Old Republic International Corp. (ORI:US) said keeping its money-losing mortgage-insurance operation became a better option after stakeholders objected that their interests could have been hurt by a separation.
“We ultimately decided that backing off from the spinoff strategy would be, in the long run, a less daunting task from a pure business-management standpoint,” Chief Executive Officer Aldo Zucaro said today in a conference call held by the Chicago- based company.
Old Republic shares plunged 22 percent in two trading days following an announcement June 22 that it had halted the spinoff for its Republic Financial Indemnity Group unit after facing resistance from objectors it didn’t identify at the time. The insurer’s stakeholders include banks, government-sponsored enterprises, bondholders and employees, Zucaro said today.
The unit, which protects lenders and mortgage investors when borrowers default, “has to always address and balance the views of various stakeholder interests,” Zucaro said.
Old Republic was unchanged in New York trading today at 4:02 p.m. after Zucaro said that the parent company can withstand losses from the mortgage unit.
“We have indicated in our public filings, in our discussions, the fact that, based on everything we know today, there is no liquidity crisis at Old Republic,” he said. “We still think that we’re going to be able to convince the shareholders that they should look at the business through the same kind of clear glasses as we do, as opposed to what appear to be some dark-colored glasses.”
Zucaro is seeking to limit losses from backing home loans and focus on products such as title insurance and commercial- liability coverage. He said today that the company is working with the state regulator in North Carolina to pay mortgage insurance obligations after the unit ran short of capital and doesn’t plan to provide RFIG with funds that would be needed to cover more home loans.
Losses over the past few years “bring into question the very rationale of the MI business model,” he said.
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