DealZone

‘When may we expect your resignation?’

On its website,  life and property insurer Hartford Financial Services bills itself as “Trusted since 1810.” 

Chief Executive Ramani Ayer, trying to usher Hartford through a period of devastating losses,  also played up the company’s 199-year history in comments to stockholders on Wednesday at the company’s annual meeting.

Ayer said the Hartford’s long-established reputation would allow it to cash in when the economy starts to improve. How? At least in part by selling retirement products to shell-shocked consumers seeking a way to recover from the global stock market rout.

But Hartford, which posted a $1.2 billion net loss in the first quarter, has been badly burned lately by having to put up more cash for stock market-linked retirement products it already sold. The products have proved costly because they guaranteed periodic payments even when investments in the portfolio performed badly.

Ayer was awarded total compensation of $4.5 million in 2008 but at least one shareholder doesn’t think Ayer should stick around to take many more paychecks.

“I congratulate you on driving Hartford into the ground,” said a man at the annual meeting who identified himself as a former employee who had worked for Hartford for decades, and built up his stock holdings over that period. 

The ex-employee, who Ayer acknowledged was known to him, said he had only one question: “When may we expect your resignation?,”adding that if the CEO wasn’t prepared to step down, Hartford’s board of directors should make him.

Omaha bowling alley seeks a bargain; no one likely fooled

Omaha, Nebraska is always a beehive of activity when devotees flock here for the annual meeting of billionaire Warren Buffett’s Berkshire Hathaway.

Shops and restaurants were doing a brisk trade on Friday. Waiters at La Buvette Grocery and Wine Bar, a bistro in the gentrified old market area, said this week-end is always one of the busiest of the year. The rest of Omaha’s old market was also jamming.

At least one vendor — this one on the outskirts of the city — was looking for more than a good day’s business.

Chops Bowling advertised unlimited hours of bowling fun for just one Class A Berkshire Hathaway share.      To the unititated that might sound like a good deal. But none of the 35,000expected to convene here this week-end for what is referred to by Buffett himself as “Woodstock for capitalists” will be fooled.

Even after falling nearly 40 percent since last September, a single class A share was still worth $92,005 at Friday’s close.

Auto insurer launches virtual toolbox

Auto insurer Nationwide has joined businesses such as Kraft Foods, eBay and Amazon.com in developing applications that customers can access on Apple’s popular iPhone.

While Kraft’s iFood Assistant offers recipes and shopping lists for consumers, Nationwide’s application gives policyholders instant tools to help deal with some of the calls and paperwork that follow a vehicle bust-up, including access to tow truck service, and getting a claim started.

Nationwide says it is the first insurer to launch such an application, or “app” as iPhone tools are more often referred to.

Policyholders that download the free iPhone application may appreciate the Nationwide tool even if calamity never strikes, since it also features a virtual flashlight that turns your screen to maximum brightness when you need more light.

Full piggy banks an upshot of the financial crisis?

It may be counter-intuitive, but experts say cash-strapped Americans are expected to set aside a larger percentage of income as savings over the next few years.

If predictions pan out, it will reverse a drop in the savings rate that developed in recent years as flush Americans spent more than they set aside.

“The decline of the personal savings rate is largely explained by the increase of net worth,” said Eric Chaney, chief economist for Paris-based insurance group Axa, at a forum on retirement held by Axa Equitable in New York on Tuesday.

Chaney said the nations hit hardest by the financial crisis were those where the biggest imbalances between savings and spending had developed, including the United States and United Kingdom. But if big spenders shift into savings mode it will help stabilize the situation, he added.

Chaney, who was formerly chief economist in Europe for Morgan Stanley, predicts the U.S. savings rate will rise to between 8 and 10 percent over the next five to ten years. “That is a seismic change” from recent years when Americans largely stopped saving at all, “but would make the world more stable,” he added.

Saving will help Americans better their chances of a secure financial retirement, but how much is saved and the timing of retirement also makes a big difference, added another panelist at the Axa Equitable forum.

Dallas Salisbury, CEO of the Washington, D.C. -based Employee Benefit Research Institute, said careful savings and investment contributions can help people recover from the financial crisis in as little as one to four years. It could take more than twice as long for those who, spooked by investment volatility and questions over where to put their money, sit on the sidelines waiting for the economy to improve, he added.

Brother, can you spare a share?

Some weeks ago, an employee of American International Group Inc, or AIG, pointed out dejectedly that a cup of coffee from a street vendor stationed near the company’s Pine Street headquarters would set you back about as much as an AIG share would. The now largely government-owned insurer’s stock was then trading in a range above a $1.25 a share. 

Today, a cup of joe in Manhattan’s financial district would cost you more than the share with AIG’s stock trading in a range between 90 cents and $1.02. The same goes for several other stocks that were once among the big names trading at the nearby New York Stock Exchange.

Others in the under-$1 stock club are mortgage-lending firms Fannie Mae and Freddie Mac, who have more in common than steep stock market declines. Taxpayers have undertaken costly billion-dollar rescues for each,  as soured mortgage investments drained away cash, in exchange for a 79.9 percent stake in the firms.

Fannie and Freddie shares are currently trading for 59 cents each, add in a share of AIG at 99 cents, and you have a grand total of $2.17 — a dime more and you could nearly buy a venti Starbucks coffee ($2.28). 

Of course Starbucks itself has hardly been on a tear lately. Its shares cost the equivalent of just 5 of those coffees, compared with 10 about a year ago.

We’ll leave it up to you to figure out which purchase might be the biggest bargain.  If you pick the coffee, sip and ponder what nationalization might do for other firms beleaguered by the credit crisis.

Photo: Reuters Pictures, a fake euro and U.S. dollar decorate a trader’s desk in Germany.

Cuomo plays coy on Hillary succession

New York Attorney General Andrew Cuomo on Tuesday ended a call with reporters about curbs on executive salary and bonus payments at insurer American International Group and other Wall Street firms with a parting shot at a tabloid reporter who asked if  he planned to take up similar issues as a U.S. Senator.

“No maybe as a Daily News journalist…,” Cuomo quipped.

Joking aside, in a Nov. 18 poll of New Yorker opinion,  Cuomo was favored as a replacement for U.S. Sen. Hillary Clinton, who is expected to become Secretary of State once president-elect Barack Obama takes office.  Voters preferred Cuomo 43 percent, more than any other candidate.

The New York survey of 613 voters had a 4 percent margin rate,  and was conducted by Poughkeepsie-based Marist College Institute for Public Opinion.

Things are not as bad as they can get – Perella

Veteran dealmaker Joseph Perella, speaking at a forum on business risk hosted by insurance market Lloyd’s of London on Tuesday, said there is no overnight cure for the global economic crisis. 

And if a deep recession sets in things could get worse before they get better.

“The question of the day reamains where is the bottom,” said Perella, who founded corporate advisory firm Perella Weinberg Partners after  nearly 40 years in the banking industry.

In a severe recession, the benchmark Standard & Poor’s 500 Index could drop another 30 percent to 600, he said. So far this year, the S&P has fallen 42 percent, closing at 850.75 on Monday.

Declining stock markets would necessarily impact individual stocks. Perella said in the early 1970s he saw some companies valued as cheaply as four times earnings. He does not predict valuations will hit that rock bottom, but falling to a stock price of ten times earnings was feasible.

What is not realistic, he said, is average Wall Street expectations for 15 percent growth in earnings next year.

One more bit of “bah humbug.” Corporate default rates have yet to hit recession levels,  said Perella,  and he predicts more private equity deals will have to be restructured.

Who’s your boss, Mr. Liddy … and for how long?

Edward Liddy was appointed chief executive of insurer American International Group Inc within hours of a Sept. 16 government rescue, averting the 89-year-old insurer’s collapse.

On Monday, fifty-five days after stepping into the corner office, Liddy unveiled the company’s biggest-ever loss. Concurrently, the U.S. government restructured most elements of  its initial AIG bailout in favor of a new better-for-AIG scheme, overshadowing the bad quarterly news.

Under the revised plan, AIG gets easier repayment terms and, most importantly, the U.S. Treasury will sink $50 billion  into a fund that will buy and hold mortgage derivatives, including those underlying AIG credit default swaps — a thorny area that has led to massive losses for the insurer.

That leaves the government, not AIG, most exposed to potential future losses if markets for these securities grow darker still.  If things go the other way, a clause baked into the new agreement means the insurer will get a portion (a third in the case of credit default swaps) of gains as market values rise.

“We’ve tried to thread that needle as best we can so that we are protected from the downside and have some opportunity on the upside,” Liddy told investors on Monday.

Any way you cut it, the U.S. now has the most to gain or lose.

Public company CEOs typically answer to a board of directors, and make decisions based on what is best for shareholders. For Liddy, that basically means the U.S. taxpayer, since the government is entitled to a 79.9-percent stake as part of the AIG bailout, which has already heavily diluted those holding stock before the bailout.

AIG says to report ‘earnings’. Really???

American International Group, the once giant insurer which has become best known as a sinkhole for government money, says it will report third-quarter results on Nov. 10.

Most notable was how AIG described what almost certainly was one of the ugliest reporting periods in financial history: “AIG’s earnings release and financial supplement will be available in the investor information section” of its website.

Earnings? According to the Merriam-Webster dictionary the use of the word “earnings” means money was earned during the quarter, or that the company will report there was money left in the coffer after pay outs. That is unlikely, at least based on analysts’ expectations.

Analysts’ on average expect AIG to report a loss of $1.69 a share in the third quarter, according to Reuters Estimates. It will be the insurer’s fourth-consecutive quarterly loss.

Maybe the insurer should have stuck with the word “results.” It would likely be more accurate and sounds better than the other alternative, “loss report.”

The company’s quarterly report will be its first since it accepted a $85 billion federal bailout on Sept. 16. Since, the insurer has been extended more federal aid, putting a total of $123 billion in taxpayer funds at its disposal.

Trust in Hank?

Some AIG employees want former chief executive Maurice “Hank” Greenberg back at the insurer’s helm — at least based on comments scribbled on a portrait painted by artist Geoffrey Raymond.

Dozens of AIG employees signed the portrait — set up across the street from AIG’s Pine Street headquarters on Monday. Among the annotations: “Please, please come back,” and “Trust in Hank.”

Greenberg over a 38-year reign grew AIG from a small, foreign insurer into the world’s largest insurer by market value. He stepped down in 2005 after regulators laid allegations of accounting fraud against him and the company.

Over the last year, massive mortgage losses crippled AIG. It narrowly escaped having to file for bankruptcy last week by accepting a costly government bailout.

The portrait of Greenberg — annotated in blue by AIG employees, and in red by all others — will be sold on eBay.

Raymond’s portraits have become a fixture on the sidelines of the credit crisis. In the midst of Bear Stearns’ 11th-hour takeover by JPMorgan, the artist invited passers-by to scribble comments on a portrait of James Cayne, the bank’s former chairman. And he re-appeared again outside of Lehman Brothers with a portrait of CEO Richard Fuld after the company sought bankruptcy protection.