Mortgage risks emerge at Wide Bay

Wide Bay Australia has drastically cut its projected profit for the 2013 financial year, after owning up to under-provisioning of its captive mortgage insurer.

Mortgage Risk Management needed to increase provisions in the second half of the financial year by A$5.1 million, the Bundaberg-based building society said yesterday. This is up from a budgeted provision increase of $3.5 million.

Most of the insurance business has already been shifted to QBE, with MRM being in wind down since last year.

Wide Bay will also wholly write off its $7.7 million investment in financial planning business Financial Technology Securities. The only rationale offered in the ASX announcement was "significant uncertainty in the carrying value", rather than the underlying reasons.

Wide Bay says it now expects a net profit for the year to June 2013 of $2.3 million to $2.5 million.

It reported a net profit of $19 million over the year.

The weak profit is bound to refresh speculation that Wide Bay is a prime takeover target.

Past conjecture on this possibility has centred on the merits of a bid from MyState Financial from Tasmania, which already owns The Rock in Queensland.

Wide Bay, with a market capitalisation of $408 million, had been trading at a premium of just over two times net assets before this week's suspension in the trading of its shares.

MyState, which had a market capitalisation of $378 million yesterday, trades at 1.4 times net assets.