Australia’s biggest mortgage insurer, Genworth Financial, has admitted that it is “wary” of Australia’s housing market because of our commodity-dependence on the volatile Chinese economy. From The Canberra Times:
“We’ve cut back in writing in Western Australia and Queensland,” Genworth’s chief executive Tom McInerney said in an interview in New York on Wednesday. He cited regulatory actions “and the fact that the Australian economy is more tied in a macro sense to China and commodities”…
A possible increase in corporate defaults and soured home loans, particularly in the mining states of Queensland and WA, are shaping up to be the next challenge for Australia’s largest lenders…
Genworth Mortgage Insurance Australia posted a 5 per cent decline in underlying net profit for the year to December, saying in February it expected to write less new business as the property market is cooling.
Maybe, just maybe, Genworth shouldn’t have been pissing money to shareholders?
As noted by Houses and Holes in February after Genworth paid out a big dividend (eroding its capital base):
[Genworth has] a monstrous leverage ratio of 89x and 133x on a more pure capital basis.
Even though this is juicy duopoly it is still a ponzi business. If property does correct sharply it will be wiped out and although in theory should be able raise more capital from markets, they’re not going to be very keen if the brown stuff really takes flight. Thus it trades on an implicit government guarantee. Indeed it used to be a government body. And if push comes to shove, taxpayers will end up owning it again.
If you’re going to let it float then pump up its capital ratios and make it trade like a utility.
Damn straight!
