Genworth Financial restructures US mortgage insurance assets

Genworth Financial (NYSE: GNW) is up about 9% today on news that it will be implementing a plan to re-arrange the capital structure behind its US mortgage insurance units in such a manner that will basically leave the parent company with less “blow-up” risk concerning that business. This is assuming they receive regulatory approval, but this announcement surely would not have been announced had it not been floated by regulators first.

The implication for its majority-owned Canadian mortgage insurance subsidiary (TSX: MIC) is that there will be no requirement for a fire-sale of the MIC asset to raise capital for GNW.

MIC is up approximately 35% from its lows in July and August when I started to accumulate shares and GNW is up about 80% from the $5 baseline it was sitting at for the past year before this recent run-up. I guess I should have put money into GNW in addition to MIC, but I couldn’t make heads or tails out of GNW’s statements to a firm enough clarity for my own satisfaction.

At this point I am awfully curious whether GNW is still shopping around their Canadian mortgage insurance subsidiary or whether they’re just going to keep their ownership stake and collect dividend cheques. Genworth owns 57% of MIC and this represents $65.3 million in dividend income for them – 13 cents a share.

Dell going private makes sense

There are heavy rumours that Dell is seeking to go private. The mechanism will likely be through a leveraged buy-out assisted with some other capital partners.

The necessary condition for this to occur is shareholder approval, and since Michael Dell still owns a substantial portion of the company (about 14% according to the last DEF14 filing) there would likely be enough sway to ensure that it happens.

Business-wise, it is probably better for the company because it can then make strategic decisions that would otherwise not be possible if they were a reporting entity. Dell’s core business is clearly stagnating and going private will probably be the way for the financing firms to figure out how to carve out the various businesses within Dell and try to recapture some value in the marketplace.

Looking at raw cash flows in relation to a $10/share valuation, one can see where this thought process would proceed forward, especially if you can float some ultra-cheap debt financing in a yield-hungry bond market.

Addendum to previous post regarding trade date vs. settlement date

I received a comment regarding the previous post on trade date vs. settlement date through email. It is comprehensive enough that I will just quote it here and thanked the individual in question for providing it.

Thank you for your posts. Regarding your post at https://divestor.com/2009/12/22/canadian-tax-rules-about-year-end-selling-trade-date-vs-settlement-date/, the link to IT-133 is broken. This is because the CRA cancelled the IT some time ago. I had considerable trouble finding out what happened to the IT, and whether or not it was due to a policy change at the CRA. So I wrote the CRA seeking a ruling on the issue of Trade vs. Settlement date. This was my reply:

Although IT-133 was cancelled, the comments contained therein continue to apply. The comments contained in paragraph 2 therein states as follows:

For the usual transactions on a Stock Exchange there is a disposition and acquisition of shares traded on a Stock Exchange, by the vendor and purchaser, respectively, on the settlement date which is the time designated by the Stock Exchange, usually two or three days subsequent to the trade date, on or before which the vendor is required to deliver the share certificates and the purchaser is required to make payment therefore.

We trust our comments will be of some assistance.

INCOME TAX RULINGS DIRECTORATE
FINANCIAL INDUSTRIES DIVISION

Please feel free to share the response publicly, but please keep my name private.

Trade date vs. Settlement date, calendar year, capital gains, Canada vs. USA

This is my first post about taxation in quite some time, but it is mostly a re-hash of my December 2009 post on the matter.

Taxation should always be a consideration in financial decision-making – e.g. all things being equal it should be preferential to include interest income in your tax-deferred accounts versus Canadian dividend income. At the end of the year, there are always decisions to be made with respect to determining when to crystallize income and/or losses through dispositions of securities.

In Canada, the calendar year where you dispose of securities is determined by the settlement date. In other words, you had until today (December 24) to sell your publicly traded securities since the settlement is 3 business days ahead – a trade today is settled on December 31st because of the Christmas holiday schedule. The TSX takes December 25 and 26th off.

If you decide to unload your shares on the TSX on December 27th, the settlement will be on January 2, 2013.

However, the Nasdaq and NYSE are open on December 26th, so if you dispose of your US shares on that date, the settlement will still be in 2012.

The taxation rules in the USA are slightly different – trade date is when your securities are disposed of, not settlement date. As far as the IRS is concerned, if you unload your shares on December 31st, that is a current year disposition and not the next calendar year.

This is one of the subtle quirks between the Canadian and US tax systems.