were on the rise Friday, despite the mortgage insurers' swing to a big loss in the fourth quarter.
The Philadelphia-based provider of credit protection products lost $618 million, or $7.74 per share, during the fourth quarter. Just a year ago Radian enjoyed earnings of $158.4 million, or $1.96 per share for the same period. According to Thomson Financial, analysts had been steadily dropping their estimates for the quarter, finally settling on a loss of $2.38 a share.
"We have come through a difficult year and the environment continues to be very challenging," CEO S.A. Ibrahim said in a company statement. "These challenges will remain with us for the near-term and may intensify, so we are looking at various scenarios and responses."
Despite its sizable losses, Radian fared better than larger rival
, who earlier this week reported a record loss of $1.4 billion and warned of a difficult year ahead. Radian also noted that it hadn't touched its $200 million line of credit, easing market fears. Shares were rising 6.9% to $7.40 in recent trading.
Ibrahim said Radian believed the book value of the company has been unfairly hit due to weakness in the financial guaranty business and its ownership stake in debt recovery firm Sherman Financial. The company sold a portion of its ownership back in September, leaving it with a 21% stake. Ibrahim said on a conference call with analysts that they will consider selling their remaining ownership in Sherman as a potential source of capital. Although he insisted the company was adequately capitalized at this time and customer confidence would be the only reason to raise capital.
Just last year Radian, the third largest publicly traded mortgage insurer, had considered merging with MGIC, but terminated the deal in September, citing deteriorating market conditions.
C-BASS, or Credit-Based Asset Servicing and Securitization, the joint venture between MGIC and Radian, was responsible for a pretax writedown of $50 million. But it was the pretax adjustment in value of its derivatives, including collateralized debt obligations, or CDOs, that tallied up to a loss of $459 million, and Radian noted there could be more adjustments. Mortgage insurance pretax losses were $630 million.
During the quarter, mortgage insurance loss reserves continued to increase, reflecting the credit, housing and overall economic environment. Radian ended the year with $1.3 billion in mortgage insurance loss reserves.
Stuart Plesser, an analyst with Standard & Poor's foreshadowed Radian's poor results in a recent note. "We see loss provisions up over 65% in 2008 from already elevated 2007 levels, as claims paid and delinquencies should pick up significantly due to a weakening of the housing market and an increase in the severity of claims," he wrote in the note published Feb. 9. "In addition, we expect continued write-downs of insurance on
Radian's net interest margin securities business. In the financial guaranty segment, we foresee earned premiums rising about 3%, and we expect higher loss provisions due to deteriorating credit markets."
Last September, Fitch Ratings downgraded Radian's long-term debt to A-. The company formally requested that Fitch immediately withdraw all of its ratings for the company and its subsidiaries. Fitch cited the CDOs as a concern, which Radian dismissed.