Trader Talk

Pisani: Hartford Financial May Float Stock Offering Tonight

Hartford Financial may float their $1.45 billion common stock offering to pay off TARP debt as early as tonight, traders tell me.

HIG's announcement that they would be repurchasing the $3.4 billion of its preferred shares issued to the Treasury under the TARP program may spur others to pay off their TARP debt.

Why now? Stronger capital positions, and a stock that is up more than 10 percent in less than two weeks. It's a positive sign.

To repurchase the preferreds, they will float $1.45 billion of common stock, $500 million of mandatory convertible preferred stock, and $1.1 billion in senior notes of which $675 million will be used to pre-fund the repurchase of existing senior debt maturing in 2010 and 2011.

There are several positives here:

1) the announcement comes earlier than expected, and is likely to spur others to repay TARP earlier as well. It's a sign Treasury is more comfortable with the capital positions of banks and insurance companies.

2) While this will be dilutive to earnings, it will be modest--about 5 percent (Stifel Nicolaus estimates it will add approximately 55 million common shares to the estimated 425 million outstanding for 2010). More importantly, it will eliminate a lot of uncertainty.

3) they will no longer be paying about $170 million in dividends on the Series E Preferred Stock they issued to the Treasury in June 2009.

All Clear Signal given: what about other financials that haven't repaid TARP, like Regions Financial, SunTrust, or Fifth Third?

This is likely to spur them as well, but the bottom line is that all have moved up ever since Citigroup was able to float their Trust Preferred shares on March 9. That was the signal: if Citi could sell $2 billion in trust preferreds effortlessly (it was well oversubscribed, and initial yield talk of 8.875 was dropped to 8.5 percent on the high demand) than other banks should not have trouble raising capital.

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