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Financials Tumble

Hartford’s bellwether firms take a beating

By Peter Mantius and Gregory Seay

October 13, 2008

Shares of major banks and insurers with large operations in Hartford were hammered last week as the economic crisis deepened.

And while it may be too soon to predict specific job reductions, one local economist said the turmoil was “almost definitely” going to lead to changes in the landscape of the city’s financial sector.

The gyrations in the stock market portend a “reshaping of the landscape, especially in banking and investment banking,” said Jeffrey W. Blodgett, vice president of research at the Connecticut Economic Resource Center in Rocky Hill. “There are going to be job losses and fewer hires of college grads.”

Hartford’s bellwether companies were all feeling pain.

• The Hartford Financial Services Group Inc. agreed to sell a $2.5 billion stake to the German insurer Allianz SE, and it reportedly had been in merger talks with MetLife. The Hartford, which employs 13,000 in Greater Hartford, also slashed its dividend by 40 percent and switched chief investment officers.

• Bank of America, which employs 4,500 in Connecticut and is the largest holder of bank deposits in the state, reported quarterly earnings far short of analysts’ expectations. The Charlotte, N.C.-based bank also settled two major legal cases, one for $8.5 billion to modify bad loans made by its Countrywide Financial Corp. unit and another for $4.5 billion to settle claims related to auction-rate securities. The company also raised $10 billion through the sale of common stock and cut its quarterly dividend in half.

• Aetna, United Health and Cigna, nationwide health insurers with a combined 15,000 employees in Greater Hartford, watched their stocks tumble as rising unemployment made it difficult to raise prices to offset rising costs. Hartford-based Aetna traded at $29, well below its 52-week high of $60. United Health traded at $19.50, down from its 52-week high of $59.46. Cigna traded at $26.99, compared to his 52-week high of $56.98.

• MetLife, which employs 1,750 in Connecticut, said it planned to cut an unspecified number of jobs. It also said it would raise $2 billion by selling 75 million shares at $26.50, a 63 percent discount from its 52-week high. MetLife said its third quarter results would be hurt by a downturn in investment income.

• United Technologies Corp., which employs more than 26,000 in Connecticut, broke against the grain by announcing that it was raising its quarterly dividend by 20 percent to show the market that its earnings and liquidity remain strong. Even so, UTC shares dipped below $50 from a 52-week high of $81.50.

• The Phoenix Cos., which employs nearly 900 in Hartford, saw its stock fall from $13.98 on Sept. 19 to less than $4 on Oct. 9, amid general concern about insurer balance sheets, particularly those that sell annuities.

• The Hartford Steam Boiler Inspection and Insurance Co., the Hartford-based unit of ailing American International Group, was reported to be on the auction block as AIG seeks to pay down its recent $37.8 billion loan from the federal government. Hartford Steam Boiler employs 383 downtown.

Bank of America’s agreement to modify troubled mortgages originated by Countrywide could provide relief to as many as 4,500 Connecticut homeowners.

“Countrywide must now bail out homeowners it recklessly misled into mortgages doomed to fail,” said Attorney General Richard Blumenthal, who sued Countrywide for deliberately doctoring documents and inflating homeowner incomes. “This loan lifeline will rescue thousands of homeowners drowning in debt, and impose responsibility on a reprehensible mortgage giant.”

Merger With Merrill

Bank of America’s planned acquisition of Merrill Lynch could also have an impact on Greater Hartford. The merger, which is due to close in early 2009, could lead to job cuts as the two giants consolidate their separate brokerage staffs.

“It’s premature to discuss the local impacts the Merrill merger will have,” Bank of America spokesman Ernesto Anguilla said in a written statement. “It’s quite early in the merger process and those decisions have not yet been made.”

The Hartford named Greg McGreevey as its new chief investment officer, replacing Dave Znamierowski, who had worked at the company for 12 years. Shares of the company fell below $22 on Oct. 9, down from a 52-week high of $99.21. State Insurance Commissioner Thomas Sullivan issued a statement that the company remained sound.

The rising prices of credit default swaps for The Hartford and MetLife reflected the market’s growing concern about their balance sheets. Reuters reported that debt insurers began demanding upfront fees in addition to annual premiums to cover the debt issued by the two companies.

Peter Gioia, an economist for the Connecticut Business & Industry Association, said the financial turmoil may lead to changes for Hartford’s employers. “I’m not sure they won’t be around in Hartford, but they may have a different name on the sign,’’ Gioia said.

University of Hartford economics professor Demetrios Giannaros said the headquarters of some Hartford companies may move elsewhere, while most operations stay. “We’re going to see some new entities,’’ Giannaros said, “and maybe some old ones absorbed.’’

Blodgett of CERC said the financial crisis is also having an impact on Connecticut consumer psychology. “In another year, if we make it through to another year, I also think we’ll find consumer attitudes will have shifted and they well be much more loath to spend,” Blodgett added.