Factors critical to earnings result is the final CDS spread which based on a scientific poll made here, we believe will be around 750. At that level fair gain in derivative instruments will be around $54 million and under the forecast Radian would breakeven or, they would end with a profit of around $1 million.
Critical factors affecting final results:
1. Provision for loan losses.
The rescissions and denial were lower in Q4 as anticipated by servicers resubmission of claims with appropriate documents. New defaults were lower and cures were higher which on the bottomline Radian was able to reduce 1662 loans from the inventory of defaults.
Provision for loan losses will most likely run around $210 million.
2. Investment income and gains have historically come in around $89 million. Radian was wise to harvest gains on gov't securities in August .2012 as now interest rates are higher and face values have declined. The $120 million help bring down stat capital ratio to 20 to 1.
3. Derivatives gains as discussed above would come in higher than previously forecasted at $54 million however, at that level the number seems overstated.
4. Other gains and losses.
Items such as recoveries on financial instruments for CDOs etc.
5. Release of reserves to profits based on lower reinstatements of claims denied. Radian was carrying $230 million in excess INBR reserves for loans denied. After a legitimate amount of time, the reserves will reflect liability of claims estimated. Previously I calculated the excess reserves at $216 million before I was able see the actual number Radian management had actually reserved in the SEC 10-Q, dated September 2012.
Now I look at the T/A side, based on UR F/A,
we should be able to break thru $7-$8 strong resistance from last dead load after Earning. ( $10 will take sometimes or next QT; 2nd strongest deadload after $18. )
I am not sure if this time the profit taking will last as long as last QT.
This super Bull just starting last Q3 by US Big Ben's QE Unlimited, then Q4 by followed by Euro, now same Unlimited followed by Japan!
That is why all great investors from super long term to short term all very bullish. Even the fund managers start to jump on board on this Bull side now, reflected by Barron's Round Table.
This action will take quite sometimes for managers to re-position, for many months to go. The Financial/real estate lead up trend is confirmed for now at least 5-7 years.
If China & CA recent very strong real estate recovery is an indicator, then the earning momentum from NIW calculated by Tomi , will bring RDN to $18 by next year end !! (probably also the 1st major pull back)
The trend is set, all the major players' intention is understood.
The key question is :
..... How do we maximize the profit in this course ? . Strategy? . Time?
anyone like to share UR idea ? . h92, M, h2, naka, cdh, EX, and all other fellows.
BTW, one personal idea for h92,
Do not think after UR retired " ... And they live happily thereafter "
For my case, I was kicked out after 5 yrs by my Supreme Commander.
That is why U see me here.
From the chart you can see that Radian is doing a better job of reviewing denials prior to denial of claims and, the reinstatement rate is declining each year since 2010. However, in spite of the declining trend in reinstatements, Radian's balance of IBNR reserves increased from $170.6 million at December 31, 2011 to $261.6 million at September 30, 2012.
Over reserved by such a large amount, supports the notion that Radian could start to bring the reserve by showing them as profits, whenever they choose to.
Analysts have missed Radian Q4 results by at least $30 million. Yesterday, Thompson Reuters upgraded their estimate by 8 cents for Q4 2012 to -50 cents and, raised the Q1 2013 and full year 2013 estimates too. I love to know where their upgrades come from or, what component statement is changing.
Factset has Radian losing -51 cents for Q4 2012.
As I looked at the May options, I can tell few really believe that Radian will exceed $8 a share or, they are willing to own the stock (RDN) but, not buy the options so far out. I feel lonely out there but, more investors are adding daily.
Watch for analysts upgrades next week, which often go undetected unless you receive the data to your desktop trading program. When Radian moves higher, you may want to add based on improving outlook. $7 is right around the corner.