Genworth Financial Infuses Capital

Genworth Financial Inc. (GNW) priced its public offering of 48 million shares of its Class A Common Stock at $11.75 each. The underwriters have the option to purchase up to 15% of the offering from Genworth if they underwriters sell more than 48 million shares. The company intends to use the net proceeds for general corporate purposes.

The joint book runners for this offering are Goldman Sachs & Co. (GS), Bank of America (BAC) and Deutsche Bank Securities, a part of Deutsche Bank (DB).

The challenging market conditions combined with slowing global economies have influenced investment and spending decisions in the past few quarters as both consumers and businesses modulate their risk profiles in response. This has resulted in the slowdown of mortgage originations and consumer lending. Genworth experienced an elevated incidence of claims in its U.S. and international mortgage and lifestyle protection insurance businesses.

As a result, Genworth’s second quarter earnings of 2 cents per share were considerably down from the Zacks Consensus Estimate as it suffered significant losses in its U.S. mortgage insurance division and in its investment portfolio.
The U.S. Mortgage Insurance division of Genworth incurred an operating loss of $134 million while investment losses totaled $59 million in the second quarter.
In July, Genworth generated $705 million in cash from the initial public offering of Genworth MI Canada, its Canadian mortgage insurance business. The company has retired all of its forthcoming debt maturities for 2009 and has no outstanding debt maturities until 2011.

We believe that the recent rebound in the economy along with the positive trends in home sales will bring some respite for Genworth. Moreover, these capital bolstering initiatives coupled with the cost curtailment measures augur well as they strengthen Genworth’s capital ratios.

Though we expect improvement in new business from better pricing and strict underwriting standards, mortgage insurance delinquencies will continue to rise across most geographical regions. As a result, we expect U.S. business to report sizable losses through at least 2010.

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