Protective Life Corp. of Birmingham, Ala., has lost its deal for a struggling Florida banking company.
The reason: the long wait for insurance companies seeking government capital.
Protective is one of five insurers that agreed to acquire a struggling bank or thrift to qualify for funds from the Treasury Department's Troubled Asset Relief Program. Each deal hinges on receiving those funds, but the Treasury has yet to approve any application from an insurer or say when — or whether — it will do so.
On Wednesday the $246 million-asset Bonifay Holding Co. terminated its deal with Protective, citing "uncertainty" about the Tarp funds.
A Treasury spokesman said Thursday that no decision has been made about whether insurers would be allowed to participate in the program. He would not give further details.
Several people familiar with the pending deals say that the department has been silent on the matter, and that they can only guess at the reason for the delay.
"I don't know if anybody has any insight into that," said John Gorman, a partner at Luse Gorman Pomerenk & Schick PC. "I don't know whether it's a concern with opening up Pandora's box or whether they feel they need to do a stress test with the insurance companies."
Protective said late Wednesday that the agreement it struck with Bonifay in November gave either side the right to walk away if the acquisition had not been completed by March 31.
The insurer said it understands why Bonifay chose to exercise that right, given the Treasury holdup.
Protective said that it has no "current plan" to acquire another bank or thrift, and that it is well capitalized with ample liquidity. It was not explicit about whether it would end any attempt to get Tarp funds, and a spokesperson did not return a phone call by press time.
Johnny Johns, its chairman and chief executive officer, said on an earnings conference call in February that it was rethinking its desire for government capital.
"We do not know whether or not we, or indeed any life insurance company, will be permitted to participate in that program. And we are not sure, if we are permitted, whether or not we will participate in it," Johns said. "There are an array of restrictions that are kind of emerging around that, and if we are invited in, we will just have to see what those restrictions are and see whether or not we think on balance it's in the best interests of our shareholders to participate."
Bonifay executives did not respond to a request for comment by press time. Its bank unit posted losses of $3.6 million for last year and $2.7 million for the previous year, according to the Federal Deposit Insurance Corp. At yearend the thrift's total risk-based capital ratio was 9.57%, a level regulators consider adequately capitalized.
Karen Dorway, the president of BauerFinancial Inc. in Coral Gables, Fla., which rates the strength of banks nationwide on a scale of 0 to 5, said it has given Bank of Bonifay a rating of 0 for the past five quarters, largely because of bad construction loans. Nonperformers made up 8.48% of its total loans at yearend.
The $347 million-asset Suburban Federal Savings Bank in Crofton, Md., failed in January, after Aegon NV abandoned a plan to acquire it. The Dutch insurer said Dec. 15 that, after strengthening its capital position, it decided against seeking Tarp funds after all. It withdrew an application for a thrift charter and gave up its pursuit of Suburban.
Four other insurers, all wounded by the financial crisis, have pending deals to acquire troubled thrifts. Genworth Financial Inc. has a deal for the $843 million-asset Inter Savings Bank in Minneapolis. Lincoln National Corp. has one for the $7 million-asset Newton County Savings Bank in Goodland, Ind. Hartford Financial Services Group Inc. has one for the $585 million-asset Federal Trust Corp. in Sanford, Fla., and Phoenix Cos. Inc. has a letter of intent to acquire the $181 million-asset American Sterling Corp. in Sugar Creek, Mo.
