Genworth (GNW:US) Financial Inc., the mortgage guarantor and life insurer, said Chief Executive OfficerMichael Fraizer resigned after shares plunged more than 80 percent since the end of 2006.
Chief Financial OfficerMartin Klein was named acting CEO, the Richmond, Virginia-based insurer said yesterday in a statement.
Fraizer, 53, who is also stepping down as chairman, shelved plans last month for the initial public offering of an Australia mortgage-insurance unit, citing “elevated” losses in the nation. Fraizer, who guided Genworth through its spinoff from General Electric Co. in 2005, previously misjudged when results would rebound at the U.S. operation backing home loans.
“This has been a long time coming,” said Jonathon Jacobson, who runs Highfields Capital Management LP, the $11 billion investment firm that owns about 6 percent of Genworth. “Fraizer has been an impediment at the company to both operating and structural changes. We applaud the board for taking the step that they took today.”
Genworth advanced to $6.30 at 6:18 p.m. yesterday in New York, after closing at $6.15. The company, which traded at $34.21 in December 2006, has a price-to-book-value ratio of 0.18, the lowest in the 24-company KBW Insurance Index. (KIX)
The 2008 financial crisis and the U.S. housing slump pushed Genworth into aggregate losses of more than $700 million in the four years ended in December. The Australian unit sale was intended to increase the company’s cash as Fraizer sought to direct capital to share repurchases. Genworth announced on April 17 that the IPO plan was shelved, and the stock dropped 24 percent the next day.
“With Marty and the rest of the senior management team, the board is confident the company will be able to capitalize on its core strengths and successfully rebuild shareholder value,” said James Riepe, who was named non-executive chairman. “The board will move forward with the search for a permanent CEO in light of its continued review of the business portfolio.”
Klein, 52, joined Genworth in April 2011 from Barclays Capital, where he was a managing director, and has led Lehman Brothers Holdings Inc.’s insurance and pension solutions groups. He has a bachelor’s degree from Hope College in Holland, Michigan, and a master’s in statistics and actuarial science from the University of Iowa, according to the firm’s website.
Genworth said yesterday that first-quarter net income (GNW:US) fell 20 percent to $47 million, or 9 cents a share, from $59 million, or 12 cents, a year earlier. Operating profit, which excludes some investment results, was 6 cents a share, missing the 13- cent average estimate (GNW:US) of 10 analysts surveyed by Bloomberg. Genworth’s Australian mortgage insurer booked a $21 million loss in the quarter after claims costs rose.
“We are very disappointed about performance of our Australia MI business this quarter and its impact on the timing of the minority IPO,” Klein said in the statement. “We remain committed to completing this strategic initiative while working on other actions to improve performance in our businesses and generate and manage capital.”
Klein, as CFO on March 29, told investors he expected markets in Australia and Canada, where the firm owns mortgage- insurance units, “to remain solid.”
The worst U.S. housing crash in seven decades drained capital at mortgage insurers, including Genworth, that pay lenders when homeowners default and foreclosures fail to recoup costs. The company’s retirement-planning business, which halted sales of variable annuities after losses during the financial crisis, sells life-insurance and long-term care policies.
“I don’t accept that Fraizer was a bad CEO,” said Steven Schwartz, an analyst at Raymond James & Associates. “You’d be blaming Fraizer for not seeing something very few people saw.”
Genworth promoted Kevin Schneider from head of U.S. mortgage insurance to CEO of the business line globally, the company said yesterday in a separate statement. Genworth said it is seeking to improve “operating synergies while enhancing the transparency” of mortgage-insurance operations for investors.
“It sets the stage for a separation,” said Kevin Byun, founder and chief investment officer of Genworth shareholder Denali Investors LLC in New York. “Because they’re announcing at the same time, it shows that they’ve decided to shake this thing up all at once.” Byun, based in New York, said he has asked Genworth to consider splitting into two or more companies.
Hartford Financial Services Group Inc., a life insurer that also sells property-casualty coverage, is under pressure from billionaire hedge-fund manager John Paulson to break itself into two companies. Hartford, based in the Connecticut city of the same name, is seeking to sell businesses.
“The Genworth team has accomplished much,” Fraizer said in the insurer’s statement. “After navigating through the recent financial and housing crisis, and as the company transitions to the next-generation Genworth, I believe this is the right time for me to move on to other opportunities.”
Fraizer told investors in a December 2009 presentation that Genworth expected quarterly operating earnings at the U.S. mortgage-insurance unit would “turn positive in the mid-2011 timeframe.” In a July 20 statement, Genworth cited “worsening trends” in the business as it used $375 million to provide capital support to the unit.
Fraizer said in March that Genworth was “humbled” by its performance in 2011, a year in which the stock fell 50 percent. Fraizer was awarded $750,000 in incentive compensation for 2011, or 33 percent of his target, and hasn’t qualified for his full bonus since 2006.
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