I had to take a nap after that.. Felt like S&P just took a 2x4 to my head and I just needed to sleep away the pain..
But what's even more painful is that S&P maintained their rating on MGIC (MTG). MTG was a co-stakeholder with RDN in Sherman Financial. They sold their slightly larger stake for $209 million recently, which was reportedly a discount to it's actual value. RDN didn't re-negotiate the option that Sherman has, and needs to exercise by Sept 19th, and RDN should reap about 30% more for their similar stake. RDN is reaping 40% annualized returns via their quarterly dividend from Sherman, but apparently this is irrelevant. However, it it makes me wonder if this had something to do with the downgrade.
Furthermore, I'm not sure what reason they would have to issue such a statment in the face of RDN's PR that they are increasing their sales staff by 30%, and the fact that they been VERY conservative about their exposure to Alt-A and Subprime (some of the lowest in the industry) and setting enough cash aside to more than meet their existing liabilities.
Either way.. S&P gave this company a hammer blow, so hopefully the damage has been done and the stock can rebuild from here.
But it is rather "interesting" that, just as the stock crossed $4/share and looked to be ready to move up even more, this release comes out.. More than just coincidence in my opinion. They just weren't ready to let it break out, and S&P's "temporary" downgrade provided the means to ambush the bulls and shake out some weak hands so the shorts can cover.
Btw, it seems this S&P downgrade was important enough to get Ibrahim to comment on this.. Maybe the game is still "afoot"
finance.yahoo.com
4:45PM Radian Group comments on Standard & Poor's Rating action (RDN) 3.24 : The co comments on the action taken by Standard & Poor's Rating Services. S&P lowered its financial strength rating on Radian's principal mortgage insurance (MI) subsidiary, Radian Guaranty, to 'BBB+' (negative outlook) from 'A' and removed it from Credit Watch. Radian Group said while it was disappointed by the action, S&P noted several positives for the long-term in Radian's mortgage insurance business and the MI industry overall. Those include improved credit quality in Radian's first-lien portfolio and a capital adequacy ratio that S&P said is slightly less than the minimum for a mortgage insurer to be eligible for a 'AAA' financial strength rating. "We do not believe today's action by S&P reflects the significant progress we have made in developing our internally-sourced capital plan and improving the quality of our mortgage insurance portfolio," stated S.A. Ibrahim, Chief Executive Officer of Radian Group.
So we'll see what tomorrow brings. I'm just glad that Ibrahim came out and defended his company and management decisions. He's made some very tough calls, IMO, and done what is necessary to consolidate operations behind the Mortgage division and I think he (and we) should be rewarded for that.
More detail here:
biz.yahoo.com
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