Tags: US | Bailout | Warrants

Treasury to Sell Warrants Held in Two Insurance Firms

Tuesday, 07 Sep 2010 10:14 AM

The government said Tuesday it will auction warrants it received from two giant insurance companies as part of its efforts to recoup costs of the $700 billion financial bailout.

The Treasury Department announced it will auction warrants of The Hartford Financial Services Group Inc. and Lincoln National Corp. over the next several weeks. A warrant gives the purchaser the right to buy common stock at a fixed price.

The government obtained the warrants when it provided Hartford Financial, Lincoln National and several other major life insurance companies with billions of dollars of support in the spring of 2009 to help them shore up their capital positions in the wake of major investment losses.

Hartford Financial, based in Hartford, received $3.4 billion in support from the government's $700 billion bailout fund, the Troubled Asset Relief Program, on June 26, 2009 and repaid the support on March 31 of this year.

Lincoln National, which goes by the name Lincoln Financial Group and is based in Radnor, Pa., received $950 million from the bailout fund on July 10, 2009, and repaid the support on June 30 of this year.

The Hartford warrant auction will involve sale of 52.09 million warrants while the Lincoln National warrant auction will involve the sale of 13.05 million warrants.

Sale of the warrants will sever the remaining ties the two insurance companies have to the bailout fund. Banks and other financial institutions have been eager to cut all ties to the bailout program to escape various restriction including limits on dividend payments and executive compensation.

The government received the warrants as a bonus to taxpayers for rescuing the institutions during the financial crisis.

By purchasing the warrants, holders will have the right to buy an equal amount of shares of Hartford Financial at a price of $9.79 and Lincoln National at a price of $10.92.

The $700 billion TARP bailout fund, which was approved by Congress in October 2008, was originally intended to purchase toxic loans on the books of banks that were inhibiting the ability of the banks to make new loans. But the fund quickly was transformed into a capital backstop for banks.

It was also used by the Treasury Department to make loans to General Motors Corp., Chrysler and insurance giant American International Group as well as a number of life insurance companies.

The life insurance companies requested government assistance because of concerns that their balance sheets had become clogged with illiquid assets and escalating liabilities to policy holders who had purchased policies during a boom period in the variable annuities market.

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