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MGIC Investment Corp. Message Board

  • mctr_dangerfield mctr_dangerfield Jan 17, 2013 3:17 PM Flag

    MGIC HAS PLENTY OF CAPITAL - No New Shares Needed!

    Taken from X's post ( I have listened to this call myself.)
    ------------------------------------------------------------------------------------------------------------------------------------
    Listen to the last earnings call. They explicitly said the mortgage insurance company, even without the parent, could pay expected claims with cash on hand, even if they were in run off state, for the next FIVE YEARS! They do not need capital and the last thing they would do is go back to the market for the same.

    If they added some of the backup protection of the parent company, they would be well within the risk ratio tolerance levels.

    Lastly, the extremely profitable new business is generating lots of cash, and outpacing the new delinquencies as we will see on the 21st!

    Shorts are getting a bit piggy in here, you should be covering and booking the little profit you may have made on this text book correction.
    x
    ------------------------------------------------------------------------------------------------------------------------------
    md
    p.s. don't let shorty #$%$ you on this small pullback.
    p.s. next stop over $3.25 and holds after earnings!

    Sentiment: Strong Buy

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    • At the end of 2013, MGIC will need to be at a risk to capital ratio of less than 25:1. They are currently at a risk to capital ratio of more than 25:1.

      If MGIC has two quarters consecutive with profits, it is possible the CPA firm which audits them will allow them to bring the value of the net operating loss carry forward back to the balance sheet. This should be worth around $800 million and would likely resolve the need for additional capital. However, if they do not have sufficient profitability to bring the value of the tax benefit of the net operating benefit back to the balance sheet, then they will probably be forced to seek more capital and the stock will be diluted.

      At the current price, the markets seem to be assuming dilution. I own the stock because I am hoping for sufficient profitability in 2013 to avoid dilution.

      • 2 Replies to mortgageguy44
      • I think downstreaming is more likely, as I don't think they will dilute with a stock price under $5. Diluting in the 2.70's is highly unlikely in my belief....

      • The subsidiary MGIC is at a risk capital level of 31:1 according to the call. They have waivers for this risk because of the balance sheet of the parent company. They can capitalize the sub with parent funds as a backup plan that would bring them substantially under 25:1, and are currently negotiating this option as I understand it. I believe that would be their preferred option as they have the capital. It's a matter of getting enough regulators to understand this dynamic, versus really being in dire need of capital as shorty likes to spin it.

        But I agree this is why you buy here, "low", because resolution in this area, could double this stock in one trading day.
        x

        Sentiment: Strong Buy

 
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