Hartford Applies for S&L Status, Buys Bank

The Hartford Financial Services Group (HIG) on Friday said it reached a deal to acquire Federal Trust Corp. and had applied to become a savings and loan, potentially opening it up to receive federal bailout money.

The Hartford said its application to the Office of Thrift Supervision could make it eligible for between $1.1 billion and $3.4 billion in new capital through the Treasury's Capital Purchase Program, the government's $250 billion effort to buy preferred equity stakes in banks. The insurer recently reported a $2.6 billion third-quarter loss, fueled by $834 million in losses on variable annuities.

The Hartford will pay $10 million for Federal Trust, the parent of troubled S&L Federal Trust Bank of Sanford, Florida. The thrift, whose third-quarter financial information is not yet available, had $637 million in total assets as of June 30. Despite the institution's small size, the acquisition seems intended to build a case for federal funds from the preferred equity program, part of the $700 billion Troubled Asset Relief Program, or TARP.

Federal Trust's nonperforming assets comprised 10.83% of total assets as of June 30, with construction and land development loans comprising the majority of the problem assets. The company's announced efforts to raise additional capital apparently failed.

Federal Trust Corp's stock was recently delisted from the New York Stock Exchange, and common shares were trading at twelve cents on the pink sheets today.

TheStreet.com Ratings had assigned Federal Trust Bank an E- rating back in March, based on the institution's December 2007 financials. At that time, the institution slipped from well-capitalized to adequately capitalized. To be considered well capitalized per regulatory guidelines, a bank or S&L needs to maintain a leverage ratio of at least 5% and a risk-based capital ratio of at least 10%. With losses mounting for three straight quarters, the ratios were 4.61% and 8.24% as of June 30.