Is This The Canary Of Australia’s Collapsing Housing Coalmine?

19 04 2012

Tyler Durden's picture

Submitted by Tyler Durden on 04/18/2012 14:46 -04

When thinking of Australia, one traditionally imagines a country that is nothing but a secondary derivative of China’s trade surplus, and an unpegged currency that allows for more trading flexibility than the Yuan. As a result, recurring calls warning of a housing weakness in the country are often ignored as there always appears enough liquidity to mask the issue just long enough. That may all soon be changing. Earlier today, insurance company Genworth Financial pulled the IPO of its Australian unit, sending its shares plunging by over 20% and its default risk soaring. Unfortunately for GNW, and soon for the entire Australian financial sector, instead of merely blaming market conditions, in the IPO, which was supposed to take public up to 40% of the company’s Australian mortgage business, and has instead been delayed to 2013, GNW laid out a far more nuanced, and detailed explanation of what is happening. Alas, it also may be the canary in the coalmine that has been so long overdue in yet another regional, bubblelicious housing market.

Morgan Stanley’s David MacGown explains:

Genworth announced that it will delay the IPO of up to 40% of its Australian mortgage business to 2013 from a previously targeted 2Q12 transaction. Recent news reports hinted that weak equity market conditions could delay the unit’s IPO, but GNW’s rationale was more problematic: the company cited deteriorating market conditions in the Aussie mortgage market. Specifically, the company noted “…elevated loss experience in Australia as lenders accelerated the processing of later-stage delinquencies from prior years through to foreclosure and claim at a higher rate and severity than expected, particularly in coastal areas of Queensland that experienced natural catastrophes and regional economic slowdowns and among certain groups of small business owners and self-employed borrowers.

If anyone is desperately looking for a clue that things may be about to go, er, downer underer in Austrlia, it doesn’t get any clearer than this. And if China is indeed facing a hard landing, or whetever the CCP wants to telegraph to the world in its first and foremost desire to avoid popular discontent, this may just be the straw that breaks the camel’s back.


 Unlike the troubled US MI business, GNW’s Canadian and Australian businesses have been consistently profitable, with the Australian business producing run rate quarterly earnings averaging about $50 million per quarter over the last two years. GNW now expects the Aussie MI business to report a “modest” first quarter loss.

It gets worse for the US company, whose loss of nearly $1 billion in market cap today alone may be just the beginning.

  • I had been constructive on the GNW recovery story, anticipating an improving trajectory of US MI losses (helped by profitable new business written), continued performance of the International MI business, and in particular the 2013 return of the US life companies to positive earned surplus and thus dividend-paying status to the holding company. I viewed the Australian MI IPO as another positive step in this process in that it was expected to provide additional financial flexibility (estimated proceeds of approximately $500mm as estimated by MS equity analyst Nigel Dally (Pressure Building to Shrink to Prosperity, 2/1/12) to the holding company while managing the company’s global MI exposure.
  • With the IPO shelved until 2013, I see little in the way of near-term positive catalysts for the credit. But it’s important to note that a 2012 IPO isn’t necessary for the company to maintain strong holding company liquidity. With $1.4B of cash in hand, GNW can easily cover an estimated $350mm of holdco interest and operating expenses and $222mm of maturities. Moreover, with the US MI subsidiaries running above the 25:1 risk-to-capital ratio limit (28.8:1 for the segment, 32.9:1 for the lead company at 12/31/11) and climbing as the company writes new business this year, it’s reasonable to posit that GNW’s North Carolina regulators will require the company to inject additional capital in order to continue writing new business. NC and numerous other state regulators have granted waivers of the 25:1 limit, allowing the company to write new business without injecting fresh capital. I estimate as much as a $250mm injection. The net of these cash uses implies that GNW would still end 2012 with nearly $600 million in holdco liquidity, and note that this estimate assumes no dividends from operating subsidiaries. GNW has previously projected $300mm of dividends from its life insurance and wealth management units this year and dividends of $160mm from International MI. Holding company liquidity is the key credit positive for GNW at this point.

Yet for those who are worried the only move here in GNW is up, the trade may well be to start getting increasingly cautious on other Australian equities such as QBE, ANZ, NAB, WBC and CBA. Because, to mix metaphors, when the light is shone, there is never just one canary. And central-planner can only delay mean reversion for so long…



Australia and New Zealand could adopt a single currency

8 04 2012

Interesting how this particular subject was bought to light some years ago and then squashed…and now it comes to light, yet again!

Interesting again though, if you read the preamble of the “Commonwealth of Australia Constitution Act” you will notice that New Zealand is listed as a “colony” of Australia.

Read for yourself:


An Act to constitute the Commonwealth of Australia              
[9th July 1900]
6. "The Commonwealth" shall mean the Commonwealth of Australia as 
established under this Act.
  "The States" shall mean such of the colonies of New South Wales, New Zealand, Queensland, Tasmania, Victoria, Western Australia, and South 
Australia, including the northern territory of South Australia, as for 
the time being are parts of the Commonwealth, and such colonies or 
territories as may be admitted into or established by the Commonwealth 
as States; and each of such parts of the Commonwealth shall be called "a
Can anyone help to explain this one??

Australian Bill Allows For Sterilizations Without Parental Consent At Any Age

7 03 2012

Source: March 5, 2012

I am totally disgusted and can not even bring myself to make comment…A must read!

Written by the Western Australia Mental Health Commission (MHC) and overseen by Mental Health Commissioner and clinical psychologist Mr Eddie Bartnik, objections can still be submitted to Australian parliamentary members in each state until March 9th.

Read more: australian-bill-allows-for-sterilizations-without-parental-consent-at-any-age

Cameron’s own goal flop: gas prices in Britain have never been higher! ($8.11 per gallon)

29 02 2012

Just as a continuation to one of my earlier posts this week re: gas prices in the US, here is an example of what the Brits are paying for their gas right now…

Are we going to see these crazy prices on our shores soon?



Fire Water Australia – A MUST SEE Doco!

25 02 2012

This is a must see video.  Take the time to check it out…guaranteed to make your blood boil!


Australian Economic Future- What to expect?

14 02 2012

Teleloans Sept, 2011

Video 2 – How will it affect Australians?

Video 3 – How to Prepare

I think the important point that Mr Swanepoel forgot to mention was to store food and water.  Yes, I totally agree about investing in precious metals to protect ones wealth, but you can’t eat your precious metals or your cash.

Food and water is what we all need for survival.  Inflation will most definitely hit, if not hyperinflation (in the case of the US and EU countries), and the price of food will be more expensive as compared to today’s prices.

With the threat of Iran closing the Strait of Hormuz to the Western world, this will definitely spike the price of oil, which means gas at the gas pump.

The price of petrol at the pump could rise anywhere from $2-6 a litre, overnight! That is the talk in the US at the moment. What price would Australians be paying?

Just imagine what these oil prices would do to the  trucking businesses who deliver our food to the supermarkets?  If they can’t afford the exorbitant petrol prices, what do you think will happen to the price of food?

I definitely agree with Mr Swanepoel to have cash on hand, in case of a bank run, to invest any extra cash into precious metals – but, in my opinion, we also need to store food items and water supplies for your families.  With thousands of Australians losing their jobs already this year, having to fork out money to buy food at higher prices, may already be a stress that some families could do without.

Like, I have been saying for a while now, we can prepare ourselves financially with cash and precious metals, but if we don’t have enough food and water in our homes to feed and sustain our families, all other preparations will be in vain.

As Mr Swanepoel alluded to, it’s better to be prepared, and either way, if things don’t turn out to be bad as predicted, (although, I believe that it will) then you haven’t lost out, in any way.

Take heed, have a look around and find out what is happening in the EU at present, keep an eye on Greece, the US and Chinese financial situations, and make the necessary precautions to protect your financial best interests and your families well being.

Check out some of the links on the my blog as you will find a lot of helpful information and material that can assist in educating you, your neighbours and friends….material that you won’t hear or see on television, that’s for sure!