Is that perchance a prescient homage to the "Two Ronnies"? I am just waiting for a fork handle price chart.
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Sad to hear of the passing of Ronnie Corbett :(.
The "Two Ronnies" are definitely one of the sources of inspiration for me.
https://www.youtube.com/watch?v=Cz2-ukrd2VQ
Best Wishes
Paper Tiger
The acquisition of Seniors Money International in 2014, by Heartland, from Quadrant Private Equity was done on the basis of:
1/ Issuing some new Heartland shares to Quadrant AND
2/ taking on some debt.
Before this acquisition I said that the Heartland balance sheet was 'fully stretched'. The fact that the Seniors acquisition was done by issuing more equity,and was not fully debt funded is some evidence of this. Not proof in itself. Maybe Quadrant just wanted the shares in Heartland as an investment?
Except that one year later, just after these new Heartland shares had come out of escrow, Heartland went into a trading halt. The reason? Quadrant wanted to do a book build to sell their Heartland shares. Now to the determined believer, this doesn't prove anything either. But I ask you to join the dots.
1/ Heartland funded the Seniors purchase through issuing shares, not paying in cash.
2/ At the first opportunity,Quadrant, the sellers conveted their new Heartland shares to cash
3/ If Quadrant wanted cash to start with, why didn't Heartland make the Seniors acquisition a straght cash purchase? Maybe, just maybe they didn't have sufficient cash borrowing facilities to do a straight cash deal at the time, do you think?
4/ The principal reason why a company can't raise cash quickly is because they don't have sufficient equity to allow them to do so.
In summary, I believe my description of Heartland being 'cash constrained' just before the Seniors acquisition was bang on the money.
SNOOPY
Sometimes PT, I think you are being deliberately obtuse. But for those that really don't get it.
1/ The reserve bank mandates a minimum amount of capital that a trading bank must hold in relation to the size of its lending portfolio.
2/ This capital includes both share capital and other capital by the way of longer term borrowings - 'capital bonds'.
3/ The trading bank can choose how it satisfies the reserve bank requirments: Straight share capital, or a combination of share capital and long term or perpetual capital bonds.
4/ Not all long term capital bonds are rated equally. The bonds are commonly ranked by the reserve bank on a 'Tier' categorisation. From a capital rating perspective a 'Tier 1' bond is more highly rated than a 'Tier 2' bond. This means that if a 'Tier 1' bond is made up of X dollars, this can be replaced in reserve bank valuation terms by a a 'Tier 2' bond of 'X + a safety factor'.
5/ The reserve bank doesn't specify exactly the combination of share capital, 'Tier 1' or 'Tier 2' bonds a bank must hold. The reserve bank specifies a minimum amount of capital and a formula to calculate it. The trading bank is free to choose whatever combination of share capital, 'Tier 1' capital and 'Tier 2' capital they like - provided that the overall combination satisfies reserve bank requirements.
Thus PT's point of the proposed bond issue by Heartland being 'Tier 2' - rather than the 'Tier 1' I suggested - (and I am not saying you are wrong that it will be Tier 2 PT) is of no consequence. It just means that more Tier 2 capital will need to be issued than the Tier 1 capital that I had suggested, to make up for any 'capital return' of 'shareholders equity' to shareholders - should that 'capital return' go ahead. But of course a smart cookie like PT already knows all that :-) ...
SNOOPY
1, 2, 3 & 5. I am basically in agreement with.
4 - you need to read this RBNZ CAF document (which is what HBL must conform to these days).
My assertion about Tier 2 is based on all the announcements made by HBL.
But the details of what capital (share & Tier X) reconstructions will be involved we do not yet know.
If it happens then I am sure there will be a range of opinions aired here then.
Best Wishes
Paper Tiger
If I may make the point that my point was about Peabody Energy. Broke, or at least they cannot pay the US$70 million interest due on their borrowings. The accountants obtained capital from borrowings, not shares. Share Capital does not pay interest. Further, it can even demand more cash, with menaces, or 'we will issue new shares at the rate of ten to one share held now'. Companies who find themselves in the very happy position of spare cash can return it to the shareholders.
UNLESS they are a Bank. The commodity that banks trade with is Money. They need lots of it and the more of it available interest free then the more security for the bank. Have you heard of a Bank Run? What happens if it is a bank stampede?
A bank run is not on the horizon today. But Oil was guaranteed never to dip below US$100 a barrel.
Banks in NZ have to obtain a banking licence from The Reserve Bank of NZ, before they can call themselves a bank,or operate as one.
Then they must report quarterly to The Reserve Bank.They must keep their equity and other ratios within certain guidelines.
As far as I can remember Peabody Energy never applied for a NZ banking licence,so I can not see what is gained by talking about them .
As for Australasian banks;all have good equity,and widespread loan books,and remain capable of weathering any future storms.
As far as HBL is concerned, the weather forecast is for sunny days, with plenty of blue skies.
Peabody Energy is a coal miner. They are the largest coal miner in the world, might even own Pennsylvania. But they are broke, or at least cannot meet their interest payment of US$70 million.
Heartland is a bank. They lend money. The Reserve Bank could, without warning, tell Heartland to find more capital. Since the Reserve Bank is 'monitoring' our banking system. Further, they do not in any way declare any bank in NZ solvent. Nor will they pay our bills. The weather forecast is sunny..........but is that a bit of a squall out at sea?
No not without warning.NZ banks report quarterly,they work with The Reserve Bank.Any changes in any capital ratios would be signalled well in advance.You are seeing this with the Australian banks.There are no squalls out at sea.
The skies are a lot bluer with the coal miners going broke.