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Fidelity National Profit Rises on Gain From Stake Sale, Mortgage-Rate Drop
Fidelity National Financial Inc., the largest U.S. title insurer by market share, had a fifth straight quarterly profit as it posted a gain on an asset sale and mortgage rates improved.
Net income climbed to $139.6 million, or 61 cents a share, in the three months ended June 30, from $91.9 million, or 40 cents, a year earlier, the Jacksonville, Florida-based insurer said today in a statement distributed by PR Newswire.
Fidelity sold a 32 percent stake in Sedgwick Claims Management Services Inc. in May. The sale led to a $98 million gain, Fidelity said. The transaction may have boosted earnings by 30 cents a share, said Mark Dwelle, an analyst with RBC Capital Markets.
“The revenues were pretty in line with what we expected,” Dwelle said in a phone interview. “It was a good quarter but it wasn’t a great quarter.” Fidelity reported second-quarter revenue of $1.5 billion, down from $1.56 billion a year earlier.
Fidelity fell 25 cents to $13.54 as of 4 p.m. in New York Stock Exchange composite trading, and has advanced less than 1 percent this year. The 24-company KBW Insurance Index, which includes Fidelity, has risen more than 4 percent this year.
The average rate on a 15-year fixed mortgage fell to 4.05 percent this month from 4.12 percent a year ago, and the rate on a one-year adjustable mortgage declined to 7.17 percent from 7.20 percent.
Book Value
Book value, a measure of assets minus liabilities, was $14.93 a share on June 30, compared with $14.46 on March 31. Revenue from title premiums fell to $897 million from 1.04 billion a year earlier.
“Lower mortgage rates and increased order activity will provide momentum as we move into the third quarter,” Fidelity Chairman William P. Foley said in the statement.
Fidelity Chief Executive Officer Alan Stinson said in a May conference call that the consolidation of title-insurance brands during the quarter would save money if mortgage originations keep falling. The number of mortgage applications filed to purchase houses dropped in May to the lowest level since 1997, according to data from the Mortgage Bankers Association.
Fidelity and rivals First American Financial Corp., Stewart Information Services Corp. and Old Republic International Corp. have a combined 89 percent market share in U.S. title insurance, according to first-quarter data compiled by the Washington-based American Land Title Association, an industry group.
‘Oligopoly’
Stinson, who called the title-insurance industry an “oligopoly” last year, agreed to sell assets in Oregon and Michigan to settle a regulatory review into anticompetitive practices.
The insurer’s 2008 purchase of bankrupt rival LandAmerica Financial Group Inc. reduced competition in five Oregon regions, including the Portland area, and in Detroit, the Federal Trade Commission said in a statement this month. The settlement will require Fidelity to sell assets including data used for underwriting in those regions.
“We are probably in the best rate environment and best regulatory environment that we’ve been in for a long time,” Stinson said Sept. 16 at a Barclays Plc conference. “We are seeing some rationality in pricing. I think you’d expect that as the industry consolidates,” he said “The industry has become more or less an oligopoly.”
Fidelity issued $300 million in notes in May. Proceeds from the debt, which matures in 2017, will be used to help pay off borrowings from a credit facility, the company said.
Title insurers use their records and public documents to verify a seller is the home’s true owner and that the property is free from liens. They collect a one-time premium at the closing of the purchase and pay costs that may arise if someone disputes the new owner’s right to the property -- claiming, for instance, that the boundaries weren’t properly recorded.
To contact the reporter on this story: Sarah Frier in New York at sfrier@bloomberg.net.
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