Insurer may have backdated
First American Corp. said Thursday that a special board committee found that the nation’s largest title insurer might have improperly backdated stock options granted to executives.
As a result, the Santa Ana-based company said that it was delaying filing its third-quarter earnings and that it expected to take a write-down.
Preliminary results for the period that ended Sept. 30 showed that profit plunged 34% to $98 million, or $1 a share, from $149 million, or $1.51, a year earlier. The estimated quarterly earnings were below some analysts’ expectations. Revenue was flat at $2.17 billion.
The news sent shares of First American tumbling $1.95 to $38.44.
The nation’s housing slowdown cut into its real estate-related businesses, which include title insurance and mortgage information. In the period, new title orders fell 14%, as fewer mortgages were originated or refinanced, the company said.
Title insurance is typically required of lenders to ensure that no impediments, such as tax liens, are tied to a property at the time of a sale.
In an effort to rein in administrative costs, the company cut 973 positions in its U.S.-based title and mortgage divisions during the period, while beefing up its offshore operations, Chief Executive Parker Kennedy said.
The company also announced a preliminary adjustment to second-quarter results reflecting a $155-million boost to reserves for title losses and other claims, a $15.8-million cut in personnel costs and an $8.5-million increase to litigation reserves.
First American joins a growing list of U.S. companies whose practices for granting stock options are under scrutiny.
First American’s review covers 16.7 million shares made under three incentive plans in 1996, 1997 and this year.
