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Lincoln National to pay back $1 billion US bailout

Should the government have bailed out Lincoln National? Should Lincoln National have turned down the money if it didn't really need it?

Lincoln National Corp., the Radnor-based life insurer that sponsors the Eagles' Lincoln Financial Field, says it's ready to repay the $950 million the US Treasury invested in the company via the Troubled Asset Relief Program (TARP) after the 2008 stock market collapse hurt Lincoln's investments. As markets recovered, Lincoln used the money to beef up its sales force.

"We appreciate the critical role the government and the American taxpayers have played in stabilizing the financial markets," says chairman Dennis Glass in this statement. "Lincoln Financial intends to repurchase the $950 million of preferred shares with net proceeds from a $335 million common stock offering, net proceeds from a $250 million senior notes offering and cash currently held at the holding company." Lincoln will also sell another half billion dollars in senior notes "as part of a long-term financing solution" to financially support its "universal life" insurance policies.

TARP investments in Lincoln and rival Hartford Financial raised questions in Washington. (Under new CEO Liam McGee, ex-consumer loan boss at Bank of America, Hartford repaid its $3.4 billion TARP obligation in March, also by selling stock and notes.)  As I noted in my column last Dec. 9: "The government's Troubled Asset Relief Program watchdog wants to know: Why did the U.S. Treasury assign Radnor-based Lincoln National Corp. nearly $1 billion in TARP rescue money, when Lincoln's business has 'little to do with lending to consumers and businesses'?"

TARP was supposed to encourage lending to middle America. Instead, "Lincoln used TARP to finance "expansion" of its annuities and life insurance sales, Special Inspector General Neil Barofsky wrote in his report... Lincoln officials told Barofsky the company could use each TARP dollar to finance "roughly 20 times that amount" in new insurance and annuity sales.

"The former prosecutor doesn't say Lincoln did anything improper. Rather, he says Treasury's decision to fund Lincoln, and a larger investment in rival Hartford Financial Services Group Inc., 'was incongruous with the spirit and intent' of TARP's capital program, which was to boost lending to hard-pressed people and companies as troubled banks were cutting back.

"If Treasury wanted to use the money for something else, such as bailing out life insurance sales programs, it should have written that goal into TARP rules - as it did with General Motors Co. and Chrysler Group L.L.C., Barofsky added... (He also said) Lincoln has done a great job tracking every TARP dollar it got - proving this can be done by bailout recipients, despite bankers' past claims to the contrary.

"To get TARP money, Lincoln bought a tiny Indiana savings bank so it could legally qualify for funds. TARP rules allowed the buyer to add its vast insurance assets to the bank's little loan portfolio and magnify its TARP request... But Lincoln had a 'strong' financial position and was 'viable without TARP funds,' according to Barofsky."