MGIC, Radian Shares Fall on C-BASS Stake (AP)

NEW YORK - Shares of private-mortgage insurer MGIC Investment Corp. and credit risk manager Radian Group Inc. fell in Tuesday a day after the companies said their investments in subprime mortgage investor Credit-Based Asset Servicing and Securitization LLC could be worthless.

Shares of MGIC fell $4.05, or 8.9 percent, to $41.39 in midday trading. Shares reached a 52-week low of $40.53 earlier in the session. Shares had ranged between $43.46 and $70.10 during the past 12 months.

Shares of Radian fell $4.18, or 10.4 percent, to $36.02. Radian hit a 52-week low of $35.64 earlier. Shares had traded between $38.98 and $67.35 during the past year.

C-BASS is jointly owned by MGIC, Radian and the management of C-BASS. Radian is in the process of acquiring MGIC, and the deal is expected to close near the end of the third quarter.

Rising delinquencies and defaults among subprime mortgages - loans given to customers with poor credit histories - pushed banks to make margin calls on credit lines held by C-BASS.

Neither MGIC nor Radian have revealed how much of an impairment they will take related to the investments, but it could be up to 100 percent, less any tax benefit. As of June 30, MGIC had invested approximately $516 million in C-BASS, including a $50 million unsecured credit line. Radian has invested approximately $518 million in C-BASS, including a $50 million unsecured credit line.

Based on its investment in C-BASS, Keene, Brunette & Woods Inc. analyst Geoffrey Dun downgraded MGIC's stock to "Market Perform" from "Outperform" and cut his price target on the shares to $45.

"Given the market conditions, we believe that an assumption of a complete write-off is correct at this point in time," Dun wrote in a research note. In a separate note, Dun said he also expects Radian to take a complete write-off of it's investment in C-BASS. He downgraded Radian to "Market Perform" from "Outperform."

Bear Sterns analyst David Hochstim said he estimates that an impairment charge for a total loss of C-BASS would generate a third-quarter loss of $3.30 per share for MGIC. He had previously estimated that C-BASS would contribute about 20 cents per share to quarterly earnings. He lowered his MGIC rating to "Peer Perform" from "Outperform."