Tier 1 and Tier 2 Lending Ratios FY2016
Quote:
Originally Posted by
Snoopy
I am a little overdue with this 'annual update, but better late than never.
Heartland has announced its intention for Heartland Bank to complete an issue of Tier 2 capital issue in FY2016, provided that market conditions remain favourable. An issue of Tier 2 capital would (in the absence of any other use) allow Heartland to return capital by way of a share buy back which would have a positive impact on ROE and EPS. This statement implies that at EOFY2015 30th June 2015) , all capital within Heartland was Tier 1 capital. It is nice to get confirmation of this, because this has been my assumption for several years. The awkward thing about this new Tier 2 capital is that it will make next years equivalent calculation more difficult!
$2,879.134m of loans are outstanding. 20% of that figure is:
0.2 x $2,879.134m = $575.8m
Heartland has total equity of $480.1m which is still below the 20% of loan target.
Result: FAIL TEST
Putting a number on it, the actual capital to loan ratio is:
$480.125m / $2,879.134m = 16.6%
This is down from the 17.6% of last year and now nearer the 17% equity that Heartland had when Governor Wheeler originally approved Heartland as a bank. Wheeler has of course slackened Heartland's requirement for capital since then. But the raw figure is not very encoraging, if progress is what you were seeking.
The promised capital note issue never happened. So once again this calculation is straightforward with all 'Tier 1 and Tier 2 capital' being shareholder equity.
Total Heartland Equity at balance date was $498.341m,
Total Heartland liabilities at balance date were $3,048.840m
So: Equity / Total Liabilities
= $498.341m / $3,048.840m = 16.3% < 17% (*)
Result: FAIL TEST
Note that I have changed my equity target for Heartland to the 17% equity (down from my 20% target) that Heartland had when Governor Wheeler originally approved Heartland as a bank. I had previously used 20% as the figure appropiriate for a more marginal finance company without a strong history. Even so, Heartland has did not have the amount of equity on the books to support a loan book of the current size in my judgement. However the December 2016 equity raising has no doubt addressed this issue for now.
The historical picture of this ratio is tabulated below.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
Target |
Total Tier Capital/ Loan Book |
19.3% |
17.7% |
17.6% |
16.6% |
16.4% |
>17% |
SNOOPY
Not expecting future returns to be a s high as prior - but never mind
Once a pretty dodgy finance company always a pretty dodgy bank then Snoopy !
You were right to never invest in it.
Best Wishes
Paper Tiger
Underlying Gearing Ratio FY2016
Quote:
Originally Posted by
Snoopy
The underlying debt of the company (borrowings removed) according to the full year (FY2015) statement of financial position is:
$46.020m + $7.869m = $53.889m
-----
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 'Investment Properties' (the rump of the problem property portfolio) and the unspecified 'Investments' (held on behalf of policy beneficiaries) from that total:
$3,359.259m - ($2,862.070m +$24.513m + $329.338m) = $143.348m
We are then asked to remove the intangible assets from the equation as well:
$143.348m - $51.119m = $92.229m
------
Now we have the information needed to calculate the underlying company debt net of all their lending activities:
$53.889m/$92.229m= 58.4% < 90%
Result: PASS TEST
The underlying debt of the company (debentures and other loan supporting borrowings removed) is the first factor in an attempt to assess the underlying shareholder owned skeleton upon which all the recivables that are loaned ultimately sit.
According to the full year (FY2016) statement of financial position the debt excluding borrowings is:
$42.099m + $6.754m = $48.853m (1)
-----
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 'Investment Properties' (the rump of the problem property portfolio) and the unspecified 'Investments' (held on behalf of policy beneficiaries) from that total:
$3,571.181m - ($3,113.957m +$8.384mm + $236.435m) = $188.405m (2)
We are then asked to remove the intangible assets from the equation as well:
$188.405m - $57.755m = $130.650m
----
Now we have the information needed to calculate the 'underlying company debt' (skeletal picture) net of all Heartland's lending activities:
$48.853m/$130.650m= 37.4% < 90%
Result: PASS TEST
The historical picture of this ratio is tabulated below.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
Target |
Underlying Gearing Ratio |
20.2% |
14.7% |
40.5% |
58.4% |
37.4% |
< 90% |
SNOOPY