The Struggle to Digest Granite Fails to Curb Fidelity’s Appetite

As Fidelity National Financial Chairman Bill Foley works to close one of his biggest deals--the $1.2-billion acquisition of Chicago Title Corp.--he is also struggling to salvage one of his worst: the 1998 purchase of Granite Financial Inc.

Foley bought the Golden, Colo.-based equipment leasing company last year as part of a plan to diversify into businesses that are not interest rate-sensitive.

But instead of boosting earnings, Granite has been a drag on Irvine-based Fidelity. The unit suffered a $5-million pretax loss during the second quarter and was one of the reasons the parent company failed to beat last year’s profit level.

What’s the problem?

When Fidelity took control of Granite, officials discovered a significant problem with bad leases and a higher-than-expected loss rate.

Fidelity said it is working to resolve the problems. It has replaced managers, doubled the unit’s reserves and terminated relationships with brokers who weren’t generating quality business. The unit will also be renamed Fidelity National Leasing.

“We continue to be convinced that this is a counter-cyclical business that we can make a lot of money in,” Foley told analysts recently. “We just didn’t buy the right company, and it’s taken us this long to fix it.”