Fidelity National Turns Attention to East Coast

Title insurance company Fidelity National Financial Inc. said Thursday that it has agreed to buy a title company from a Pennsylvania bank, Fidelity’s first big excursion into the East Coast market.

If the deal closes as expected next year, it would be Fidelity’s second-largest acquisition.

Fidelity agreed to buy Meridian Bancorp Inc.’s money-losing Meridian Title Insurance Co. and a subsidiary, American Title Insurance Co., in Reading, Pa.

Irvine-based Fidelity will take the title company off Meridian Bancorp’s hands for only its book value in February of next year.

The book value--the value Meridian Bancorp assigns the subsidiary on its balance sheet--is likely to be less than $35 million, which is the title company’s book value now, Fidelity said.

In fact, what Fidelity pays in cash and stock is likely to be less than what it paid in its largest acquisition, the $30.5-million purchase of Western Title Insurance Co. of San Francisco in 1987, Fidelity said.

Fidelity stock dropped 12 1/2 cents on the American Stock Exchange after Thursday’s announcement, to $10.25 a share. Meridian stock also dropped 12 1/2 cents, to $15.375 a share on the over-the-counter market.

Meridian Bancorp, a financial services company, said it is selling the title insurance business to concentrate on banking and its profitable non-banking businesses. Its title insurance business--which insures buyers against other claims of ownership to their property--has not been profitable.

In fact, the title insurance company had a $20-million loss from operations on revenue of $132.5 million last year. With $6 million Meridian put aside to cover its anticipated losses on the sale, the title insurance company put a $26-million dent in the parent company’s earnings.

The problem: Meridian maintains an extensive network of independent title insurance agents who, Fidelity says, haven’t been careful enough about which property owners they sell insurance to.

Consequently Meridian has had a lot of claims, which caused last year’s losses, says Fidelity Executive Vice President Frank Willey.

Fidelity says it can turn that around while consulting for Meridian until the deal closes in February. Fidelity plans to cut Meridian’s agency network, streamline its management and lay off some employees, Willey said.

Meridian sells insurance directly to customers in Pennsylvania, Florida, New Jersey, New York and Michigan, and through agents in New England, the Southwest and the Midwest.

Fidelity, on the other hand, owns four title insurance companies that operate in 31 western and southern states and the District of Columbia. Fidelity earned $5.2 million on $183 million in its latest fiscal year, which ended October 31. Fidelity said the two companies would make a good fit.

Fidelity was most recently in the news when it said it was dumping its money-losing real estate development subsidiary in an attempt to push up the price of its stock.

Fidelity also made the news several years ago when it made a run at buying the Hammond Co., a Newport Beach mortgage banker. Fidelity was rebuffed and ended up selling back its 24% stake to Hammond last year.