Life Insurers Seek Money in the Banks

Life insurance companies are snapping up small savings and loans in a bid to make themselves eligible for big government bailout dollars, but the effort is fraught with complications.

Lincoln National (LNC Quote), Genworth Financial (GNW Quote) and Aegon (AEG Quote) this week joined Hartford Financial Services (HIG Quote) in making deals for S&Ls.

The deals and the insurers' accompanying applications to become thrift holding companies are aimed at helping the companies qualify for money through the Troubled Assets Relief Program, or TARP, which is investing $250 billion in preferred equity stakes of banks and thrifts. TARP's purpose was to shore up confidence in the banking system by providing the government's backing and to hopefully inspire the institutions to begin lending again.

But the relatively small size of the deals hardly seem to merit the aid the insurers are expecting. The Hartford agreed to buy Federal Trust, which had $602 million in assets as of Sept. 30, for $10 million, but believed it was eligible for as much as $3.4 billion in Treasury money. Lincoln National expects to be eligible for $3 billion in TARP money if its deal for Newton County Loan & Savings -- with just $7 million in total assets -- is approved.

Who's Minding the Store?

Treasury Secretary Henry Paulson, who reluctantly endorsed a hefty federal bailout of American International Group (AIG Quote) prior to Congress' passage of the TARP, has recently seemed resistant to expanding federal bailout efforts.

But even if Paulson or his successor when President-elect Barrack Obama takes office in January comes around to the idea of bailing out the insurers, there are thorny issues to be dealt with in terms of regulation.