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If share price is an indication of investor sentiment, then investors think Lincoln National Corp. (NYSE:LNC) made a bad call withdrawing its application with the Federal Deposit Insurance Corp. to issue debt under the government's Temporary Liquidity Guarantee Program.
Shares fell nearly 30% after the insurer withdrew its application because it wasn't sure if it would qualify for the program, according to MarketWatch. Why, then, are investors down on this? Last year Lincoln Financial bought Newton County Loan and Savings in order to turn itself into a bank holding company to gain access to the U.S. Treasury's $700 billion Troubled Asset Relief Program. Lincoln was following the footsteps of rivals such as Hartford Financial Services, which agreed to buy Federal Trust Bank of Sanford, Fla., to apply for $3.4 billion in TARP loans, according to IndyStar.com. The acquisition of Newton Country Loan and Savings made the insurer eligible for as much as $3 billion in TARP money. This could have arguably helped the company, which has reported a loss in profits for five quarters and recently shed 540 jobs. As Subprime blogger wrote: With this statement, Lincoln National Corp is down over 33% and is bringing the entire life insurance sector with them. Principal financial is down 18% and Hartford Financial is lower by 9% on the day. Lincoln Financial is not the largest life insurer by market capitalization, but if one major insurer goes under, several more are headed in the same direction. Many of the life insurance corporations have seen 75% or more declines in their stock prices since the beginning of 2009. It is likely that the government will try to prop up some of the bigger insurers, but as you can see from Lincoln Financial, all of them will not receive government assistance. Still, the insurer, with $8 billion in equity capital, is far from being in a bad position. In fact, analysts argued that the insurer didn't need the funds in the first place. Fitch Ratings' Bradley Ellis said, "They are not in a bad position from a capital point of view. They may accept the (TARP) capital for competitive purposes. Whether or not they believe they need it to hold the company up, we don't believe they need it." Barry Ritholz, chief executive of Fusion Analytics Research Partners agreed, saying that TARP should only be used for banks. "It's just pigs at the trough just suckling at the teat of Uncle Sam. You're an insurance company, not a bank. You don't take the money. You're supposed to have a degree of ethics. You're not restoring capital to the financial system. You're restoring capital to companies that made a lot of bad bets," he said to IndyStar.com. So without TARP, Lincoln Financial is looking for ways to raise extra capital and has, in fact, gotten about $240 million in capital relief as it enters a reinsurance agreement with Commonwealth Annuity & Life Insurance Co. on a block of life-insurance policies, saving it about $250 million a year in its cost cutting plans and reducing annual consolidated net income by $20 million, according to The Wall Street Journal. Of course if the program's rules are revised, the life-insurance company has already said it would consider submitting another application. - Maria Woehr
CategoriesComments
From: Bert,
ok. How reliable is my fixed annuity that is underwritten by Lincoln Financial Group? I'm looking for the blog that speculates on these kinds of issues. Thanks.
Posted on:
April 3, 2009 2:09 PM
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TLGP does not = TARP. These industry "analysts" ought to check their facts before they spout off about public companies. And since when does legally positioning your company for greater stability and added safety become a negative?