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Radian Shearing Already-Depleted Headcount
Asset Backed Alert, Harrison Scott Publications Inc. (August 15, 2008)

More layoffs are taking place at Radian Asset Assurance, as parent Radian Group diverts funds from the bond insurer to its ailing mortgage-insurance affiliate.

Radian notified about 50 employees in New York and London over the last six weeks that their last day will be Sept. 5. It's unclear how many of the dismissals involve the guarantor's structured-finance division, which had already seen its headcount slashed to about 10 individuals, from almost 40, since March.

Radian officials said this week that the upcoming layoffs are part of an already-in-progress effort to prune bond-insurance staff in response to a decline in new business, especially in the CDO sector. But at the same time, plans are in place to move $100 million from the bond insurer to the operation's mortgage-insurance affiliate, which desperately needs the capital after getting swamped with claims on defaulted home loans over the past year-and-a-half.

The moves are intertwined to some extent. Part of Radian's reduction in new bond-insurance volume results from an overall decline in the amount of fresh debt-product offerings hitting the market. Its lighter workload also helps accommodate the planned capital shift, by leaving it with a surplus of reserve funds.

Also driving down activity on the bond-insurance side, and thus helping to free up capital, is the fact that Moody's and S&P made it far more difficult for Radian to sell new wraps when they downgraded its bond-guarantee business in June to A3/A (from Aa3/AA). In doing so, the agencies cited both Radian's weakened business prospects and its parent's mortgage-insurance woes as factors.

For its part, Radian insists its bond-insurance division has less direct exposure to bad mortgage debt than its peers. The company's flexibility to shift capital is also enhanced by the fact that it doesn't have to worry about the types of payouts facing its monoline rivals - many of which have suffered tremendous downgrades. "Radian Asset is writing very little new business at this point and we expect that to continue," spokesman Rick Gillespie said.

New York-based Radian Group announced the capital transfer as part of a broader shift of assets it described in an earnings call this week. Radian's previous staff cuts, meanwhile, tied in largely with a choice to pull out of the battered CDO business several months ago. That area accounted for much of the shop's structured-finance activities. Radian still has a team dedicated to other types of securitizations, mainly entailing out-of-the-mainstream assets such as equipment leases, certain types of auto loans and future cashflows.

The structured-finance staffers let go earlier this year reported to Jack Praschnik. He then left on June 30 after accepting a buyout package, and has yet to resurface.

Prashchnik's responsibilities spanned the structured-finance area and a so-called international-finance division in London that works on project-finance transactions. New York-based senior vice president George Schulz now oversees the structured-finance team. Simon Spencer, also a senior vice president, supervises the international-finance group, which hadn't suffered any layoffs by the time Praschnik left. Radian hasn't wrapped a new issue of asset- or mortgage-backed securities yet this year, according to Asset-Backed Alert's ABS Database. v



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