Tags: First | American | rebound | FAF

First American Afloat on CRE Rebound

By    |   Friday, 09 Dec 2011 03:09 PM

House sales may be slow as the economy continues to creep along, but title insurance giant First American Financial’s (FAF) focus on the rebound in commercial real estate (CRE) has kept the ship afloat.

During its third quarter reporting in mid-October, FAF said that total revenues were down by 4 percent on the quarter, bringing net income down to just 20 cents per share from 31 cents per share during last year’s third quarter.

As dire as that seems, direct premium and escrow fees were down just 1 percent despite a drop in closed orders by 18 percent, thanks to a sharp increase in commercial real estate transactions of more than 22 percent.

For one of the country’s two dominant title insurers, that’s a big a shift in focus in a short time, demonstrating the company’s agility in responding to market changes.

The company also has worked hard to rein in personnel costs and overhead in order to run a tighter ship in rockier seas. Going into the fourth quarter, based on trends in October, the company expects improvement in its stronger commercial sector.

Legal tangles

Even though the company seems to be faring the economy’s shifts well by focusing on commercial deals, it has several large pending legal cases that have gotten in the way.

The first case, with Bank of America (BAC) and FiServe, was expected to end its multi-stage mitigation process in August, but has now been pushed forward into the fourth quarter. FAF brought in experts which estimate $13 million as an appropriate settlement but that could go as high as $42 million.

Then there’s the major case started by a homeowner in Cleveland who sued the company over an alleged kickback, which has gone to the Supreme Court. At issue is whether or not the company is breaking an anti-kickback law because it requires its title agencies to refer clients to a First American unit that sells title insurance.

The case seeks class-action status and could cost FAF hundreds of millions of dollars if it loses, but from arguments made before the Supreme Court in late November it appears that the case may go in favor of FAF.

Barclays Capital, Dowling & Partners Securities and Stephens Inc. all have hold ratings on FAF.

First American Financial next reports on Jan. 26.

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House sales may be slow as the economy continues to creep along, but title insurance giant First American Financial s (FAF) focus on the rebound in commercial real estate (CRE) has kept the ship afloat. During its third quarter reporting in mid-October, FAF said that total...
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2011-09-09
Friday, 09 Dec 2011 03:09 PM
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