(New throughout, adds conference call details, share movement, background)
* Q3 profit of $0.46/shr Vs estimates of $-2.16/shr
* Says capital adequate to meet current needs
* Views interest in Sherman as capital cushion
* Shares surge as much as 48 percent
By Sweta Singh
BANGALORE, Nov 5 (Reuters) - U.S. mortgage and bond insurer Radian Group Inc (RDN.N) posted a quarterly profit, surprising Wall Street which was expecting a huge loss, and said it has enough capital to meet its current needs, sending shares up as much as 48 percent.
Radian views its 29 percent interest in debt purchaser Sherman Financial as a source of additional capital through dividends or potential sale, Chief Executive S.A. Ibrahim said in a conference call with analysts.
However, Ibrahim said that the company may need additional capital if the housing downturn lasts longer than expected adding that it will explore all alternatives for raising capital if needed.
Radian has suffered huge losses in the recent past from backing subprime bonds and mortgages that saw a surge in defaults as credit and housing markets in the United States worsened, impacting economies globally.
The company has posted losses for the past four quarters in a row excluding gains. In the first quarter of 2008, Radian posted a net profit helped by derivative gains.
Radian's elevated mortgage insurance losses in the quarter were offset by a reduction in the amount set aside to meet defaults on first-lien debts, Chief Executive S.A. Ibrahim said in a statement.
The company expects premium deficiency to be reduced to zero, if projected losses do not materially worsen in the fourth quarter, Radian's Finance Chief Robert Quint said in the call.
"We are focused on growing our core mortgage insurance business and taking advantage of opportunities to write profitable, new business that will better position us as we move through and beyond these uncertain economic times," CEO Ibrahim said.
In September, Radian completed the transfer of its ownership interest in its financial guaranty unit to Radian Guaranty, its main mortgage-insurance unit, to boost its capital level.
The No. 2 U.S. mortgage insurer Radian and MGIC, the largest U.S. mortgage insurer, had both invested in Sherman and another New York company, C-Bass, which invested in subprime loans.
The two companies wrote off much of their $1.03 billion investment in the latter, and called off a planned $5 billion tie-up.
Last month, MGIC Investment Corp (MTG.N), posted a narrower quarterly loss, but said its results continue to be impacted by increased delinquencies and foreclosures.
"We believe the liquidity in the mortgage insurance business is more than adequate to meet all of its obligations for the foreseeable future," CFO Quint said in the call.
Radian expects mortgage claims paid in the fourth quarter to be similar to third quarter.
First- and second-lien mortgage insurance claims paid were in line with expectations at $277 million, Radian said.
The company, which recently raised its stake in debt purchaser Sherman Financial by 7 percent, said expenses fell 29 percent.
Quarterly revenue rose to $418.7 million from a negative $104.4 million in the year ago period, which witnessed a $615 million drop in the value of derivatives.
Apart from rising defaults, mortgage insurers like Radian, PMI Group Inc PMI.N and MGIC Investment Corp (MTG.N) have also had their ratings put to risk due to expected losses in mortgage-backed debt.
Shares of the company were trading up by $1.24 at $4.76 in afternoon trade on the New York Stock Exchange and was the biggest percentage gainer. They touched a high of $5.10 earlier in the session.
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For a company press release, double click on [ID:nPnNYW003A] (Editing by Anil D'Silva, Dinesh Nair)