I think it is hard to tell about the margins Winner, until the overall loan book is appropriately resized and we have like for like comparative periods to compare.
SNOOPY
Printable View
I agree Sparky that in the end profitability is more important than size. I think it is wise strategy for Heartland not to tackle the big four banks head on. However this proposed symbiotic relationship with the big banks does not quite ring true to me.
My question is, why would a farmer borrow from Heartland at higher rates if they could get that same money secured against their land at lower rates from one of the big four banks? The answer is they wouldn't. Heartland may have indeed identified niche. But that niche will be highly leveraged undercapitalized farmers that can't get a larger loan from their big four bank. So at once the profile of the Heartland rural farmers doing the borrowing is a collective set of 'risky' farmers.
SNOOPY
Of course, the only lot who borrow cash are those without it. There is no advantage in taking security with a sixth mortgage over land that already has five mortgages on it. Which is where taking security over a combine harvester is useful. You can drive it off the property! Even flog it overseas if big enough. So farmers will have to pay more to borrow from Heartland, but I think the risk warrants a higher interest rate with maybe more actual security than land. Providing of course the combine harvester has not been borrowed against six times also!
This also raises the question of the expertise in Heartland to value a combine harvester, which must be worth quite a lot a Harvest Time. But how much is it worth in Winter? Most peculiar situation.
You have answered your own question;"secured against their land.".Old banker story,put the boat on the house is stupid.Farmers realise they are better paying a higher rate for a short term rather than a low rate for a higher term ,and keeping their land unencumbered as much as they can.
Management tip.It's not the interest rate that is important, it is the length of time you pay that interest.
The point is a combine harvester is worth a heck of a lot, just before harvest, and not much afterwards. If Heartland are using a combine harvester for security, they will need to be able to hold it until the high season to get a good price, should a loan go bad. And that means they will need more shareholder capital than an equivalent bank that has a lien over land. How much more capital? 50% more (that translates to 30% of the outstanding loans being the capital requirement that HNZ would need to hold.) At least that is the figure the underwriting banks were demanding when PGW Finance were still part of PGW.
Going after these niche markets will have a capital cost for HNZ shareholders.
SNOOPY
WTF is going on ...... liquidity has dried up .... no one keen on selling or buying
Brokers will not be happy .... no income coming in from people buying and selling HNZ shares
I feel Forbar and Craigs or somebody will be putting out a glowing report to fix that ....... BUY BUY BUY ..... or maybe SELL SELL SELL .... they don't care as long as people are buying or selling
Experience is important.MARAC have a record of successful lending on vehicles and equipment.
We saw them fail when they went and lent in market they did not understand,ie property developement.
Each and every type of lending would have certain guidlines, different levels of deposit,different length of credit, and with rural lending I would expect they are aware of the seasons.Payments would be right up to date on the harvester until the crop was in anyhow.!!! We better keep an eye out with Turners to see if any/or a number come up for auction. Niche markets have great potential for HNZ,so long as they understand them.As I said before each market will have it's own requirements.
What is positive is HNZ are not chasing the areas the major banks are strong in,ie home mortgage market.
120 day rate will be the same as any other day rate,ie HNZ will be matching their deposits with their lending.From what I know they are still carrying a lot of cash.Being prudent?
Brilliant post, Percy,
Payments would be right up to date on the harvester until the crop was in anyhow.!!!
And it sums up the problem with Combine Harvesters. Which needs plenty of experience in valueing farm equipment for hire purchase. If Marac, sorry Heartland, has retained that expertise then things look good. It might take us a few years to find out Heartlands level of expertise.
And you are only a "temporary custodian" so to speak
Interesting to catch a HNZ advertisement on 'The Rock' today offering high deposit rates for businesses, it mentioned something about no fees. Didn't quite catch the details but was pleasantly surprised to hear the add, it finished with the profile 'NZ's newest bank'.