(Bloomberg News) Genworth Financial Inc. Chief Executive Officer Michael Fraizer, whose bets on U.S. housing lost about $1.8 billion for the insurer since 2008, is losing credibility with bondholders and shareholders after misjudging Australia's housing market.
Credit-default swaps that protect investors in the Richmond, Virginia-based insurer's debt show a 43 percent chance of default within five years, up from 29 percent in March, according to CMA. Genworth's shares plunged 24 percent on April 18, pushing its shares below 0.2 times book value for the first time since January as losses at mortgage insurance operations spread to Australia.
Fraizer, 53, told investors in November he would sell part of the company's Australian unit in an initial public offering and focus on buying back stock. That plan, which five months ago fueled a 17 percent stock gain, was put on hold last week.
"Certainly credibility is an issue, and certainly this is a significant misstep," said Edward Shields, an analyst at Sandler O'Neill & Partners LP. "There have been a number of missteps over the years. Lots of investors have asked for change."
Genworth is the third-biggest decliner in the 24-company KBW Insurance Index this year. The stock ended yesterday at $6.06 or 0.18 times book value, the lowest ratio among companies in the index, according to data compiled by Bloomberg.
Insurance Losses
Genworth's U.S. mortgage insurance unit posted its fourth consecutive annual loss last year, a deficit of $477 million, according to the company's 10-K filing in February. The result narrowed from the $559 million loss reported for 2010. The unit lost $427 million in 2009 and $368 million in 2008.
"Genworth has taken and continues to take significant actions to sharpen its strategic focus, reduce risk exposures, expand risk buffers, streamline costs, drive capital generation and rebuild value for shareholders," Al Orendorff, a spokesman for the insurer, said in an e-mailed statement. It has exited businesses, improved pricing, bought reinsurance and executed a "loss mitigation program in U.S. mortgage insurance while writing highly profitable new business," he said.
Fraizer, also the firm's chairman, is scheduled to appear before investors at the firm's annual meeting on May 17. He told shareholders in a March letter the company 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.
'Position Of Strength'
The decision to delay the Australian IPO until early 2013 came three weeks after Chief Financial Officer Martin Klein said the sale was on track for the second quarter. Claims exceeded expectations, the company said in a statement last week. That compares with Genworth's guidance on March 29, when Klein told investors he expected markets in Australia and Canada, where the firm owns mortgage insurance units, "to remain solid."