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The Hartford's Stock Falls 52%; Analysts Speculate About Sale

By DIANE LEVICK | The Hartford Courant

October 31, 2008

The Hartford's stock crumbled Thursday as Wall Street wondered about the company's financial strength, fueling speculation that the venerable insurer might have to start selling businesses to raise money, or even give up its independence.

The stock price nose-dived $10.24, or a historic 52 percent, closing at $9.62 a share, the day after The Hartford Financial Services Group confirmed a $2.6 billion net loss for the third quarter, driven by investment troubles.

The loss was previously announced, and investor reaction Thursday related more to concerns about the potential need to raise more capital and how that would affect current shareholders. Analysts, who barraged The Hartford's management with questions on that issue Wednesday night, were left frustrated and uncertain.

"The stock is imploding today on fears that The Hartford does not have enough capital to sustain the hit to its balance sheet that the investment portfolio has [caused]," analyst Michael Paisan, a managing director at Stifel Nicolaus in New York, said Thursday.

The stock plunge Thursday wiped out more than $3 billion of the company's value, leaving its total stock market value at about $2.9 billion. That's a dramatic fall from about $28 billion at the end of 2007 for The Hartford, a life and property-casualty insurer with 13,000 employees in Connecticut.

The share price has dropped 89 percent this year, and Thursday's fall was the largest percentage drop since The Hartford was spun off by ITT Corp. in 1995.

The Hartford could consider a variety of options to raise more capital if it has to, but Paisan said: "It seems as if The Hartford would be better served to be part of a much larger entity with a stronger capital base."

How likely is the company to sell itself? "Desperate times call for desperate actions, and The Hartford clearly is in desperate times," Paisan said.

The Hartford got a $2.5 billion capital infusion earlier this month from Allianz in a deal that allows the German insurer to acquire nearly 24 percent of the local company.

Paisan said Allianz or another large European company like AXA in France may have the resources and desire to buy all of The Hartford.

Some analysts, including Paisan, believe The Hartford would also consider just selling pieces of its property-casualty insurance business to raise capital, as the ailing American International Group is doing. Or The Hartford could consider selling the whole property-casualty business.

The company might also be able to get a helping hand from the U.S. Treasury if the government agrees to buy stakes in life insurers, as it is doing with banks. The Hartford has expressed a willingness to participate in such a program.

The Hartford's spokeswoman Shannon Lapierre wouldn't comment Thursday on the scenarios. "It's not our policy to speculate on transactional matters," she said.

She said Thursday that The Hartford remains well capitalized and "we want to reassure our customers, partners and employees that we are appropriately capitalized to meet our commitments to our customers."

Given market volatility, investors fear that The Hartford may have to write down the value of investments in its portfolio even more and seek new capital to protect its financial cushion and financial strength ratings, analysts said.

Raising capital by selling more stock now is seen as the worst choice, Paisan said. With the share price so low, that method would be prohibitively expensive, "hugely" diluting current shareholders' stake in The Hartford, he noted.

The Hartford was once known as a more conservative investor than most other insurers. But now it's being faulted as are some other insurers for having an overly aggressive investment posture with too much concentration in mortgage-backed securities and many of the financial companies that have failed or been taken over.

Ramani Ayer, The Hartford's chairman and chief executive, told analysts on a quarterly call Wednesday evening that he couldn't predict whether the company will have to raise more capital, but said it's currently well-capitalized.

"The market is not necessarily buying into what he's saying," said one analyst who asked not to be named.

On Wednesday's call, a different analyst asked why The Hartford announced two major programs in June to buy back its stock amid market volatility and investment problems. Companies buy back their own stock to build value for shareholders, but often curtail the practice in rocky times and rough markets.

"I honestly missed ... the degree to which markets have cratered in terms of equity markets, credit spreads widening, all of which happened in an accelerated way in September, October. I did not see that," Ayer said, prompting the questioner to thank him for his candor.Meanwhile, The Hartford, which had confirmed Wednesday that it will start an undisclosed number of layoffs this year, wouldn't give any more details Thursday.

Employees of the company were tight-lipped Thursday about the job cuts and stock price plunge, some shaking their heads grimly.

"Desperation hasn't set in yet," an employee said as he left The Hartford's campus in Hartford. "There hasn't been any announcement about where those cuts are going to come from. ... For now, people are just going about their jobs."

Another employee said workers are talking about the cuts, but he waxed philosophical about his own job. "If it's meant to be, it's meant to be," he said.

Courant Staff Writer Janice Podsada contributed to this story.

Reprinted with permission of the Hartford Courant. To view other stories on this topic, search the Hartford Courant Archives at http://www.courant.com/archives.
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