Heartland investment grade credit rating affirmed, shares gain

BUSINESSDESK: Heartland New Zealand, the lender formed from the merger of Pyne Gould's Marac Finance with the Canterbury and Southern Cross building societies, had its investment grade credit rating affirmed as it crosses its fingers to secure a banking license.

Rating agency Standard & Poor's kept a BBB- rating for Heartland Building Society with a stable outlook, citing its strengths as very strong capital and earnings assessment, good geographic and business diversity, and sticking to its timeline for its post-merger plan.

S&P sees Heartland's weaknesses as susceptible asset quality in commercial property, reliance on retail deposit funding and its relatively small size in the market.

The affirmation comes as Heartland waits for the Reserve Bank to decide on whether to approve its banking license, which is expected to be announced next month.

Heartland's shares rose 1.5% to 70 cents in trading today and have rallied 41% this year.

S&P held its stable outlook on the rating, saying it did not expect an upgrade in the short term, although one could be forthcoming if Heartland strengthens its position with a banking license and shows it can compete with New Zealand's major lenders on factors other than price or underwriting standards.

In August, Heartland chief executive Jeff Greenslade said the lender won't be chasing the low margin residential mortgage market and will focus on building its more valuable motor vehicle, rural and small- and medium-sized enterprise loan books.

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11 Comments & Questions

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The S & P Report is hardly a ringing endorsement of the business with ratings of:

Business Position - weak
Funding - below average
Liquidity - adequate

There looks to be further work required before a banking license would be considered.

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For an outfit that walks, talks and acts like a finance company, who would ever be foolish enough to give it Registered Bank status ?

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The same people in Wellington who guaranteed the finance companies?

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You people are so negative. Remember the positives, the Kerr is gone!

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George Kerr may be gone but he leaves a smelly legacy which surely means the Reserve Bank and the old boys network can't support a banking license.

But then again this is NZ - and like the after affects of the 1980's we are seeing the same inept governance from our central bank and aithorities post the GFC

SO nothing will surprise me.

Maybe give a banking license to the pay day loan companies - they are as strong or stronger than Heartland

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Some people really are just negative.

Those ratings are relative to the big four banks - which we all know are among the strongest in the world and have a huge dominance/advantage here in regards to access to domestic funds, market share and distribution (hence Heartland's BBB- and not an AA- rating). It appears in line with other smaller recently licensed banks.

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A BBB+ rating as achieved by TSB would seem to be a more appropriate starting point for a NZ owned and operated bank.

The legacy of Marac still hangs over Heartland and the $30 million capital buffer they had against its problem property assets has now all been utilised.

Probably needs a longer track record before it can be seen as stable enough for a banking license.

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I was just observing the ratings of Cooperative Bank and SBS Bank and some of the similar comments made about Co-operative Bank's business position etc. in its rating statement.

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You're on the money with your comments.

Personally, I put in an unconditional offer on a property they hold as mortgagee in possession ; which was close to market. After 6 months of still incurring holding costs for them, it still hasn't sold.

They never came back to me with a counter offer, and the only reason I can think of is it represents too bigger loss to report on their books when going for a banking license.

Marac really was a dog, and Kerr knew it. Its a pity others in the heartland merger didn't.

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George Kerr is not gone!! is he?? thought he sat as major shareholder under Pyne Holdings?

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Pyne divested most (if not all) of its Heartland stake a couple of months ago

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