February 19, 2009 / 12:54 PM / 9 years ago

UPDATE 2-Stewart Information Q4 loss widens, shares fall

* Q4 loss/shr $8.72

* Revenue fell 33 pct to $335.9 mln

* Title insurance revenue fell 28.1 pct

* Shares down pct 15 pct (Adds details, analysts’ comments, background, share movement)

By Anurag Kotoky

BANGALORE, Feb 19 (Reuters) - Stewart Information Services Corp (STC.N), which runs one of the largest U.S. title insurers, posted a wider-than-expected quarterly loss due to lower title insurance revenue given a precipitous drop in real-estate prices, sending its shares down as much as 15 percent.

”We believe this quarter should certainly be viewed as a “kitchen sink” quarter given the added loss provisioning, restructuring, legal charges and securities write-downs, Keefe, Bruytette & Woods analyst Nathaniel Otis said in a note to clients.

The housing slump, worsened by tight credit and an economy that contracted in the third quarter, has resulted in lower demand for homes, cutting into title insurers’ revenue.

Title insurance guarantees that property owners have title to property and can legally transfer that title. Many lenders require that buyers have the insurance before extending loans.

The provider of title insurance and related services to the real-estate and mortgage industries posted a net loss of $158 million, or $8.72 a share, for the fourth quarter. Analysts were expecting a loss of $1.03 a share, before items, according to Reuters Estimates.

The company said results were hurt by a $32 million increase in policy loss reserves due to unusually large claims payments, and a reserve of $19.3 million for various pending legal matters.

A lot of special items the company took during the quarter seem to be only one time in nature, analyst Mark Dwell of RBC Capital Markets said.

Analyst Otis said the company has likely taken significant steps towards rebalancing its cost base as it enters 2009.

TOUGH TIMES AHEAD?

Stewart Information said it closed 167 offices and cut 34 percent jobs in 2008 at its direct title and real estate information operations. It also cancelled more than 2,500 agencies to reduce the overhead costs associated with low-premium volume agents.

If mortgage origination volumes do not improve in the near term, the company could be forced to look at additional cost cutting measures, RBC’s Dwelle said.

Commercial and multifamily mortgage loan originations dropped a whopping 80 percent in the fourth quarter alone, according to the Mortgage Bankers Association’s website.

However, former mortgage giants Fannie Mae and Freddie Mac have projected that in 2009, volumes will be up substantially from 2008 levels, and Stewart Information’s future performance would depend on whether the projections come true, Dwelle said.

The bankruptcy of LandAmerica LFGRQ.PK, formerly the No. 3 U.S. title insurer, is expected to provide a larger market share for smaller title insurers, but it is too soon to say whether Stewart had benefitted from it already, Dwelle added.

Shares of the company were down $2.34 at $13.29 Thursday afternoon on the New York Stock Exchange. They have shed more than 60 percent of their value from their highs in September. (Additional reporting by Supantha Mukherjee in Bangalore, Editing by Dinesh Nair, Amitha Rajan)

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