Yesterday, Hartford Financial Services Group announced that it has applied to the Office of Thrift Supervision (OTS) for permission to become a savings and loan holding company by acquiring the parent company of Federal Trust Bank, a federal savings association, for approximately $10 million plus “an additional amount to recapitalize the bank.” The proposed purchase will be Hartford’s second foray into the thrift industry. In 2000, Hartford established Hartford Bank, largely to provide trust services, but dissolved the institution within a few years.
Several major insurance companies became savings and loan holding companies during the late 1990s and into 2000, which, at the time, was the most effective way to enter the banking industry on a nationwide basis. Although most of these insurers have maintained their subsidiary thrifts, a number of major insurers, like Hartford, do not currently own a bank or savings association, making them ineligible to participate in Treasury’s Capital Purchase Program (CPP). The CPP is currently available only to “qualified financial institutions,” which includes most banks and savings associations, and their holding companies, but does not include insurance companies or their holding companies (unless they are also bank or savings and loan holding companies). Treasury’s recent $40 billion preferred stock and warrant investment in AIG was not conducted pursuant to the CPP, although the terms of the investment bear some similarities to those under the CPP.
Hartford acknowledges that the acquisition of Federal Trust “will satisfy a key eligibility requirement for participation in CPP.” Subject to final approval, Hartford “estimates that it would be eligible for a capital purchase of between $1.1 billion and $3.4 billion under existing Treasury guidelines.” Ramani Ayer, Hartford’s Chairman and CEO, stated “Securing capital at the terms available through the Capital Purchase Program could be a prudent course in this market environment and would allow us to further supplement our existing capital resources.” Separately, it has been reported that the OTS has also confirmed the receipt of applications from Genworth Financial, Lincoln National and Aegon N.V. for permission to become savings and loan holding companies, in each case by means of the acquisition of a small savings association, also for the apparent purposes of becoming eligible for CPP funding. In the case of Aegon, its pursuit of CPP funding would appear to be complicated by the fact that the definition of "qualified financial institution" under the published CPP term sheet expressly excludes any company that is controlled by a foreign bank or company.
These applications follow the announcement earlier this week that American Express' application to become a bank holding company had been approved and that CIT Group has applied to the Federal Reserve to become a bank holding company, by means of the conversion of CIT Bank, a Utah industrial bank, into a Utah state bank.