Insurance Companies Want Bailout Money, Buys Banks To Get It. And Dutch Company Applies for TARP Funds! [Greed]
Hartford Financial Services Group Inc. (HIG) said it is going to try to turn itself into a savings an loan to gain access to federal funds for the banking sector. To pull this off, the 198-year old insurance company is going to spend $10 million to buy Federal Trust Corp. (FDTR), a thrift holding company based in Florida and founded in 1988 for $1 a share. Federal Trust Corp (FDTR) was issued a cease and desist order in May by the FDIC ordering it to improve its lending practices and raise capital.
Simultaneously, Hartford is applying to take part in the $250 billion CPP under the $700 billion TARP. The deadline for application was Friday. Hartford estimated it would be eligible for a $1.1 billion to $3.4 billion investment from the Treasury if its application is accepted.
In their announcement however, they state “The Hartford’s purchase of Federal Trust Corporation is contingent on Treasury’s approval of The Hartford’s participation in the CPP (Capital Purchase Program).” [Is that even legal to make that claim? Yes we want the company as long as we can have some of the action, but if not, then we aren’t going to buy the company.]
It is interesting to note how the stock jumped after this announcement on Friday. I don’t think I have to point it out to you.
Also, life and mortgage insurer Genworth Financial Inc (GNW.N) said on Sunday it applied for capital under a U.S. government program, after reaching a deal to buy a bank, bringing it under federal regulation. The bank is InterBank fsb of Maple Grove, Minnesota with about $1 billion in assets. Genworth declined to say what amount of capital it was seeking. In the past year shares of Genworth have fallen from $25.45 to as low as $1 last week and posted a $258 million net loss for 3rd Q, 2008.
There were two other insurers that pulled this. Lincoln National (LNC) who applied to acquire Newton County Loan and Savings Banks. And believe it or not Aegon NV a DUTCH firm that owns U.S. insurer Transamerica, applied to acquire Suburban Federal Savings Bank. So I guess even if you are not a U.S. company but you own a U.S. insurance company, you can apply for U.S. funds under this program to pay for your Dutch company?!?!?
I think Congress forgot to add something that is/was being taken advantage of. Well, at least only two cases are know about at least, since the deadline for applications was last Friday. And if approved, they will sell preferred shares, along with warrants for common shares, to the Treasury that pay 5% annual dividends for the first five years, which then escalates to 9% thereafter. The companies must also adopt the Treasury Department’s standards for executive compensation and corporate governance for as long as the Treasury holds equity issued under the program. Then again, we’ve seen how well that works with AIG.