.7m = 0.43% total provisioning.
In 2015 we have total provisioning of $2.173m on total agricultural sector loans of $571m = 0.38%.
This material reduction in the percentage rate of provisioning is against known information at the time that dairy was at a ten year low and many of their clients required ongoing support..go figure but this seems to defy logic seeing as the outlook in June 2014 was better than in mid winter 2015 ?
How much of the extra $81m loaned to that sector was ongoing support to dairy farmers that required it, we don't know as they won't and don't disclose that.
Here's a small extract of their blurb on how their judgement's are made
Quote:
Credit impairments are recognised as the difference between the carrying value of the loan and the discounted value of management’s best estimate of future cash repayments and proceeds from any security held (discounted at the loan’s original effective interest rate). All relevant considerations that have a bearing on the expected future cash flows are taken into account, including the business prospects for the customer, the likely realisable value of collateral, the Group’s position relative to other claimants, the reliability of customer information and the likely cost and duration of the work-out process. Subjective judgements are made in this process. Furthermore, judgement can change with time as new information becomes available or as work-out strategies evolve, resulting in revisions to the impairment provision as individual decisions are taken. Changes in judgement could have a material impact on the financial statements.
Emphasis added.
As mentioned yesterday with the Sept 30 quarter farm sale data now known and a 17% fall in that quarter alone, their 61% LVR ratio becomes 61 / (100-17) = 73.5% as at 30 September 2015.
Further, from previous serious downturns we know that once farm prices start trending downwards its never over in a single quarter so in my view its highly likely that many banks will presently be talking to cash flow negative clients in this sector inviting them to "consider their options". (This is "bank speak" for we can't continue to support you so get out or refinance before we have to enforce our security rights). Its my view that its likely that for every forced sale currently being contemplated by the banks, i.e. officially a mortgagee sale, there are many more where the clients are effectively taking instructions from their bankers even though the property is not being marketed as a mortgagee sale so the weight of supply going forward is highly likely to depress farm prices further, perhaps quite significantly in my opinion.
If farm prices fall another 17% in total in the balance of FY16 spread over the next three quarters, which seems like a reasonably conservative assumption to me, HNZ's average Loan to valuation ratio becomes 61 / (100-34) = 92.4% ! (A client of mine told me his farm worth approx. $8m at the peak, he'd be lucky to get $5m for and that was back in August). I'd suggest he might get $4m now, about half. Nobody can sell in that district is the other comment he made. I think another 17% fall spread over the current quarter and the next two, i.e. nine months could be quite conservative and it could fall materially further than that and then we really have a serious problem. Do HNZ carry and provide further support to dairy farmers for a third year when their LVR is over 100% ?
I will leave people to judge for themselves whether they think total collective loan provisioning of $2.17m on an agricultural sector loan book as at 30 June 2015 of $571m is adequate or not, but please keep in mind that they talk a lot about providing ongoing support so the LVR can only go one way when that's happening and that's on top of the issue being exacerbated by rapidly falling farm values.
We have had any number of expert economists in the media in recent months saying highly indebted dairy farmers are losing serious money with a pay-out at last year's level and this year isn't much of a recovery so far...extremely challenging times for the dairy industry meaning the loan provisioning for that sector can only head one way...perhaps quite dramatically and impact FY16 and FY17 profits ?...you be the judge.
I think shareholders would be wise to keep an eagle eye on the future farm sale data as any further material deterioration in values could seriously undermine HNZ's asset quality and future profits.
My 3 cents but please DYOR and don't accept glossy pictures and images at face value.
It was not me, I was not there and anyway it was two other Tigers
Quote:
Originally Posted by
winner69
PT reckons HNZ execs at Melbourne Cup (pput the asm off eh)
Prob being looked after by the Bendigo people before getting down to the nitty gritty discussions later in the week.
You are attributing all of that to the wrong feline.
Never mentioned the Melbourne Cup or started the Bendigo rumour.
Best Wishes
Paper Tiger
I am the good looking one
Quote:
Originally Posted by
winner69
Sorry PT ...it was Xerof
Always get you two mixed up
http://beeflambnz.co.nz/pics/sportsa...2648096694.jpg
That's understandable.
Best Wishes
Paper Tiger
Is it very dark down there
Quote:
Originally Posted by
Roger
Individually and collectively impaired loans went down as a percentage of total loans advanced as per yesterday's post...and that with dairy outlook at a ten year low.
Even if you take your viewpoint that's hardly the substantial new provisioning you called it in your previous post...really quite minuscule in the context of the loan book with so many customers unable to meet their current loan obligations.
There's been several recent articles in the press about substantial new draw-down's of loans in the sector in the last quarter to 30 September...I guess if people can't pay their existing loans and can't sell their farms its better to loan them even more money, (dress it up as showing support, that's really politically correct), and cross your fingers and hope it all comes out in the wash...opps it isn't...GDT dairy prices down 8% overnight.
You are digging a pretty deep hole for yourself, Roger.
I should not be in a position where I feel the need to explain Company Account's 101 to an accountant.
There exists the real possibility that HNZ will have to make further provision for loans to dairy, that is not in dispute and there also exists the possibility that they have already made more than enough.
But they have to make reasonable, rational decisions.
Best Wishes
Paper Tiger
Dairy Debt grows at it's fastest pace in many years...I
Quote:
Originally Posted by
iceman
Hi Roger. Yes of course I have seen the various economic commentary. However I have not seen any reports on HNZ having "many customers unable to meet their current loan obligations". I look forward to receiving your links to substantiate it
That's good then mate as I don't need to waste the time repeating what most economic commentators have been saying many times and that's generally been that the dairy price needs to be in the late $5 range + for farmers with debt to just break even.
Of course I can't provide links saying HNZ's customers can't pay their bills but what do you think a loan to farm value ratio of approx. 73% on current farm values implies, (amongst the most indebted in the sector surely ?) and that combined with HNZ's own statements that they're giving ongoing support to their customers. Support means lending more money to them because their cash flow is insufficient to survive, see this.
http://www.interest.co.nz/news/78394...s-respectively I dunno mate but I'm pretty sure those dairy farmers weren't borrowing money hand over fist to travel to the Rugby World Cup.
Not at all PT, I think its pretty clear than the BNZ and HNZ have taken quite distinct approaches to their provisioning and I think that's clear for people to see, even those that don't want to understand the latest IFRS, (International Financial Reporting Standards). HNZ might squeak through though, the new standard doesn't come into force till 1 January 2018..suppose they're hoping the dairy storm has blown over by then. Time will tell, nuff said.
You may have had the wrong glasses on when you read it
Quote:
Originally Posted by
Roger
...Looking at the text of what HNZ had to say the other day I think people may be getting a little ahead of themselves thinking there could be $100m repaid to ordinary shareholders. Nothing in the text of the news release would suggest that,...
from Heartland announcement
Quote:
...Accordingly, Heartland will seek shareholder approval at the upcoming Annual Meeting to return an amount of capital within a range of not less than $58 million (which equates to 10% of Heartland’s average market capitalisation over the 20 trading days prior to this announcement) and not more than $100 million. ...
Best Wishes
Paper Tiger
There is never print so fine as Tiger print
As they say: the devil is often in the detail.
I would not bother doing anymore sums, it is all highly unlikely to be EPS negative and is probably worth at least 2%.
Best Wishes
Paper Tiger
Tiger's and others shouldn't count on a feed until it's served up to them
Devil sure is in the detail, emphasis added. I guess we don't want the unemployment rate to blow right out or the GDT auction prices to collapse back down then do we ?
Quote:
The exact amount of excess capital to be returned to shareholders would
depend on the extent of oversubscriptions that may be received under the Tier
2 Capital issue and the business and economic factors present at the time the
capital return was conducted. Accordingly, Heartland will seek shareholder
approval at the upcoming Annual Meeting to return an amount of capital within
a range of not less than $58 million (which equates to 10% of Heartland's
average market capitalisation over the 20 trading days prior to this
announcement) and not more than $100 million.
However, circumstances may arise whereby the return of capital may not
proceed even if it is approved by shareholders. In summary, this would be if
the Tier 2 Capital issue did not proceed (or did not complete successfully)
or if the board identified an investment requirement or opportunity prior to
the return of capital being undertaken (including an acquisition of Motor
Trade Finances Limited), which leads the board to consider that a return of
capital is no longer the most appropriate use of the Continuing Company's
excess capital.
How have they gone in terms of the HER business acquisition being EPS accretive ?
So the 4.9 cent net benefit I calculated isn't a certainty by any means..oh wait, the market has already priced that in fully...people counting their chickens before they arrive ?
If I knew the future the present would be boring
Quote:
Originally Posted by
gv1
Why would they want to return capital when dairy outlook doesn't look good.
If I open my fridge door, there, sitting right in the middle, at the front, of the second shelf from the top is an unopened 250g block of Mainland Vintage.
It does not get much better than that.
But seriously:
If and only if they raise this $50 to $75 of Tier 2 capital (which would equate to about 2% of capital adequacy for the larger 2016 version of the bank)
and they fail to find something EPS positive to buy with it
then they will have more (money, not cheese) kicking around than is sensible and they will very graciously let me have some of it.
HNZ will make provisions for impairment based on the reality of the situation and maintain its capital position in order to remain within its RBNZ requirements given their analysis of future economic possibilities.
So all is probably OK, but everything comes with some degree of risk.
Best Wishes
Paper Tiger
Done the sums in my head so beware of them
Quote:
Originally Posted by
percy
MTF or any other acquisition will have to be fantastic to be better than the up to $100mil share by back.!!!
It depends upon the interest rate they pay on any new Tier 2 and at what price they buy back existing shares. (The announcement mentions 10% for $58 which is only $1.225, but do not take that as what will be).
But a $50m Tier 2/Tier 1 swap is about 2.7% EPS positive
and a $75m swap is about 4.2% EPS positive
Both with Tier 2 paying 6% and capital return at $1.30 a share
Best Wishes
Paper Tiger
Still learning something everyday
apropos of my previous post Harvey Specter makes a highly relevent comment on the CEN thread about pro-rata buybacks needing to be over 10% of market cap and I will presume that this would apply here.
If this is true then do not bid the price up too much; any buy-back could become un-affordable.
Best Wishes
Paper Tiger
Do we actually lend anything to anybody or borrow anything from anyone
Quote:
Originally Posted by
percy
HNZ has low exposure to dairying.
HNZ has low exposure to Auckland property market.[the odd REL]
HNZ has no exposure to the Australian mining sector.
HNZ has no exposure to the weak Australian manufacturing sector.
HNZ has no exposure to the weak Australian retail sector.
HNZ has no exposure to the Asian Banking sector.
If HNZ has any exposure to Australian roperty sector it is only via REL loans where the security is first rate.
HNZ has no exposure to the volatile wholesale market for funding.
HNZ does no need to raise more capital,in fact they have excess.
Yet the market will react as though HNZ alone are totally at risk with the dairy sector.
HNZ is a tiny little bank:
ANZ $134B of liabilities;
ASB $71B of liabilities;
HNZ $3B of liabilities.
Best Wishes
Paper Tiger