Big Lender to Buy Balboa Life and Casualty

Countrywide Credit Industries Inc. said Monday that it will buy Irvine-based Balboa Life and Casualty Insurance for $425 million, giving the biggest U.S. non-bank mortgage lender an insurance business.

Balboa is a unit of Associates First Capital Corp., which acquired the company in January when it bought Avco Financial Services Inc. from Textron Inc. for $3.9 billion. The unit had $234 million of net premiums in 1998, mostly in insurance for the auto and home-loan markets. It has 1,500 financial-service company customers.

Countrywide officials said they plan to keep Balboa’s headquarters in Orange County. The insurance company employs about 350 locally and 600 nationwide.

Countrywide Chairman Angelo R. Mozilo said buying the unit will let his company cut costs and market services to some of Balboa’s customers. “This acquisition enables us to further penetrate our mortgage customer base,” Mozilo said. Shares of Calabasas-based Countrywide fell 87 cents to $39.31. Associates First stock declined 69 cents a share to $39.50.

Lenders buy Balboa’s insurance to cover home or auto buyers who don’t buy or renew insurance policies that are required as part of a loan. Countrywide agents currently offer insurance underwritten by other companies.

Countrywide said the purchase will be financed by debt and $200 million of newly issued stock. Balboa will add 3 to 7 cents a share to earnings in the year ending February 2001, the company said, and 7 to 12 cents in fiscal 2002.

Stanford L. Kurland, Countrywide’s chief operating officer, said the purchase price was about 1.2 times Balboa’s book value, a measure of a company’s net worth.

Acquiring an insurance carrier “makes sense for Countrywide,” said Joel Houck, an analyst at A.G. Edwards & Sons in St. Louis. “Whether or not it adds shareholder value will depend on Countrywide’s ability to build synergies.”

Kurland said Countrywide will also try to build up Balboa’s homeowner and auto insurance businesses by selling the policies to Countrywide’s customers. “Now that they have a captive set of customers, they will make a very easy entry” into new markets, he said.

The transaction, which requires regulatory approval, is expected to be completed in about 90 days, Countrywide said.

Dallas-based Associates First said it’s keeping Avco’s other credit insurance businesses, including units that sell insurance to borrowers to cover loan payments if they die or are disabled. It also has a credit insurance business that serves companies.

Associates said earlier this year that it would close Avco’s headquarters in Costa Mesa, eliminating most of the 200 jobs as part of a major consolidation.