Continued volatility is leading to investor fatigue regarding the three monoline mortgage insurance companies and those investors are starting to believe that unless better progress is made towards profitability, further capital raises could be needed, a preview of second quarter earnings from the analysts at Keefe, Bruyette and Woods declared.
Nathaniel Otis and William Clark cut their operating earnings per share forecast for full year 2011 results at the monolines, MGIC Investment Corp., The Radian Group and The PMI Group, as well as at Old Republic International, which also underwrites general and title insurance.
"While credit trends have weakened this quarter, we believe that barring a sustained double-dip, delinquency levels should continue to decline as claims are paid, cures and loss mitigation activities remain elevated, and new notices stabilize," the analysts said.
The second quarter was not good for the MIs, Otis and Clark said, the past quarter as the spring selling season was nonexistent, which negatively impacted new business for the mortgage insurers. In addition, new notices of delinquency were higher than expected in May
They still predict both MGIC and ORI to be profitable in 2011; however they dropped their estimate on MGIC from $0.11 per share to $0.04 per share and on ORI from $0.23 to $0.19.
For the second quarter, KBW predicts an operating profit of $0.05 per share, but that was cut from $0.11 per share.
ORI will post a $0.03 per share loss this quarter, down from a $0.01 per share loss.
The analysts did improve their prediction for PMI, saying the company will post a $0.47 per loss this quarter (instead of $0.50) but that is because the company will be able to recognize the proceeds from the sale of its Australian operations during the period. The full year should see the company lose $1.94 per share, a larger loss than the previous estimate of $1.60 per share.
Their estimate for the second quarter operating loss at Radian was increased by $0.08 to $0.76 per share, adding that this calculation does not take into account an estimated $125 million positive addition due to movement in credit spreads.
