Refinancing Slump Hurts First American Financial

Hurt by higher interest rates that reduced mortgage refinancings, title insurer First American Financial Corp. posted a $2.2-million fourth-quarter loss Wednesday and said it has laid off 13% of its work force over the past year.

Executives at the Santa Ana company, which operates the nation’s largest title insurer, also said the slowdown has caused a “deep reduction” in orders for services, leading them to predict an operating loss for the first three months this year.

The company said it has dismissed about 2,500 people in the past year. Most of the cuts came in the title division nationwide late last year, a First American spokeswoman said, adding that the company still employs more than 17,000 people.

Neither Parker S. Kennedy, the president, nor Thomas Klemens, the chief financial officer, was available for comment.

Higher interest rates also hindered operations at First American’s main rival, Fidelity National Financial Inc. Executives at the Irvine title insurer reported lower earnings for the fourth quarter and the year, but said the results met their expectations.

With interest rates rising recently, fewer homeowners have refinanced, and title insurers are writing fewer reports attesting to the clear path of ownership. The slowdown also has hurt title insurers’ other real estate services, such as checking that property taxes are paid.

First American said fourth-quarter revenue was significantly down because of a 60% decline in the number of refinancings over the final quarter of 1998.

Some analysts believe the trend doesn’t bode well for workers.

“I think there will be more layoffs,” said Charles Gunther, an analyst at First Security Van Kasper in San Francisco. But he added that the company’s cost-cutting measures should lead to improved results later this year.

First American’s fourth-quarter loss amounted to 3 cents a share. It earned $53.9 million, or 82 cents a share, for the final quarter the previous year. Quarterly revenue fell 14% to $700.4 million.

For the year, the company’s profit fell 84% to $33 million, or 50 cents a share, from the previous year’s $201.5 million, or $3.21 a share. Annual revenue rose 3% to $3 billion from $2.9 billion.

First American’s stock lost 50 cents a share Wednesday to close at $11.31--close to its 52-week low of $10.94.

The refinancing downturn also took its toll at Fidelity National, but Chairman William P. Foley II said results were “solid” and met company standards.

“We have been quick to respond to changes in market conditions and are committed to maintaining a cost structure consistent with revenue levels,” he said. “Barring any dramatic change in the overall economy, we believe . . . we can continue as the most productive and profitable company in the industry.”

Fidelity also said it has been integrating Chicago Title Corp.’s operations into its own in anticipation of completing their merger next month, overtaking First American to become the nation’s largest title insurer.

For the fourth quarter, Fidelity earned $8.7 million, or 30 cents a share, down from $28.7 million, or 87 cents a share, in the previous year’s final three months. Quarterly revenue fell 18% to $308.3 million.

For the year, Fidelity’s net income dropped to $70.9 million, or $2.27 a share, from $105.7 million, or $3.23 a share, for the previous year. Annual revenue rose 8% to $1.4 billion.

Fidelity’s stock lost 38 cents a share, closing at $12.19 Wednesday.

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Hard Times

Higher interest rates have slowed refinancings, cutting into the title insurance and other related businesses of First American Financial Corp. and Fidelity National Financial Inc. Their results show the impact:

Figures in millions, except per share amounts

First American Financial Corp., Santa Ana

4th Quar Dec. 31:

1999 1998

Revenues $700.4 $814.2

Net income -2.2 53.9

Net income/share (.03) .82

Year ending Dec. 31:

1999 1998

Revenues $2,988.2 $2,943.9

Net income 33.0 201.5

Net income/share .50 3.21

*

Fidelity National Financial Inc., Irvine

4th Quar Dec. 31:

1999 1998

Revenue $308.3 $375.4

Net income $8.7 $28.7

Net income/share .30 .87

Year Dec. 31:

1999 1998

Revenue $1,352.2 $1,288.5

Net income 70.9 105.7

Net income/share 2.27 3.23