(Adds background on issues facing insurance companies, statement from Hartford CEO and other material throughout.)
By Kevin Kingsbury Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- In a move that highlights the contortions companies are undergoing to weather the credit crisis, the venerable but battered insurer Hartford Financial Services Group Inc. (HIG) said it will try to turn itself into a savings and loan to gain access to federal funds aimed at shoring up the banking sector.
To pull off the transformation, the 198-year-old insurer will spend $10 million to buy Federal Trust Corp. (FDTR), a thrift holding company based in Florida and founded in 1988. Hartford simultaneously is applying to take part in the Treasury Department's $250 billion program to inject capital into the country's banks. The deadline for applications is Friday.
Such moves, however counterintuitive, come with a wink and a nod from the Treasury. The Treasury has said insurers can participate in the program provided they are or apply to become a federally regulated bank or savings and loan. In fact, a significant number of insurance companies in the U.S. operate banks or thrifts. The Treasury on Monday announced it would inject $40 billion into American International Group Inc. (HIG), which is structured as a thrift holding company.
Life insurers, in particular Hartford, have been pounded by concerns that mounting losses on investments and in their variable annuities businesses will force them to raise capital to shore up their financial base. Access to Treasury funds would give insurers a relatively cheap and shareholder-friendly way of raising such funds. Hartford estimated it would be eligible for a $1.1 billion to $3.4 billion investment from Treasury if its application is accepted.
Hartford Chief Executive Ramani Ayer said in a release that the company is well capitalized but that tapping cash on the Treasury's terms "could be a prudent course in this market environment." The insurer's beaten-down shares, off 85% this year, jumped 21% to $12.65 Friday.
Earlier this week, credit-card giant American Express Corp. (AXP) converted itself into a bank holding company in order to gain access to the program. GMAC Financial Services, the automobile finance company, is also pursuing holding company status.
Federal Trust Corp. has been scrambling to shore up its finances since January amid losses on residential mortgages and construction loans. The Office of Thrift Supervision, which regulates savings and loans, issued a cease and desist order against Federal Trust in May ordering it to improve its lending practices and raise capital. The thrift, which operates 11 branches, was put into contact with Hartford by "mutual professional relationships," Chief Executive Dennis T. Ward said Friday.
"We cast a wide net in the marketplace," Ward said. "This one made sense for them and for us."
Hartford is paying $1 a share for Federal Trust. It also pledged to inject money to recapitalize the thrift.
(Jessica Holzer and Leslie Scism contributed to this article.)
- By Kevin Kingsbury, Dow Jones Newswires; 201-938-2136; kevin.kingsbury@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=Zl42RD3mDSA12KI2spLZ%2Bg%3D%3D. You can use this link on the day this article is published and the following day.
(END) Dow Jones Newswires
November 14, 2008 17:55 ET (22:55 GMT)

Publié le 14 novembre 2008 Copyright © 2008 Dowjones