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Fidelity National Financial Inc. Reports Operating Results (10-Q)

April 27, 2010 | About:

Fidelity National Financial Inc. (NYSE:FNF) filed Quarterly Report for the period ended 2010-03-31.

Fidelity National Financial Inc. has a market cap of $3.55 billion; its shares were traded at around $15.63 with a P/E ratio of 15.5 and P/S ratio of 0.6. The dividend yield of Fidelity National Financial Inc. stocks is 3.8%.FNF is in the portfolios of Tom Gayner of Markel Gayner Asset Management Corp, Richard Pzena of Pzena Investment Management LLC, Arnold Schneider of Schneider Capital Management, Chuck Royce of Royce& Associates, John Keeley of Keeley Fund Management, Charles Brandes of Brandes Investment, Bruce Kovner of Caxton Associates, Jim Simons of Renaissance Technologies LLC, Jeremy Grantham of GMO LLC, Murray Stahl of Horizon Asset Management, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

Effective March 5, 2010, we entered into an agreement to amend and extend our credit agreement dated September 12, 2006 (the Credit Agreement) with Bank of America, N.A. as administrative agent and swing line lender, and the other financial institutions party thereto, and an agreement to change the aggregate size of the credit facility under the Credit Agreement. These agreements reduced the total size of the credit facility from $1.1 billion to $951.2 million, with an option to increase the size of the credit facility to $1.1 billion, and created a new tranche, representing $925 million of the total size of the credit facility, with an extended maturity date of March 5, 2013. Pricing for the new tranche is based on an applicable margin between 110 basis points to 190 basis points over LIBOR, depending on the senior debt ratings of FNF.

In response to concerns about the economy, the Federal Reserve reduced interest rates throughout 2008, most recently in December 2008 to 0.0%-0.25% compared to 4.25% in December 2007, and in March of 2010 indicated that rates will stay at this level for the foreseeable future. This reduction in interest rates, along with other government programs designed to increase liquidity in the mortgage markets, resulted in a significant increase in our refinance order volumes in December 2008 and continued to positively affect our revenues through the first nine months of 2009. In the fourth quarter of 2009 and through the beginning of 2010, however, we have again experienced a decline in order volumes. Mortgage interest rates remained consistent throughout 2009 and into the beginning of 2010. According to the Mortgage Bankers Association (MBA), U.S. mortgage originations (including refinancings) were approximately $2.1 trillion, $1.5 trillion and $2.3 trillion in 2009, 2008 and 2007, respectively. The MBAs Mortgage Finance Forecast currently estimates an approximately $1.3 trillion mortgage origination market for 2010, which would be a decrease of 38% from 2009. The MBA forecasts that the decrease will result almost entirely from decreased refinance activity.

On March 18, 2009, the Federal Reserve announced plans to provide greater support to mortgage lending and housing markets by buying up to $750 billion in mortgage-backed securities issued by agencies like Fannie Mae and Freddie Mac, bringing its total proposed purchases of these securities to a total of up to $1.25 trillion in 2009, and to increase its purchases of other agency debt in 2009 by up to $100 billion to a total of up to $200 billion. Since then, the Federal Reserve gradually slowed the pace of its purchases of both agency debt and agency mortgage-backed securities, ending these transactions on March 31, 2010. Moreover, to help improve conditions in private credit markets, the Federal Reserve decided to purchase up to $300 billion of longer-term Treasury securities, which purchases were completed in October 2009. The end of these measures, however, could contribute to an increase in interest rates. According to the U.S. Department of the Treasury, historically low interest rates and the actions taken by the U.S. government described in the preceding paragraphs to support market stability and access to affordable mortgage credit have helped more than four million American homeowners to refinance.

On February 10, 2009, the Treasury Department introduced its Financial Stability Plan (FSA) that, together with the ARRA, is designed to restart the flow of credit, clean up and strengthen banks, and provide support to homeowners and small businesses. On March 23, 2009, as part of the FSA, the Treasury Department, together with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, unveiled the Public-Private Investment Program (PPIP) to remove many troubled assets from banks books, representing one of the largest efforts by the U.S. government so far to address the ongoing financial crisis. Using $75 to $100 billion in TARP capital, capital from private investors and the funds from loans from the Federal Reserves Term Asset Lending Facility (TALF), the PPIP is intended to generate $500 billion in purchasing power to buy toxic assets backed by mortgages and other loans, with the potential to expand to $1 trillion over time. The government expected this program, consisting of the Legacy Loans Program and the Legacy Securities Program, to help cleanse the balance sheets of many of the nations largest banks and to help get credit flowing again. The Legacy Securities Program, designed to attract private capital to purchase eligible mortgage-backed and asset-backed securities through the provision of debt financing by the Federal Reserve under the TALF, was implemented in the summer of 2009. The Legacy Loans Program, designed to attract private capital to purchase eligible loans from participating banks through the provision of debt guarantees by the FDIC and equity co-investment by the Treasury Department, is being tested by the FDIC. Through the first quarter of 2010, we are uncertain to what degree these programs have affected, or may in the future affect, our business.

Total revenues decreased $133.1 million to $1,213.4 million in the three months ended March 31, 2010, compared to the 2009 period, consisting of a decrease of $190.9 million in the Fidelity National Title Group segment, partially offset by increases of $2.5 million in the specialty insurance segment and $55.3 million in the corporate and other segment.

Escrow, title-related and other fees decreased $28.3 million, or 8.8%, to $294.5 million in the three months ended March 31, 2010, compared to the three months ended March 31, 2009. At Fidelity National Title Group, escrow fees, which are more directly related to our direct operations, decreased $34.6 million, or 23.7%, in the three months ended March 31, 2010, compared to the three months ended March 31, 2009, due to the decrease in residential transactions. Other fees in the Fidelity National Title Group segment, excluding escrow fees, decreased $19.8 million in the three months ended March 31, 2010, compared to the three months ended March 31, 2009, primarily due to a decrease in revenues from a division of our business that manages real estate owned by financial institutions. Other fees increased $26.1 million in the corporate and other segment in the three months ended March 31, 2010 compared to the 2009 period, primarily composed of $13.7 million from the sale of a large parcel of land and timber at our majority owned affiliate Cascade Timberlands and $9.0 million from LoanCare, our mortgage servicing subsidiary which was acquired during 2009.

Read the The complete Report

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 2.7/5 (7 votes)


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