The Hartford Takes Step Toward Treasury-Fund Eligibility
November 15, 2008
The Hartford, weighed down by investment losses and other business pressures, announced dramatic steps Friday to shoot for a financial boost from the U.S. Treasury.
The Hartford Financial Services Group applied to become a savings and loan holding company and signed a deal to buy a Florida bank in hopes of qualifying for an estimated $1.1 billion to $3.4 billion from the Treasury's Capital Purchase Program.
In addition, Lincoln National Corp., which has a smaller Hartford presence, also plans to buy a savings and loan company, a federal official told Bloomberg News Friday. Lincoln previously said it would consider seeking to participate in the Treasury program, but wouldn't comment Friday.The Hartford, which got $2.5 billion last month in a deal with German insurer Allianz, has said it is well capitalized — financially strong — in the current depressed market conditions. But The Hartford is seeking Treasury money as an extra capital cushion it would need if financial markets and the economy wither more. And the money comes on favorable terms that are hard for companies to pass up.
The Hartford's move to participate in the Treasury's $250 billion program can also be read as a further step to restore investor confidence in the 198-year-old company. It seemed to work Friday, as The Hartford's stock jumped 21 percent after the announcement, closing up $2.19 at $12.65 a share.
The company's stock, though, has tumbled 85 percent this year, wiping out billions of dollars of market value.
"We are taking these actions as a strong and well-capitalized financial institution looking for maximum flexibility and stability," Ramani Ayer, The Hartford's chairman and chief executive, said in a prepared statement. "Securing capital at the terms available through the Capital Purchase Program could be a prudent course in this market environment and would allow us to further supplement our existing capital resources."
It isn't known how soon The Hartford will hear whether it's accepted into the Treasury program, which dozens of banks also want to join. Friday was the deadline to apply. The program is open to federally controlled banks and other financial institutions, but The Hartford currently isn't in that category.
So in hopes of becoming eligible, The Hartford said Friday it has signed a merger agreement to buy the ailing Sanford, Fla.-based Federal Trust Corp., a thrift holding company that owns Federal Trust Bank, for $10 million. The Hartford applied to the federal Office of Thrift Supervision to become a savings and loan holding company.
The Hartford has no current plans to expand further into the banking business or change its life and property-casualty insurance businesses.
In return for the new capital, the Treasury would get a stake in The Hartford of a size yet to be determined. The government would get senior preferred shares of stock in the company. It would also receive warrants to purchase common stock equal to 15 percent of the preferred stock investment.
The Hartford would prop up Federal Trust with new capital, but doesn't expect to expand the bank's retail operations. The acquisition is contingent on The Hartford's getting accepted into the Treasury program and approval to become a savings and loan holding company. Shareholders of Federal Trust Corp. would also have to approve the sale of their company.
Federal Trust Bank is a federally chartered savings bank that operates 11 full-service offices in five Florida counties. Federal Trust Corp. had a $10.2 million net loss for the third quarter after losing $26 million in the first half of the year. The company was unable to meet a Sept. 30 deadline set by federal regulators to raise capital.
Meanwhile, if The Hartford gets capital from the U.S. Treasury, the company would have to adopt the department's standards for executive compensation. It wasn't known Friday whether that would mean less pay for Ayer and his fellow executives than they would have received.
The Hartford, which reported a $2.6 billion net loss for the third quarter, said last week that it will lay off 500 employees, including nearly 125 of its 12,600 workers in the Hartford region. Additional layoffs are expected in 2009.
Reprinted with permission of the Hartford Courant.
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