Wednesday, August 05, 2009

Radian: What are you still doing here?

Radian reported a profit this quarter mostly on the back of insurance claims recinded due to misrepresentations. AIG is up big on the news, as are other insurers. It might explain MBIA's big move to the upside yesterday.

Here's something a bit odd, though. Why are all the other banks up on this news? It isn't like foreclosures are down. In fact, what Radian is saying is that they've managed to avoid paying banks the insurance they were otherwise due. How is this good?

Isn't Radian just transfering losses from their own books onto other banks? Won't the other MI's follow suit? Even the more conservative banks, e.g., J.P. Morgan or Wells Fargo have exposure to potentially "misrepresented" loans through their recent acquisitions. I suppose banks would rather Radian (and the other MIs) survive in some form. But even then, I'd have to say this is at best, a mixed event for banks. Not a clear positive.

The other day I wrote a fairly positive view of the housing market, but I reiterate, banks remain very vulnerable. I think the systemically important banks will survive, but I think there are lots more failures to come. Feels like the market is losing sight of this.


Anonymous said...

A few other comments from the RDN call. They reduced reserves because of the recission activity - and then in the next breath said that they expected DQ rates to increase in 2H 09 (those foreclosure moratoria are going to wear off one of these days and those properties will become claims).

They also mentioned that they were fairly confident that they could continue writing insurance through the end of 2009. Whoa, SA, let's not get too far out over the skiis there. After all it's only the company's core business, and why worry about what might happen next year.

They went on to explain that they might hit the 25X risk to capital ratio sometime in the next few quarters which would put them out of statutory compliance in 14 states - 30% of the volume. But not too worry, they could continue to write business in the rest of the states - apparently the interests of the rating agencies and perhaps the AGs of the other 36 states are of no consequence - ignore that man behind the curtain. As for those other 14 states, they have hatched a plan to use some near-dormant sub with a whopping $40 million in capital to write the business in those states. They did allow as how they might need to add some equity to it some point, but really why quibble over details like capital adequacy?

So, in sum, never mind all those claims yet to be paid on FCs in suspended animation, never mind that they are woefully short of capital. Nothing to see here folks, move along, and be buy a few shares of RDN today so we can keep Goldman's HFT group in tall cotton.

In Debt We Trust said...

Radian is like China except on a micro scale.

The SDR "currency" was never intended to supplant the dollar.

Instead, it is a back door scheme to transfer Beijing's losses back to Washington DC, London, and Brussels. Of course, the commissars will have to bear some loss but the burden will be spread out.

See, the Chinese continue to learn from the best masters of deception at Washington and Wall Street. Fast learners indeed.

In Debt We Trust said...

Interesting analysis that connects outright Treasury purchases from dealers w/equity rallies. The key is that the day the PD's get the money from the Feds, they are immediately able to leverage it in the equities market by a factor of 50-100x.

Lockstep said...

good post. I was wondering what the news with AIG.

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Anonymous said...

So are you still short AGO?