Hartford Has `Few Options' for Capital, Berg Says (Update4)
By Erik Holm
October 31, 2008
Oct. 31 (Bloomberg) -- Hartford Financial Services Group Inc., the insurer that lost half its market value yesterday, has "precious few options" to raise the capital it may need to avoid a ratings downgrade, Barclays Capital said today.
Eric Berg, a Barclays analyst in New York, said it was "likely" that the company would be unable to sell itself or entice a private investor or the U.S. to supply fresh capital.
"While the situation is complex and may end up on a favorable note for Hartford shareholders, our thinking is that it is more likely that Hartford's share price continues to sink," said Berg in a note to investors. He maintained his "equal weight" rating on the insurer. Hartford fell 52 percent yesterday after posting a $2.63 billion third-quarter loss the day before.
Moody's Investors Service said last month it may downgrade Hartford on losses from mortgage-backed securities and holdings in crippled financial firms. Chief Executive Officer Ramani Ayer told analysts on an Oct. 29 conference call he couldn't rule out another capital raise after Allianz SE, Europe's biggest insurer, agreed Oct. 6 to invest $2.5 billion.
"We have no idea how to answer that question other than to say we will do what we believe at all times to be right from a shareholder perspective," Ayer told an analyst who asked if the firm would seek more. "I honestly can't categorically sit here and say we will or we won't."
Hartford is "well capitalized and has about $10 billion of liquidity," spokeswoman Shannon Lapierre said in an e-mailed statement today. "We want to reassure our customers, partners and employees that we are appropriately capitalized to meet our commitments."
The $10 billion in liquidity as of Sept. 30 includes cash and short-term investments of $7.3 billion, and the insurer is able to access $1.9 billion from a bank credit facility, the statement said.
Hartford, based in the Connecticut city of the same name, gained $1.38, or 14 percent, to $11 at 1:15 p.m. in New York Stock Exchange composite trading.
An association of life insurers reached out to Treasury officials last week to discuss the possibility of securing some of the $250 billion set aside to prop up ailing financial companies. Lincoln National Corp. CEO Dennis Glass said this week he's weighing the transformation of his Philadelphia-based life insurer into a bank holding company, which may make it easier to access U.S. funds.
Hartford Chief Financial Officer Lizabeth Zlatkus has said the company would consider selling a stake to the Treasury if a U.S. program to inject capital into financial firms were extended to insurers.
"We feel very well capitalized," Zlatkus said on the conference call. "But in terms of would we access the Capital Purchase Program, if that's available -- we certainly think there are favorable terms as we see it, and we would look to do that."
Hartford had $2.2 billion in investment losses and a $932 million accounting charge tied to its retirement products in the third quarter. Ayer and Zlatkus declined to provide specific figures in answer to an analyst's question about the effect of further market declines on Hartford's investments.
"Management's decision to avoid a concrete numerical portrait of capital adequacy has caused investors to sell," Citigroup Inc. analyst Josh Shanker said in a note late yesterday.
Hartford has reported more than $6 billion in writedowns and unrealized losses tied to the collapse of the mortgage markets since the beginning of last year.
Yesterday's 52 percent stock drop was the largest since the company's 1995 spinoff from ITT Corp. The shares have fallen about 88 percent this year.
"The stock price decline yesterday removes some of the safety valve it previously had to raise capital," said Alain Karaoglan, an analyst at Bank of America Corp., in a note to investors in which he reduced his rating on the shares. "We are stepping aside and downgrading the stock to neutral partly because it has still not provided public clarifications on its capital position."
Competitor Prudential Financial Inc. also declined to put a value on its excess capital yesterday. Prudential advanced 59 cents, or 2 percent, to $29.46 after falling 18 percent yesterday.
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