RE:RE:RE:NCIB is now 88% complete, SIB on the way?I think you can't get to 19.49% because there is an additional 123 million of cash in the parent company balance sheet that was not included in the CET1 calc (CET1 is only calculated for Home Trust). A couple bank reports talked about this but seems like not everyone realises this. The real CET1 is above 21%.
based on my rough calc, if you assume 16.8% (which is still very high, EQB is at 13%), excess capital is 322 million but don't think the company will run down CET1 so quickly.
my guess is the SIB will be at least 123 million which is cash in the parent company so they dont even need OSFI approval.
Home is flushed with capital so i would assume AIRB is not the top priority for them right now.
EventHorizon wrote: Dear all,
Did any one of you try to estimate how much excess capital HCG might have for an NCIB or SIB in fall/winter?
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Here are my grossly inaccurate back of the envelope musings:
The net income for Q1 was 27.8M and for Q2 31.9M. Let's assume 120M for the whole year. This would mean only extra 30M or so from Oct to Dec.
In 2014, HCG had a Common Equity Tier 1 reserve of 16.8%. In Q2 2019, HCG had a Common Equity Tier 1 reserve of 19.49%. I am not sure how CET1 is calculated (since when I tried to back calculated it based on investopedia info and balance sheet, I could not get ther same number as the reported %). I am most likely wrong, but if we assume the 14% decrease in the amount of capital reserve requirements (16.8/19.49-1) and aplly it to the aggregate available liquidity in Q2 2019 (which was reported as 1.323 billion) we might expect perhaps up to about extra 183M which could be deployed. I am quite sure this is mixing apples and oranges, so please correct me if you know how to calculate the capital measures from balance sheet (https://s2.q4cdn.com/668293721/files/doc_financials/2019/q2/HCG-Q2-2019-Report.pdf ; https://s2.q4cdn.com/668293721/files/doc_financials/2014/q2/Q2-2014-HCG-Quarterly-Report-FINAL.pdf)
If we assume:
excess liquidity: 183M + 30M = 213 M
share price: ~$25
SIB potential: 213M/25=8.52M shares
As of 31 Dec 2018, there were 62.065M shares outstanding. If we assume NCIB will be done in full from Jan to Sept, we should have around 57.312M shares outstanding at this time.
So very roughly, HCG could have an ability to buy back about 14.9% more of its shares at current prices using the above super rough estimates.
If we assume the shorts will have to cover (9.3M shares) and HCG will buy all of 8.52M shares, this might add up to about 31% of the current outstanding shares which might turnover in the nearby future.
If shorts will not cover, then the 9.3M shares would be about 19% of the potentially reduced number of shares if an 8.52M SIB would be implemented.
Please, feel free to correct me and explain your own estimates. No estimate will be perfect since we do not know how many depostis HCG is raising but I am still curious how much potential there might exist using the most recently reported numbers.
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PS: Do you know if HCG is planning an AIRB initiative (advanced internal rating based capital requirement / credit risk estimation)? How much excess liquidity could be liberated if HCG would implement it? Other smaller Canadian banks are currently in the process of evaluating and preparing regulatory applications for AIRB.