Nov. 16--Genworth Financial Inc. is trying to ride out an economic storm that is battering its stock value and forcing it to take painful steps, including likely layoffs, to stay afloat.

The storm has come from two directions, whipped into a fury by a housing-market collapse that has forced Genworth to make huge payouts on failed mortgages that it insures and a stock-market meltdown that has cut deeply into the company''s investments while decimating its own stock price.

"We probably have the most conservative stance of anyone in the United States, but with the tsunami that came through the market, it wasn''t enough," said Michael D. Fraizer, president and chief executive officer of the $100 billion company, based in Henrico County and among the region''s top employers.

Genworth''s stock traded below $1 at one point last week -- down 96 percent from a high of more than $28 a share. It recovered to close at $1.47 a share on Friday as the market rewarded the company for its decision to draw on its credit lines to pay off debts that will come due next spring.

The stock''s recovery offered a glimmer of hope in a market that has been driven as much by fear as reality.

"It is a highly emotional market," Fraizer said in a 35-minute interview with the Richmond Times-Dispatch on Friday. "Sometimes it moves on rumor and perception. That''s just the period we''re in."

Genworth is hoping that the market takes notice of the many steps it has taken to right the ship and ride out the storm, but the company also is bracing for a global recession that will force it to cut up to $150 million in expenses. It has already suspended payment of dividends and a program to repurchase stock.

The expense cuts are likely to mean layoffs before the end of the year at a company that employs 7,000 people worldwide, including 1,721 in greater Richmond, 1,326 in the Lynchburg area, and 85 elsewhere in Virginia.





"If you''re going to impact somebody''s job, you''re going to have to be very thoughtful and humane about it," said Fraizer, who won''t talk about possible job cuts publicly before sharing them with employees.

Genworth''s troubles come at a rough time for the Richmond area''s business community, which has just seen one homegrown company, Circuit City Stores Inc., file for Chapter 11 bankruptcy, and another, LandAmerica Financial Group, agree to a merger with a rival company that will keep the new corporate headquarters in Florida.

But Richmond isn''t being hit any harder than most other medium to large metropolitan areas in an economic downturn of historic proportions, said William H. Goodwin Jr., chairman of CCA Industries Inc. and a leader of the region''s corporate business community.

"There are no analogies, certainly not in our lifetime," Goodwin said.

Goodwin and other corporate leaders are not counting Genworth out.

"All of us are rooting for them," said Thomas F. Farrell II, chairman, president and CEO of Dominion Resources Inc., "and I''m sure they''ll come out OK."

. . .

Bad mortgages lie at the heart of Genworth''s troubles, as well as the genesis of the credit crisis that has spread from the United States around the world.

The housing meltdown has hurt one of the company''s core business -- insuring mortgages -- and cost it billions in devalued investments, especially in securities backed by mortgages.

Genworth''s mortgage-insurance business has continued to grow by double-digits internationally, especially in Canada and Australia, where many of the underwriting and business practices that have hurt the U.S. housing industry are not allowed.

But in the United States, where Genworth insures $175 billion worth of mortgages, claims have soared. Genworth insures more than 1 million loans, and about 71,000 of them are delinquent, more than double the proportion as of Sept. 30, 2007.

About 10 percent of the mortgages it insures went to borrowers with low credit scores or are considered "subprime" -- the kind of high-interest rate, high-risk, bad-for-consumer deals that brought a number of huge banks to their knees.

The company holds $1.45 billion of bonds that are secured by subprime mortgages. They amount to a bit more than 1 percent of total assets.

Fraizer said Genworth deserves more credit for the things that it did not do but that others did with disastrous consequences. The company didn''t invest in bulk pools of sub-prime mortgages, for example, and has a low percentage of the adjustable-rate mortgages that have led to high foreclosures, he said.

"There are a lot of things that we outperformed our U.S. mortgage competitors on," he said.

. . .

Genworth is considering spinning off its U.S. mortgage business, based in Raleigh, N.C., and has hired a new chief investment officer to manage its nearly $70 billion investment portfolio.

But the company''s immediate challenge is to soothe concerns among investment analysts and rating agencies about its potential liabilities and earnings outlook. Last week, Moody''s and Standard & Poor''s downgraded the company''s credit ratings, citing strains on its earnings.

"There seems to be a bit of overreaction," said Thomas Rosendale, an analyst at A.M. Best Co., which put its ratings of Genworth under review with negative implications earlier this month. Rosendale said the company has a big exposure to the meltdown of the U.S. mortgage market through the securities it holds and the mortgages it insures, but added:. "I wouldn''t say they''re out in left field, compared to their peers."

Virginia insurance regulators are also keeping a close watch on Genworth''s financial condition in order to protect policyholders of its Life & Annuity Insurance Co. subsidiary, which is built on the former Life Insurance Co. of Virginia and First Colony Life Insurance Co. So far, regulators are not concerned about the subsidiary''s solvency.





"The company has adequate assets to fulfill its obligations and its liabilities," said Alfred W. Gross, commissioner of insurance at the State Corporation Commission.

Genworth has moved forcefully to ensure that its subsidiaries have the capital they need. The holding company shifted $500 million into its life insurance companies in the last quarter to boost their cash on hand. The company also has boosted its level of cash or cash equivalents by some $2 billion, for a total of $6.2 billion at the end of September.

But its stock price tumbled after it warned in a Securities and Exchange Commission filing that the value of its investments would fall further in the fourth quarter, while its credit downgrades would bar it from a financing program created through the federal government''s financial system bailout. Its announcement last week that it would draw $930 million from two virtually unused credit lines to retire long-term debt eased Wall Street''s worries some.

"We wanted to take the question off the table," Fraizer said, adding that the company has no more securities scheduled to mature until 2011.

"There was a positive reaction to that," he said.

On Friday, federal officials disclosed that Genworth plans to buy a savings and loan company in Minneapolis that could make it eligible for the Treasury Department''s $700 billion bailout program.

However, Genworth''s stock remains a fraction of what it was. Its value has fallen 95 percent this year, the second-worst performance in an index of 24 insurers after The American International Group Inc.

"This is the worst real estate crisis on the residential side since the 1930s," Fraizer said. "That is just the reality of the United States right now."

Contact Michael Martz at (804) 649-6964 or mmartz@timesdispatch.com.

Contact David Ress at (804) 649-6051 or dress@timesdispatch.com.



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