Sunday, April 12, 2009

Genworth Financial Enters Run Off Mode, Others To Follow?

Following up on a previous post discussing how the OTS's TARP cutoff could be the death blow to Genworth Financial, the analysts at Egan Jones have released an analysis that basically confirms that the company is now in run off mode, or will just collect cash from asset unwinds.
4/9/2009: Genworth Financial Inc: EJR lowered B to B- (Neg.) (S&P: BBB) (GNW)

Synopsis: Rejected - OTS's rejection of GNW's application under TARP is a major blow; with the rating cuts, the Company is no longer able to provide value to most obligors and therefore is basically in run-off mode. Operating income for the Dec. quarter declined from a $375M gain in 2007 to a $309M loss in 2008 while interest expense declined from $126M to $123M. The Company's Sept. 10Q, page 81 provides details on some exposure; as of Sept. 2008, 6.9% of its $1.0B insured loans were delinquent which was doubled from the amount for the prior year. Another concern is the $42B Level 2 assets listed on page 17 of the Sept. 10Q; watch for $4B of additional charges. (Shareholders' equity is only $889M compared to debt of $8.1B.)
It is interesting to put the company immediate comparables in perspective (which include MBIA, PMI and Radian), which EJ is not too optimistic about:

It would be an interesting study to compare how all the other insurance companies would fare in a government subsidy-free world and potentially how many AIG-like repeats we would experience if the administrations balance sheet training wheels were removed. The chart below present the risk perception from a credit standpoint on many of the insurance comparables and where they stand with regard to their conversion to Bank Holding Companies (a prerequisite to obtain "subsidies") as well as how they are positioned regarding the FDIC's TLGP program.

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Instant Web Hosting said...

Thanks for the info,excellent

Michael Comeau said...

Great post - GNW has been all over the place. This TARP business has just made everything to unpredictable. Glad the financials I own (RJF & OXPS) are somewhat 'normal' companies.

OpenBorders said...

Hey Tyler,
Where did you get the EJ analysis? Are you a subscriber? Do you have other reports from them?