Genworth IPO Delay, Reaction Too Harsh? (GNW)

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Genworth Financial, Inc. (NYSE: GNW) was supposed to be sailing toward an initial public offering of up to 40% of its Australian mortgage insurance business.  A new delay in the planned timeframe is just cratering the parent company’s shares today.  The move is exaggerated enough that it may seem too extreme even if it is truly bad news.

Genworth has been looking for every opportunity it can to get out from under any mortgage insurance operations and the Australian unit was one such avenue.  The company is now targeting an IPO in early 2013 rather than in the second quarter of 2012.  The timeframe has some suppositions though, as it cited the ‘subject to market conditions’ line and also noted valuation considerations, as well as business performance and regulatory approvals.

What the company is trying to communicate is that its Australian mortgage insurance capital ratio remains sound and that it is continuing with the IPO process.  Genworth claims that the “liquidity and risk buffer plans are not dependent on the IPO” and that the holding company had about $1.4 billion in cash and liquid securities as of March 31, 2012.

What does it tell you when the stock’s reaction is down by -18.5% to $6.27 against a 52-week trading range of $4.80 to $12.55.  It tells us that the market does not believe the company here and/or that the market is concerned that Genworth will never be able to get out from under this dark cloud even though the excuse “primarily reflects recent business performance in Australia.”

Here is the crux of this issue: the company expects to report elevated loss experience in the first quarter in Australia.  It noted that lenders accelerated the processing of later-stage delinquencies to foreclosure and claim at a higher rate and severity than expected.  It did note that this was particularly the case in the coastal areas of Queensland that experienced natural catastrophes and regional economic slowdowns, and also noted certain groups of small business owners and self-employed borrowers.

The market and creditors want Genworth out of this business because it is an endless money pit just as the mortgage operations are at some of the top leading U.S. banks.  A delay translates to more investor uncertainty for a longer period of time.  That just is not going to cut it yet considering Genworth’s history in recent years.

JON C. OGG

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