Thursday, October 30, 2008


Hartford Financial Services (HIG) lost about 52% of its value today closing at 9.62, down from a 52 week high of 98.7.  Some may remember the oft-hand comment to the press made by Senator Reid of Nevada as to the precarious state of a well known insurance company. Ins Yahoo! Finance  After that comment, many thought that he might have been referring to Hartford and the stock fell to a 12 year low in early October. Yahoo! Finance  Subsequently, Hartford got a 2.5 billion investment from Allianz. Yahoo! Finance

I have avoided owning any of the stocks that have already bankrupted like Lehman, or who were seized by the government like Fannie or Freddie or by the FDIC like Washington Mutual, or who are teetering on the doorstep of bankruptcy like AIG.   I do not own Hartford common stock, another bullet dodged but I have the misfortune of owning some senior debt maturing in 3 years.  So, I follow this ongoing saga.   I am just glad that my tie to Hartford is limited to a single bond.  I would not even want to worry about an insurance policy with them.

The company reported a large quarterly loss of 2.6 billion and said, according to Marketwatch, that "it couldn't gauge the amount of extra capital it has because of market volatility" MarketWatch
For a discussion of the reasons for the loss and this capital problem, I consulted this article at  Analysts were quick to downgrade the stock based in part on the capital concerns and the possibility of a debt downgrade.Yahoo! Finance  Since I own the debt, I checked information on the costs to insure Hartford's debt and it did rise to 508 basis points, meaning it would cost $508,000 a year to insure ten million of debt.H Reuters  Moody's said it was reviewing Hartford for a possible downgrade in early October. Yahoo! Finance
To answer my question posed in the title of this post,   I do not see anything to suggest yet that Hartford is as dumb as AIG but I am more than a little bit nervous about Hartford paying my bond principal when it comes due in 2011.  I am not sweating yet, or maybe it would be more accurate to say not sweating profusely.   I will certainly avoid lending them money in the future.  I have seen enough. 

Another REIT that cut its common stock dividend is Colonial Properties (CLP), which cut it in half to $.25 a quarter.  The preferred rallied on the news, CLPPRD.  Colonial was funding the common dividend with property sales, like First Industrial, and now it will pay special dividends to common shareholders to reflect gains from property sales, same as First Industrial.  I have not owned this stock in a very long time, but all of this perked my interest enough to look into it tonight.  The preferred rallied way too much today for me to buy it. CLP-PD: Summary for Colonial Properties Trust (AL) - Yahoo! Finance- up 37%.

I did get a nice rally on my two FR preferred stocks.  And this is odd.  FRPRK was up 32.5% but its brother  FRPRJ was up 19%.  Besides the symbol, what exactly is the difference between the two.  Both have 25 dollar par values, both are cumulative, neither have a maturity date, and both have the same coupon of 7.25%? 

Of the REIT preferred stocks that I have discussed, I view the ones from Strategic Hotels and CBL to be the riskiest due to the level of debt and their sensitivity to the economic downturn.  I do own one, and may add a little to it, that is even riskier than these two, but at 1/4 of par value and a 8 7/8% coupon I may just be tempted by its 30%+ yield for another nibble.

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