Phoenix Cos.' Try For Bailout Funds Hits Roadblock
The Phoenix Cos.' pursuit of federal bailout funds has hit a wall as the federal government seized the ailing bank that the Hartford life insurer planned to buy to qualify for the money.
The federal Office of Thrift Supervision (OTS) closed American Sterling Bank of Sugar Creek, Missouri on Friday and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.
The FDIC then entered into an agreement with Metcalf Bank of Lee's Summit, Missouri to assume all of American Sterling's deposits.
To qualify for federal Capital Purchase Program funds, several insurers including Phoenix made deals late last year to acquire banks and become savings and loan holding companies. Phoenix and other insurers haven't heard yet whether they will be offered CPP funds.
Phoenix's agreement to buy American Sterling was non-binding and contingent on getting CPP funds.
Alice Ericson, a spokeswoman for Phoenix, said Monday, "We are considering our options in light of this latest development." She declined further comment except to say "We believe we are adequately capitalized" to meet obligations to customers.
Phoenix, wracked by investment losses and pressures on its variable annuity business, has been struggling with multiple ratings downgrades and the loss of its major distributors. The company is planning to lay off more than a quarter of its work force, and is hoping new businesses and distributors will provide some sales.
Phoenix apparently didn't contribute the capital to American Sterling that would have been needed to stave off the federal seizure.
A comprehensive examination of American Sterling that began on June 30, 2008 discovered poor record-keeping, a critical lack of capital and liquidity issues, OTS said. OTS issued directives to remedy the deficiencies and issued a formal enforcement order, but the problems "caused American Sterling to be in an unsafe and unsound condition, and unable to continue operations," OTS said.
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