Genworth Financial lost 20% of its market value Wednesday afternoon after it revealed accelerating losses at its Australian mortgage insurance affiliate and delayed a spin-off of that division until next year.
Moreover, analysts at Sandler O'Neill issued a report saying Genworth’s plan to buy back stock in the open market now appears in doubt.
Wednesday afternoon, Genworth’s shares were trading at just over $6, down 20% on the day. Its 52-week high is $12, its low $4. (Several years ago the company was spun off by General Electric, which had suffered big losses in subprime lending tied to another division.)
Analysts at Sandler said they were surprised by Genworth’s revelation that it is experiencing elevated losses in its Australian MI division. This event caused the firm to cut its 2012 earnings outlook on the company to $0.11 per share, though it maintains a ‘buy’ rating on the firm.
Among all U.S. MI companies, Genworth ranks fifth out of eight, according to figures compiled by National Mortgage News, and the Quarterly Data Report.
The new losses in Australia forced Genworth to delay its spin-off of up to 40% of that division.
Genworth said lenders in Australia are accelerating the processing of later-stage delinquencies from prior years through to foreclosure, which is when the company will have to pay claims. Lenders there are foreclosing in coastal areas of the state of Queensland that experienced natural disasters and an economic slowdown. Lenders also funded too many loans to small business owners and self-employed borrowers who are now delinquent on those notes.
Sandler said it had not been concerned about Australia until now. “For some perspective, the Australian mortgage insurance operations have never reported an operating loss. Nor did we see any indications that this loss was evolving; we had recognized that the Australian economy had slowed. Perhaps we misinterpreted the indicators. We had not anticipated the flooding events would cause a loss," the firm said.
