Insurers Seek to Buy Thrifts To Get Piece of Bailout
Friday, November 21, 2008
Several major life insurance companies are taking the extraordinary step of trying to buy savings and loan institutions in order to qualify for a piece of the government's $700 billion rescue fund.
The insurance companies are in relatively healthy shape, analysts say, but they either view the opportunity as too good to pass up or worry about the future.
"We are taking these actions as a strong and well-capitalized financial institution looking for maximum flexibility and stability," Ramani Ayer, chairman and chief executive of the Hartford Financial Services Group, said in a recent statement.
Aegon, parent of Transamerica, "believes it is prudent, and possibly advantageous, to explore the terms and conditions under which financial support may be available," the company said in a statement posted on its Web site.
Even if insurers succeed in transforming themselves into bank or savings and loan holding companies, there is no assurance they will receive any Treasury assistance.
"I'm not sure that's going to be a successful strategy. We will -- we are going to look only at applications that we think make sense," Treasury Secretary Henry M. Paulson Jr. said under questioning on Capitol Hill this week.
Neel Kashkari, who is overseeing the rescue fund, told a Washington audience this week that Treasury didn't want businesses trying to game the system. But what began as federal effort to bail out troubled banks is fast becoming a free-for-all.
Companies as diverse as American Express and GMAC, the auto loan giant, have been scrambling to restructure themselves in ways that would make them eligible to compete for a share of the money. Now add life insurers to the list.
Lincoln Financial Group, the Phoenix Cos. and Genworth Financial are among the insurers trying to become savings and loan holding companies and gain access to government funds. In addition, Principal Financial Group, which already owns a bank, said it is seeking to participate in the Treasury Department program.
Under the Troubled Assets Relief Program (TARP), Treasury is buying stakes in lenders it considers healthy and capable of giving the economy a boost.
Gary E. Hughes, general counsel of the American Council of Life Insurers, said the Treasury program was meant to help thaw a credit freeze and letting insurers participate would advance that goal. He noted that life insurers are major buyers of corporate bonds, which businesses issue to borrow money.
For big life insurers, the stakes are high. The Hartford estimated it would be eligible for a Treasury capital infusion of as much as $3.4 billion. To qualify, the Hartford said it has agreed to recapitalize Florida thrift Federal Trust Bank at an unspecified cost and buy its parent company for $10 million. Though the total cost of that deal wasn't disclosed, Federal Trust Corp. indicated in a September news release that it was prepared to sell a controlling interest in itself for $40 million to $55 million.