Spear’s Stock Is Hurt by Tax News : * Annuities: The President’s economic package triggers investor worries. A Treasury Department decision reverses some of the loss.
The stock of Spear Financial Services Inc. recovered slightly Monday after suffering a sharp decline last week because of investor fears about a provision in President Bush’s new economic package.
The provision would eliminate a key tax break on new annuities sold to individuals, and was to be effective retroactive to Saturday if passed into law by Congress.
Spear’s main subsidiary, James Mitchell & Co., markets annuities and other insurance-related investments to individuals through offices located mainly in commercial banks, and Mitchell accounts for about 70% of Spear’s revenue. Glendale-based Spear also operates a discount securities brokerage.
The company’s stock tumbled $1.19 a share, or 25%, to $3.56 a share in national over-the-counter trading Friday, along with stocks of several insurance companies that also rely heavily on annuity sales.
But late Friday, the Treasury Department agreed to delay the provision’s start until the date Congress passes the plan, a move that helped the stocks of Spear and the insurers rebound Monday. Spear’s stock rose 25 cents, to close at $3.81 a share, Monday.
Then, after the market closed Monday, Spear said the Florida Insurance Department had proposed regulations that might have an adverse impact on Mitchell’s business there. It wasn’t immediately known what the proposals covered, but Spear said its initial conclusion was that they should not “materially affect” Mitchell’s operations.
Spear Chairman Charles M. Spear and other Spear executives were not immediately available for comment Monday.
Among the insurers, Broad Inc.’s stock gained 75 cents to $18.625 a share, Aetna Life & Casualty Co. rose $1.75 to $43.25 and Kemper Corp. climbed 50 cents to $40.75, but Conseco Inc. lost an additional 37.5 cents to close at $67.875 a share, all on the New York Stock Exchange.
People typically buy annuities as a savings vehicle for retirement. The income earned by an annuity is allowed to accumulate tax-free until the money is withdrawn, much like an individual retirement account. But unlike an IRA, there’s usually no limit on how much an individual can contribute to an annuity.
The Administration’s tax package would eliminate the tax deferral on earnings from most new annuities sold to individuals, but it would not affect group annuities held by corporate pension and retirement plans.
R. Mark Matheson, who follows Spear for the brokerage firm Cruttenden & Co. in Newport Beach, said that regardless of the new provision’s effective date, he does not expect the plan to become law.
“Annuities are so entrenched that to change the game right now would not get near passage” by Congress, Matheson said.
The annuity question also spoiled Spear’s announcement last week of sharply higher fourth-quarter earnings.
Spear said its net income in the quarter that ended Dec. 31 jumped to $292,990 from $122,943 a year earlier, while its revenue rose 31%, to $8.42 million from $6.43 million.
For all of 1991, Spear’s profit rose 64%, to $1.75 million from $1.07 million a year earlier, and its annual revenue climbed 17%, to $29.7 million from $25.5 million.
