Allstate Declines Bailout Offer From U.S. Treasury (Update3)

By Erik Holm
Bloomberg News
May 19, 2009

May 19 (Bloomberg) -- Allstate Corp., the largest publicly traded U.S. home and auto insurer, declined to take U.S. rescue funds, joining Ameriprise Financial Inc. in turning down federal aid as banks move to exit the bailout program.

Government help isn't needed, "given Allstate's strong capital and liquidity positions," Chief Executive Officer Tom Wilson said in a statement today. The Northbrook, Illinois-based insurer said the value of its securities portfolio gained more than $1.5 billion from April 1 to May 13 after investment declines caused net losses in the three prior quarters.

Allstate was among six insurers including Prudential Financial Inc. and Hartford Financial Services Group Inc. granted preliminary approval last week to tap the Troubled Asset Relief Program. Insurers, which clamored last year to qualify when the value of fixed-income holdings plunged, have reassessed federal relief as markets improved and banks that took funds last year chafed at the terms.

"The financial institutions that took TARP feel they ended up dancing with the devil," said David Havens, managing director at investment bank Hexagon Securities LLC. "It's nice to have the option in your back pocket, to have something you can pull out in a last ditch effort, but it's not the preferred way of raising cash."

Goldman Sachs, JPMorgan

Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley applied to refund a combined $45 billion of government funds, people familiar with the matter said, a step that would mark the biggest reimbursement to taxpayers since the program began in October. Banks are seeking to get out from under restrictions on compensation and hiring imposed as part of the bailout in February.

Participating in TARP "became a little more of a painful experience," JPMorgan CEO Jamie Dimon said at the company's annual shareholder meeting today in New York. Dimon, 53, said he "didn't know what to expect" when accepting the funds.

Wilson said in February that while Allstate was eligible for TARP money, he didn't "like the terms and conditions," which include issuing warrants that the federal government can convert to stock.

The insurer also maintained its quarterly dividend at 20 cents a share. Allstate cut the payment to that level in February from 41 cents, the first reduction in more than a decade.

Allstate rose 65 cents, or 2.5 percent, to $26.50 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has fallen about 47 percent in the past year.

Lincoln, Principal

Ameriprise said May 15, a day after Treasury announced the six eligible insurers, that it wouldn't participate. Hartford said it got preliminary approval for $3.4 billion in federal funds* Lincoln National Corp. said it got approval for $2.5 billion, and Principal Financial Group Inc. said it was seeking $2 billion. Prudential said last week it is considering "all options."

Allstate raised $1 billion in a debt offering on May 11, which included 10-year notes priced to yield 430 basis points more than benchmarks when they were issued, Bloomberg data show.

The 7.45 percent notes today traded at 104.6 cents on the dollar to yield 6.8 percent, or 356 basis points more than Treasuries of similar maturity, according to Trace, the bond price-reporting system of the Financial Industry Regulatory Authority.

"You're seeing a lot of new issues tightening quite a bit," Havens said. "The most important thing for financial firms is to show that they can get a deal done. Pricing was probably not a key determinant" for Allstate, he said.

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