Sun, Oct 26, 2008 - Page 11 News List

US Treasury mulling stake in insurers

INVESTMENTS The Treasury is expected to make a final decision on whether insurers should be included in the government’s purchases of preferred equity next week

BLOOMBERG

The US Treasury is considering taking stakes in insurers as it prepares a new round of capital injections targeted at regional banks and other financial companies, a person briefed on the plan said.

A final decision hasn’t been made on whether insurers will be included in the government’s purchases of preferred equity, said the person, who spoke on the condition of anonymity.

The Treasury, which had planned to announce investments in about 20 banks, reversed course and will let firms disclose their own share sales in coming days, the person said.

An initial US$125 billion out of the US$700 billion approved by Congress was allocated last week to buy shares of nine of the largest US banks and another US$125 billion was set aside for smaller lenders. Investments in insurance companies would widen the scope of Treasury Secretary Henry Paulson’s Troubled Asset Relief Program as the credit crisis deepens.

Paulson has shifted the financial rescue program to focus on equity purchases after markets deteriorated faster than policy makers anticipated.

The strategy offers a quicker way to deploy taxpayer funds, Neel Kashkari, the Treasury official running the bailout plan, told lawmakers two days ago.

The Financial Services Roundtable, a trade association of the 100 largest banks, securities companies and insurers, pressed the Treasury to broaden its guidelines so that insurance firms, broker-dealers, auto companies and institutions controlled by foreign banks could also sell stakes to the government.

“The institutions that are excluded play a vital role in the US economy by providing liquidity to the market,” wrote Steve Bartlett, the group’s president, in a letter on Friday to Kashkari.

Separately, a group of insurance companies — mainly life insurers — asked the Treasury earlier this week if they would be eligible to participate in the program, an industry official with knowledge of the discussion said.

A number of life insurers have asked the government to make the participation mandatory because firms don’t want to identify themselves as needing funds, the person said.

US life insurance stocks have plunged about 45 percent in the past month on concern that losses on corporate debt and mortgage-backed securities will squeeze the firms’ liquidity and force them to raise capital.

MetLife Inc, the biggest US life insurer, raised about US$2.3 billion this month in a stock offering, and Hartford Financial Services Group Inc said it would raise US$2.5 billion from Allianz SE.

American International Group Inc (AIG), once the world’s largest insurer, agreed last month to turn over an 80 percent stake to the US in exchange for an US$85 billion loan. The New York-based insurer subsequently tapped a second federal credit line and has borrowed US$90.3 billion.

AIG may need more than the US$122.8 billion available, chief executive officer Edward Liddy said on Wednesday on PBS’ The NewsHour With Jim Lehrer.

Insurers including Allstate Corp, Prudential Financial Inc, Lincoln National Corp, MetLife and Travelers Cos. have suspended or scaled back share buybacks to shepherd capital as losses from fixed-income investments mount.

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