It’s a hard time to be in the financial business. Particularly, if you’re not classified as “too big to fail.”
Pity poor Genworth Financial. They insured a lot of Mortgage Backed Securities (MBS) and have been taking on a lot of losses as the housing market turned south. Just the kind of firm that the government bailout was supposed to help, but they’ve been getting some pretty rough treatment until recently. S&P downgraded their credit rating to A-, which caused the Fed to cut off their access to the Commercial Paper Funding Facility (CPFF). This has sent its shares into a tailspin in the last couple of weeks, declining from a share price that was in the mid-teens just a couple of months ago to close at $1.30 today.
Back at the start of October when the Troubled Asset Relief Program (TARP) was first rolled out, I would have thought that Genworth was just the kind of company that would’ve benefited. After all, it seems like they have some troubled assets on their books that they’d like to get rid of. It’s a rather telling sign about who runs things in this country. Seems you need to be a bank — not an insurance company — to get in under the TARP. But it also seems like they’re in the process of fixing that. Genworth just announced that it has purchased an S&L and submitted an application to the US government to receive some of those billions of dollars Congress set aside to buy troubled assets.
Who knows how this application will go? In a couple of months it won’t be Hank Paulson’s TARP anymore, but instead Obama’s Secretary Geithner’s. In this uncertain time, while Genworth seeks relief from the brutal forces of liquidation that are at work in today’s down market, it would seem the poor company can hardly catch a break. It’s a sign of the times I suppose, but an A- credit rating is not the same as “likely to go out of business tomorrow.” And yet, that’s how the company is being treated in the market. Not only is its stock dipping under $1, but its bonds that are maturing in May and June can be bought for 86 cents on the dollar. That translates to an annualized yield of north of 39% — a yield so attractive, it seems like they can’t even resist it themselves; the company recently borrowed close to a billion dollars towards buying up a lot of them due to mature in just a few months.
I’m a big believer in the long-term prospects of gold, the death of the dollar, and of mining companies like Barrick, but a yield like that might be hard for even me to pass up.
DISCLAIMER: I don’t currently own anything from Genworth, but I might be buying some of their bonds soon. Consult with your own investment professional before you invest any of your own money. (I.E., reading this blog doesn’t count.)