Bloomberg News

Genworth Swings to Profit as Mortgage-Guaranty Unit Improves

February 03, 2012

(Updates with after-hours share increase, U.S. results, CEO comment starting in the first paragraph.)

Feb. 2 (Bloomberg) -- Genworth Financial Inc., the mortgage guarantor and life insurer, swung to a fourth-quarter profit as it faced fewer new claims for U.S. homeowners who fell behind on loan payments. The company climbed in extended trading.

Net income was $107 million, or 22 cents a share, compared with a loss of $161 million, or 33 cents, a year earlier, Richmond, Virginia-based Genworth said today in a statement. Operating income, which excludes some investment results, was 17 cents a share, missing the 19-cent average estimate of 11 analysts surveyed by Bloomberg.

“The housing market continues to be weak, although new claims appear to be declining,” Edward Shields, a Sandler O’Neill & Partners LP analyst, wrote in a Jan. 30 note. Shields assigns a “buy” rating to Genworth with a $9 price target.

Chief Executive Officer Michael Fraizer, 53, who’s run Genworth since its initial public offering in 2004, has reversed a slide in the stock price. He sold a holding in a Canadian operation, set plans to dispose of an Australian-unit stake and retreated from variable annuities. Genworth has scheduled two investor conference calls for tomorrow and one for Feb. 10.

Genworth rose as much as 5.6 percent in after-hours trading following the announcement. It gained less than 1 percent to $8.04 in regular New York trading and has risen 23 percent this year to lead the 24-company KBW Insurance Index.

U.S. Mortgage Business

The U.S. mortgage-insurance segment’s loss narrowed to $94 million in the fourth quarter from $352 million a year earlier, the company said. U.S. life insurance posted a $114 million profit.

“Fourth-quarter earnings improved from the prior year driven by U.S. life insurance and U.S. mortgage insurance,” Fraizer said in the statement.

Insurers are struggling to generate investment returns as the Federal Reserve keeps interest rates near zero. The central bank said last week that economic conditions are likely to warrant “exceptionally low levels” for rates “at least through late 2014.”

Results at life insurers will “be pressured in 2012 due to low interest rates, increased hedging costs and ongoing market volatility,” Fitch Ratings said in a statement on the industry in December.

Mortgage insurers pay lenders when homeowners default and foreclosures fail to recoup costs. Genworth’s rivals including PMI Group Inc. and Triad Guaranty Inc. were forced by regulators to stop selling new coverage when capital fell short of required levels. MGIC Investment Corp., Radian Group Inc. and American International Group Inc. also guarantee home loans.

--Editors: Dan Reichl, Dan Kraut

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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