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Insurers Jump on the Bailout Bandwagon
The American Lawyer
November 18, 2008
The federal government's $700 billion bailout plan (or, at least for now, $350 billion bailout plan) is starting to remind the Am Law Daily of that classic kid's board game Hungry Hungry Hippos, with financial services firms playing the role of the colorful hippos lunging to gobble up their share of government cash.
On Friday and over the weekend, four insurance companies with no history of banking joined the hippo parade as they scrambled to buy up small savings-and-loans. Doing so allows the insurers to qualify as banks and thus become eligible for federal bailout money.
Leading the way: Hartford Financial Services Group, the well-known insurance company that on Friday purchased Federal Trust Corp., a Florida-based savings-and-loan for $10 million, Bloomberg says. Upon acquiring the thrift, Hartford immediately applied to the U.S. Treasury Department for between $1.1 billion and $3.4 billion in rescue funds.
Cleary Gottlieb Steen & Hamilton advised Hartford on both the acquisition of Federal Trust and the subsequent application for bailout money, the firm says.
Also scooping up thrifts late last week or over the weekend (or poised to do so): Philadelphia-based Lincoln National Corp., which has agreed to buy Newton County Loan & Savings in Indiana; Genworth Financial, a Richmond, Va.-based financial services company that will buy a small savings bank in Minnesota; and Dutch insurer Aegon, owner of the U.S. insurer Transamerica.
While some of the targeted thrifts are tiny, the insurers acquiring them all have been hit hard by the credit crisis and need capital injections -- and, apparently, government assistance -- to survive.
Genworth, for instance, has seen its stock price drop from $25 per share at the beginning of the year to about $1 as of Monday. In the case of Hartford, Cleary advised the company just last month on its landing of a $2.5 billion capital injection from Allianz, the German financial services leader. Experts said then that Hartford needed the cash to salvage its bond rating and to offset billions in losses connected to the collapse of Lehman Brothers, Freddie Mac and Fannie Mae.
Not everyone thinks the scramble for thrifts is kosher.
"It's perverse," Jason Arnold, a San Francisco-based analyst at RBC Capital Markets, told Bloomberg. "Almost anyone can buy a thrift. At a certain point, regulators will have to put a stop to it."
Partners Linda Soldo, Glenn McGrory, John Murphy Jr. and Victor Lewkow led the Cleary team advising Hartford. The other three insurance companies declined to say which firm advised them, and a spokeswoman for Treasury's Office of Thrift Supervision, which accepts and evaluates any application to buy a thrift, said that applications are coming in so fast the office hasn't had time to post them on its Web site or otherwise make them public.
This article first appeared on The Am Law Daily blog on AmericanLawyer.com.
