Genworth climbs on possible sale of insurance unit

CHARLOTTE, N.C.—Shares of Genworth Financial Inc. climbed Tuesday after the mortgage insurer said it is considering various strategic alternatives for its U.S. mortgage-insurance business, including a possible spinoff.

Shares of Genworth spiked rose $3, or 60 percent, to $8 in heavy afternoon trading. The stock, which finished Monday's trading at $5, has ranged from $3.51 to $32.33 over the past year.

The Richmond, Va.-based company said it wanted to "determine the optimal course of Genworth, its customers and shareholders," in a statement.

"We have demonstrated that, in the current stressed U.S. housing environment, our U.S. Mortgage Insurance business continues to operate from a more sound financial position and lower risk profile than any other U.S. mortgage insurer," said Michael D. Fraizer, chairman and chief executive. "At the same time, progress in our international, wealth management, retirement, life and long-term care insurance businesses has been overshadowed by concerns about the future of U.S. Mortgage Insurance."

U.S. mortgage insurers have been hit hard as homeowners have fallen behind on loan payments, and fewer mortgages are being issued as lending practices have tightened.

Genworth, which also offers long-term care insurance, retirement products and wealth management services, said it has taken steps to make sure it is not hit by a cash crunch. It has reduced its commercial paper borrowings to $79 million, and has more than $800 million in cash or cash-like assets in the holding company and $4 billion in its operating companies.

Over the past couple of weeks, Genworth's stock has been hit hard by concerns about its mortgage exposure in the wake of the collapse of American International Group Inc.

Earlier this month, the government stepped in and provided AIG with a two-year, $85 billion loan to help keep it in business. As one of the world's largest insurers, AIG teetered on the brink of bankruptcy as it looked for fresh cash to help shore up its balance sheet, which was facing a liquidity crunch amid the continued downturn in the credit markets.

At Genworth Financial, write-offs of mortgages and asset-backed securities related to subprime and Alt-A mortgages were $326 million in the second quarter. Alt-A mortgages are given to people with minor credit problems or who lack proper documentation to get a traditional prime loan, while subprime mortgage loans are given to customers with poor credit histories.

Last week, Genworth management provided an update regarding its U.S. mortgage insurance business. The company is considering reinsurance transactions, asset transfers from outside the U.S. and joint ventures to boost capital, management said on a call with analysts.