MGIC Signals Its Strength With $250 Million Buyback

MGIC Investment Corp., the nation's largest mortgage insurer, will buy back as much as $250 million of its common stock.

A spokesman for the Milwaukee-based company said it will finance the stock repurchase program through a bank loan.

MGIC has received a commitment from a bank for a $250 million loan, but portions of the loan will be used for general corporate purposes, the spokesman said.

Analysts said the repurchase program is another sign of financial strength. The company has one of the lowest loss ratios in the mortgage insurance industry, and its earnings increased 24% in the first quarter.

"MGIC is the dominant factor in the mortgage insurance business. It can be fairly described as the Rolls Royce of the industry," said Jonathan Gray, an analyst with Sanford C. Bernstein & Co.

Mortgage insurers underwrite policies on low-down-payment loans to cover default risk. Fannie Mae and Freddie Mac, the government sponsored enterprises that purchase home loans, will not buy mortgages with less than a 20% down payment unless they are insured.

Last month MGIC announced a 2-for-1 stock split and a 25% increase in the dividend. The stock split is effective today.

Mr. Gray said although the buybacks and the stock split will benefit investors, he added that the company might be wise to explore other uses for its capital.

"One wonders whether there might have been acquisitions available that would provide better returns," Mr. Gray said.

But Steven Schwartz, an analyst with ABN Amro Chicago Corp., said there is no reason why MGIC could not make acquisitions even while pursuing a share buyback program.

Even so, it is difficult to figure out who MGIC would acquire. There are only eight companies in the mortgage insurance industry. Because MGIC is the market share leader, an acquisition of a competitor would probably be scrutinized by regulatory agencies, Mr. Schwartz said.

As price competition increases in the industry, Mr. Schwartz said buybacks are a good way for mortgage insurers to maintain high returns on equity.

"This is a responsible use of capital. They should reward the shareholders and buybacks are the best way to do that," Mr. Schwartz said.

Two other mortgage insurance companies, PMI Group and Triad Guaranty Corp, announced share buyback programs last year.

MGIC will repurchase shares either in privately negotiated transactions or on the open market. The company did not say when. u

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