MGIC Falls on Loss, Outlook Bleak

Oct.17.07 | About: MGIC Investment (MTG)

Shares of mortgage insurer MGIC dropped Wednesday after the company announced a large third-quarter loss and said it does not see a return to profitability in the next year. The company swung a loss of $372.5 million (-$4.60/share) compared to a profit of $130 million ($1.55/share) last year. Sales jumped 50% to $555.4 million. For the quarter, analysts had expected MGIC to earn $0.61/share on $399 million of revenue. The U.S.'s largest mortgage insurer's cost to bail out lenders tripled from a year ago to $602 million. The company said the disappointing figures could mainly be attributed to an after-tax writedown of $303 million from a joint-venture that invested in subprime mortgages. Many companies took huge writedowns to clear their books, so future earnings would not be dragged down. MGIC gave investors the following, bleak outlook: "Given the company's expectations for paid losses, unless the cure rate and loss severity improves, the company does not foresee net income for the fourth quarter of 2007 and full year 2008." Rob Haines, an analyst at CreditSights Inc. said, "Things are going to get worse from here. We've got a couple of scary quarters ahead of us." Fitch ratings noted Wednesday it may cut MGIC's rating given its negative outlook. The company's shares traded down 15.3% to $26.16 Wednesday.

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