@TheGrumpyBanker Couldn't agree more with your sentiment. Get short & stay short, BEN has $11 written all over it in the near term.
I have been playing the short side from $13.15 in the BEN short warrants and just got re-set today off the back of the Genworth announcement. Surely this is a read through to BEN's underlying portfolio. There is a reason why 5 out of 6 analysts have a sell recommendation on BEN, expensive P/E vs the sector, worst NIM in the sector. Something has to give...
Article from the AFR today -
Genworth profit drops as mortgage stress hits hard
Lenders will continue to shy away from risky home loans as mortgage stress rises, according to Genworth Mortgage Insurance Australia, which saw its shares plunge as it reported a drop in annual underlying profit of almost 20 per cent.
The chief executive of Australia's largest lender mortgage insurer (LMI), Georgette Nicholas, said that about 17 per cent (or $4.5 billion) of the group's new business for the year to December 2016 was for loans from buyers with a 90 per cent loan to value ratio (LVR), indicating they borrowed more than 90 per cent of their property's value.
This represents a 40 per cent decline from the previous full year, where these types of loans were worth $7.5 billion and made up 23 per cent of new premiums written.
High LVR mortgages are often favoured by first-home buyers.
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Genworth Mortgage's shares have fallen 16 per cent from their recent 52-week high.
"Affordability remains pressured in a number of markets and low interest rates are increasing refinancing activity, which means increasing competitive pressures among customers [lenders] to retain their borrowers and margins," Ms Nicholas said.
"There is a push from lenders to write lower LVR home loans, in the 75 to 85 per cent end. Some of that is based on regulatory changes that have come through around serviceability and also the limitations around investment properties, with lenders reacting to that."
Banks continue to ramp up their risk averse lending strategies even in investor loans, as house prices continue to rise, Commonwealth Bank and its subsidiaries have curbed all investor loans on Tuesday, confirming it would no longer accept applications from new customers "seeking to refinance their standalone investment lending from other financial institutions".
The bank is also making it tougher for existing customers with investment loans by increasing charges by up to 60 basis points and tightening terms and conditions for expatriate and overseas' customers.
Australian economic conditions are also playing a role in mortgage stress. Although the national unemployment rate has moved up slightly to 5.8 per cent in December 2016, key labour-market indicators remain mixed, with Genworth saying under-employment is at near-record highs and wage growth remains subdued. Growing stress
Higher delinquency rates in mining regions in Queensland and Western Australia also continue to impact.
"While unemployment overall has been stable, the growing trend of underemployment is creating growing mortgage stress in these areas where manufacturing and employment has declined," Ms Nicholas said.
Genworth's underlying net profit fell almost 20 per cent to $212.2 million for the year to December, in line with analyst expectations.
The LMI provider, which offers protection to lenders from borrowers defaulting on their home loans, said its gross written premium or revenue fell 27.8 per cent to $381.9 million from $507.6 million for the year before, which Ms Nicholas said was in line with the company's guidance
Genworth's shares closed down 14.84 per cent at $2.87. The shares hit a 52-week high of $3.50 last week.
"We face some really challenging dynamics including the reduced high loan-to-value market in response to changes in lender risk appetite, but also to regulatory changes," Ms Nicolas said.
"Given the growth in the investor space in the latter part of 2016 we're likely to see continued regulatory focus in the market."
According to Ms Nicholas, the push towards 80 per cent LVR loans was forcing more parents to provide guarantees over their children's loans. But she remains concerned about the longer-term impacts of this trend.
"I can appreciate the willingness of parents wanting to help their children where affordability is challenged and get into housing, but I think the flip side of that is in a stress event if the child cannot pay the mortgage what happens to the parent's property?" she said. Concern about outlook
"If they have other assets and cash available to make that loan hold then that's one thing, but if they have to sell their home to facilitate the support of the child's home if it's in stress, that means two homes are on the market at once."
Despite the result being broadly in line with 2016 guidance, Morningstar senior equities analyst David Ellis said that there was concern about "the outlook ... decreasing premium growth and increasing loss rates".
"Management's soft guidance and bearish outlook commentary for 2017 surprised, particularly in relation to top-line growth. At current levels the stock remains fairly valued," he said.
"The prospects of further capital management initiatives remain underpinned by Genworth's strong balance sheet and surplus regulatory capital position. The key risk is if delinquencies deteriorate at a faster pace than expected and persist for longer. This is not our base case. The key states of New South Wales and Victoria remain sound with delinquencies increasing modestly."
The Genworth board declared a fully franked final ordinary dividend of 14.0 cents per share.
The stock is up 12.39 per cent for the year to December 2016. The benchmark S&P/ASX 200 index was up about 12 per cent over the same period.
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