Genworth Financial: New Leadership

Genworth Financial (GNW) announced that its board of directors selected Thomas J. Mc Inerney as the company’s president and chief executive officer, effective January 1, 2013.  Mc Inerney is a seasoned insurance industry veteran with experience in senior leadership positions at ING Groep and Aetna Financial Services. Most recently he was an advisor with Boston Consulting Group.

As presented in our GNW investment thesis posts: Part I What Went Wrong? here and; Part II Turnaround and Valuation here we believe the biggest challenges are behind GNW and significant upside potential exists for new investors. Genworth needs to regain investor confidence as past investors were stung by an 80% share price plunge since mid-2007 and lost confidence in the company’s management. They are unlikely to re-consider the company until new management is in place.

A turnaround investment often has two levels of recovery. The first recovery occurs once value investors realize excessive fear drove the share price beyond the underlying value of the company even with the bad news factored in and the company will survive. That is where we believe GNW is now. A second higher level of recovery can occur if the company demonstrates it is a future contender in the industry. To do this it must demonstrate improved operating results. At this point the more traditional insurance industry investors consider the investment and drive share prices closer to the intrinsic value.

CEO’s Mc Inerney’s industry experience and leadership will be invaluable at both levels. Every ship needs a captain, especially during a storm, to navigate through the difficult decisions. Secondly, is to assure strategic decisions are implemented in a timely manner and the management team delivers improved operations.

One well known insurance industry analyst defended the former CEO saying the past problems at GNW were “a team effort”, implying problems with the second level of management as well. That may or may not be the case, but in my view it’s the CEO’s job to make sure he has the right people in place. The worst should be behind GNW and with a captain we will hopefully see smooth(er) sailing going forward.

James Riepe, Genworth’s chairman is reported to say in a telephone interview: “Investors want to see actions…As they see more and more actions on our part, they’re going to feel better about the company, and I think that will be reflected in the stock price.”

Genworth also announced the election of a new independent board member, David M. Moffett, retired CEO and director of the Federal Home Loan Mortgage Corporation (Freddie Mac). Prior to Freddie Mac, Moffett served in senior positions at Carlyle Group LLC, U.S. Bancorp, Firstar Corporation and as a director at other companies.

He should provide valuable advice as GNW considers the future of their mortgage business. Still viewed as GNW’s Achilles heel by many, we believe it may in fact be a huge opportunity as the government prices itself out of that business. Higher prices and less completion sounds like a potential contributor to smooth sailing.

“As Genworth continues to execute its strategy of rebuilding value for shareholders, we believe David’s extensive experience and perspectives will provide invaluable insights,” said James S. Riepe, Genworth non-executive chairman of the board.

Long GNW

 

 

 

 

 

 

 

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