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Shares in insurer Genworth Financial Inc. (GNW-N) sank Friday, and a key investor threatened a possible proxy battle to throw out management after the company posted unexpectedly large mortgage insurance losses for the third quarter.
Famed hedge fund manager Steve Eisman told Genworth executives on a conference call that he would wage a proxy battle to replace them if they pursued acquisitions at a time their stock was trading at less than 40 percent of book value.
He said they should instead be making share buybacks with excess capital.
Genworth executives said earlier on the conference call they were considering small “bolt-on” acquisitions in wealth management.
“Frankly, the only accomplishment that this management team can truly point to is the survival of this company, which I don't mean to minimize; but otherwise, this management team has overseen a massive destruction of shareholder value,'' Eisman said on the conference call Friday.
Genworth executives told Eisman the company's businesses are in a turnaround process and many of them are on track to meet longer-term performance goals.
“If you get to the mortgage insurance business, clearly the transition we are going through is a frustrating one, and I share your frustration on that,” Chief Executive Mike Fraizer said. “But I think we are doing all the right things to bring that business back.”
Fraizer also agreed “the math is compelling” on a share buyback at current valuations.
Eisman made millions anticipating the housing market collapse well before others. He was one of the key characters in the recent Michael Lewis book The Big Short, which told the story of how he and others like him had made such successful bets on the crisis.
On Thursday after the market close, Genworth posted a $152-million US net operating loss in its mortgage insurance business, pointing to Florida in particular as the culprit.
The loss was more than four times what some analysts had expected. Sandler O'Neill analysts, in a note Friday morning, said the loss ratio of 263 percent in the mortgage unit in the quarter compared with their estimate of 135 percent.
“The main driver of the increase in loss activity (is) Florida, which accounted for $85 million in loan reserve building,” they said.