Wednesday, April 8, 2009

Treasury Indicates Next Move in Corporafornication Game

The U.S. Treasury announced a push back in bank stress test results and the Wall Street Journal reported life insurance companies may soon have access to TARP money. Both moves benefit corporations.

Treasury postponed stress test results until after first quarter earnings. Banks should benefit from FASB fair value accounting rule changes, which allow market to model valuation of untradeable assets. Geithner and company want to push back any bad news. Treasury may need time to structure an intervention for banks who have a heart attack on the treadmill.

Life insurance companies that own federally chartered banks may soon get their turn at the TARP window. The systemic risk is a widespread cash-in of policies, similar to a bank run. Insurers committed to annuity payouts may be stressed from large investment losses and need cash to meet commitments.

How long before it spreads to other insurance lines, health and professional liability companies? During 2008 WellPoint estimated a $700 million loss in value of their investment portfolio. They hold $357 million in level III assets, with nearly $13 billion in Level II. Should their Level II assets deteriorate, WellPoint may need help from the Treasury.

HCA holds $635 million in level 3 assets and $857 million in Level 2. Any slippage in investment quality could be painful. While WellPoint and HCA aren't subject to bank runs from customers, they might ask Uncle Sam's help in moving their junk holdings.

WellPoint's Board has the uncle of President George W. Bush and the wife of Senator Evan Bayh. Will William H.T. "Uncle Bucky" Bush or Susan Bayh ask family for help in mobilizing TARP money for WellPoint?

HCA has deep pocketed owners, private equity underwriters KKR and Bain Capital. Merrill Lynch/Bank of America also owns a chunk of HCA. Could that be a vehicle for shedding toxic assets? Stay tuned for how the big money boys corporafornicate on the taxpayer's trillions.