Genworth now swimming in cash

Shut out of last year's federal bailouts, Henrico County-based Genworth Financial Inc. looked inward to find the financial muscle it needed to weather one of the toughest spells in Wall Street history.

Now, it is swimming in cash, with more than enough to repay $660 million of debt coming due this month and next, an obligation that last year made Wall Street so nervous that trades sent Genworth shares tumbling, at one point, down 95 percent in value from their high.

"We made a lot of progress . . . now Genworth is ready to go on the offensive," chairman and CEO Michael D. Fraizer told the Richmond Times-Dispatch.

Genworth and all its operating business had $7.1 billion in cash as of March 31, up from $3.8 billion last year.

Most of that is kept in its subsidaries to make sure they can pay claims quickly. But the company boosted cash on hand held by corporate headquarters to $768 million from the usual $150 million or so, Fraizer said.

Once Genworth uses the bulk of that to pay off debt due over the next two months, the company has no other IOUs to repay before 2011, he said.

Having lots of cash has had a cost -- Genworth's operating earnings for the first three months fell in large part because cash doesn't pay interest or a dividend the way bonds or stocks do, Chief Financial Officer Patrick B. Kelleher said. The company reported a first quarter loss late Thursday, mainly because it wrote down the value of some assets, and its shares rose 69 cents, or 15 percent, yesterday to close at $5.28.

Soft markets for stocks, low interest rates on bonds and corporate crises that forced some of the nation's biggest firms to restructure debt all hit Genworth in the first quarter, as they did last year.

But things are looking up, Fraizer said.

"If you look at stocks in February and March, it certainly scared some people. We think that's changing. I like to think the first green shoots are showing now," he said.

At the same time Genworth has been building up cash, it has tightened its standards for selling mortgage insurance -- the policies that pay banks when homeowners can't make payments on their mortgages -- and stepped up efforts to help people avoid losing their homes.

In the first three months of the year, Genworth arranged "work-outs," often involving modifying loan terms, for $150 million of mortgages compared with $20 million over the same time last year.

Fraizer said the mortgage unit is in shape to start expanding business -- "there are good, clean traditional loans out there," he said, adding that Genworth is convinced it still makes sense to insure those loans, as opposed to some of the wilder deals mortgage lenders had been offering just before the housing bubble burst. The new policies the company is selling these days are yielding "much higher returns" than before, Fraizer said.

Early in the first quarter, Genworth announced layoffs that included 400 people at its Henrico headquarters and 230 at its Lynchburg operation as part of a worldwide effort to cut expenses by about $100 million a year.

Fraizer said he believed the company was now in a position to start building as business conditions improve.

The expense cuts, increased cash holdings and sales of its riskier investments have left Genworth with billions of dollars more capital than its regulators require to back its promises to pay claims. That excludes the money the company will get when it sells a 49 percent interest in its Canadian mortgage insurance operation through an initial public offering in Canada.

Its unit is the largest private mortgage insurer in Canada. Canadian insurance companies' shares listed on the Toronto Stock Exchange are now selling for between about 70 percent and 130 percent of their "book value" -- the theoretical amount that would be realized if they paid off all their IOUs and cashed in all their assets. In the case of Genworth's Canadian unit, book value now stands at $1.8 billion.

Contact David Ress at (804) 649-6051 or .