Hartford Completes TARP Repayment – Analyst Blog

Following its accumulation of $3.05 billion funds from new securities, Hartford Financial Services Group Inc. (HIG) said on Wednesday that it has completed the repayment of the entire $3.4 billion of bailout money it received from the government for its participation in the Troubled Asset Relief Program (TARP) at the height of the credit crisis.

 

The complete repayment of TARP will free the life and property insurer from government involvement in its affairs and pay restrictions, even though the Treasury will still hold Hartford’s warrants for about 52 million shares at an exercise price of $9.79 each. Hartford does not intend to repurchase the warrants at this point.

 

As part of Hartford’s $3.05 billion fund raising, the company sold $1.1 billion in senior notes and issued $1.95 billion in stock ($1.45 billion in common stock and $500 million in convertible preferred stock).

 

After incurring sturdy credit losses, Hartford reduced its dividend and raised billions of dollars in private and public transactions last year. It has also reduced headcount to stabilize its financial position.

 

Nevertheless, during the fourth quarter of 2009, Hartford returned to profitability for the first time since mid-2008. Hartford’s core earnings during the quarter came in at $1.51 per share, substantially ahead of the Zacks Consensus Estimate of $1.40. This also compares favorably with the core loss of 72 cents in the year-ago quarter.

 

The upside was primarily attributable to the stability in Hartford’s life and property and casualty businesses. Also, Hartford ended the year with a strong capital position. Despite the overall market conditions remaining timid, Hartford delivered strong underwriting results. During the fourth quarter, rising stock markets helped strengthen investment income in the company’s life insurance business.

 

However, the results suffered from losses in Hartford’s investment portfolio and higher costs related to the variable annuity business. We remain concerned with Hartford’s exposure to variable annuities and pressure on Life segment as consumers seek relatively safe investment vehicles for their retirement assets.

 

Most of the major institutions in the financial market such as JPMorgan Chase and Co. (JPM), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and Goldman Sachs Group Inc. (GS) have repaid the TARP loans. Also, the Treasury has started auctioning stock warrants it acquired from the banks that received taxpayers’ money and have fully repaid the same. According to the Treasury, losses on TARP investments are likely to be significantly trimmed with the improvement in the overall financial condition.

 

On Wednesday, the shares of Hartford closed at $28.42, up 1.4%, on the New York Stock Exchange.