The participation of Hartford Financial Services Group Inc. and Lincoln Financial Holdings in the $700 billion financial rescue contradicted the goals of the government program, a bailout watchdog says.
The inclusion of The Hartford and Lincoln “was incongruous with the spirit and intent” of the bailout program, according to the report by Special Inspector General Neil Barofsky.
The taxpayer investments in the two companies went to support their insurance businesses, not the small thrift institutions they acquired in order to qualify for the bailout, the report said.
The amount of money they received from the government – $3.4 billion for Hartford, and $950 million for Philadelphia-based Lincoln – was based on the assets of their parent insurance companies and “dwarfed” the size of the thrifts they acquired, the report said.
The report says The Hartford put $3.2 billion of the funds it received into short-term investments and money-market funds, allowing it to issue additional policies. Its holdings primarily include government or agency-backed securities or mutual funds, the report said.
Lincoln National, which also has operations in Hartford, invested about $608 million of the $950 million it received in mortgage-backed securities and corporate bonds.
“Treasury fit the enormous investments in these insurance companies, huge proverbial pegs, into the small round holes” of eligibility for the bailout program, it said.
Barofsky’s report details how six companies, including the two insurers, used $81 billion in taxpayer money they received and whether they kept it separate from other company funds. General Motors and Chrysler, for example, used large portions of the money to cover daily operating expenses like paying suppliers and meeting payroll.
The report said the disclosures by the companies that received money under the Treasury Department’s Troubled Asset Relief Program “can provide meaningful information about their use” of the money. That refutes Treasury’s previous statements that recipients reporting on their use of the money would have little value.
In addition, between June and September 2009, Hartford provided $195 million in funds to the Federal Trust Bank, the Florida-based lender it acquired earlier this year in order to qualify for the government relief program.
The Hartford declined comment when contacted by HBJ Today about the report.
In the report, The Hartford claimed participation in TARP “was a prudent step for the company, particularly given the continued uncertainty in the economic markets.”
The company also told the bailout watchdog that TARP funds would “strengthen its capital reserves and provide additional financial flexibility.”
According to Lincoln officials, TARP “funds allowed it to continue to underwrite business by selling individual annuities, life insurance and group business,” the report said
Lincoln is also assessing the potential for early repayment, and the company expects to pay back TARP funds before the interest rate rises to 9 percent at the end of 5 years, the report said.
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The Associated Press contributed to this report.Â
