Is Hartford Financial, which announced today that it had signed a deal to raise $2.5 billion from Allianz, the “major insurance company” that Senator Harry Reid of Nevada said was “on the verge of going bankrupt?”
Last week, the stocks of several major insurance companies fell sharply after the Senator made his comments, sparking untethered fear as investors sought to figure out which insurer was marching over the precipice of bankruptcy. A spokesman for the Senator later attempted to ameliorate the damage by backtracking, saying the Senator didn’t really mean what he said. In a different market atmosphere, many investors would probably be all too willing to believe a Senator was clueless. But these days, any sign of distress is enough to ignite panic.
Now investors are hopeful it was Hartford that Reid was talking about. If it was, he would probably do everyone a favour by admitting it. Otherwise investors will be left to fear that some other brand-name insurer is still careening into bankruptcy. This is no time for Reid to decide against transparency.
How about some details on Allianz’s $2.5 billion investment? The German financial company will purchase $750 million of convertible preferred shares at $31 per share. It is also buying $1.75 billion of 10% junior subordinated debentures. In addition, Allianz is getting warrants to purchase $1.75 billion of Hartford’s common stock at $25.32 per share, which is a dime below Hartford’s 52-week low. Selling warrants that are so far in the market the company hasn’t traded at that level for a year is a clear sign of desperation.
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