Investors are “looking at the credit quality of the business, the improved housing market, and the expected return to profitability of the business,” said Emily Riley, a spokeswoman for Radian. Radian has forecast a marginal operating profit for the mortgage insurance business this year, excluding some compensation expenses tied to the rising share price.
Genworth’s mortgage unit reported its first profit since 2007 in the first quarter. At AIG’s United Guaranty, operating profit rose to $41 million from $8 million a year earlier. Excluding some one-time and unusual costs, Radian also posted a profit in the first quarter, according to a May 2 note from Mark DeVries at Barclays Plc.
Improving Profitability
Paulson’s fund also holds debt from Radian and MGIC, according to data compiled by Bloomberg. Improving profitability helps bolster the credit ratings of MGIC and Radian, Moody’s said in a May 15 report. The insurance the companies have sold since the crisis backs higher quality mortgages than the loans they backed before the crisis, Moody’s said.
Radian raised about $689 million selling stock and senior notes in February after commissions and expenses, and MGIC raised about $1.15 billion in debt and equity offerings the following month. The cash helped replenish capital that was drained during the housing crash and showed investor confidence in the firms.
“When you leverage the new capital and cure the older books, there is a turbo-effect to the earnings of these companies,” said Jack Micenko, an analyst at Susquehanna International Group LLP. “These are fairly higher earners in a normalized environment. We are moving from a very difficult environment to an environment that is much more positive for them.”