Sen. Reid's loose lips sink insurance stocks
New York Sen. Charles E. Schumer was accused of speeding the failure of IndyMac Bancorp in July by publicly questioning the bank's solvency.
Now Senate Majority Leader Harry Reid is getting credit for sparking a blistering sell-off in insurance stocks.
MetLife Inc., Hartford Financial Services Group and Prudential Financial Inc. all fell by double-digit percentage amounts today after Reid on Wednesday said the financial-system bailout plan was crucial because a large insurer was at risk of failing.
Reid specifically cited "a major insurance company -- one with a name that everyone knows -- that's on the verge of going bankrupt," according to Dow Jones Newswires.
Today, the Nevada Democrat backtracked. A statement from his office said that Reid was "not personally aware of any particular company being on the verge of bankruptcy" and that "he has no special knowledge about nor has he talked to any insurance company officials," Dow Jones reported.
But with investors already on high alert after the Federal Reserve’s rescue of insurance titan American International Group Inc. on Sept. 16, and with the credit crunch still making funding difficult for even the largest U.S. financial companies, Reid's comments were the equivalent of pouring gasoline on a grease fire.
MetLife plunged $7.19, or 14.9%, to $40.96; Hartford dived $12.20, or 32%, to $25.91; and Prudential slid $7.15, or 11%, to $57.65.
And no one can blame "short sellers" because all three of the stocks are covered by the Securities and Exchange Commission’s temporary ban on short sales of financial issues.
In the credit-default swap market, where investors buy and sell protection against bond defaults, the cost of insuring against defaults by the three companies rocketed to record levels, Bloomberg News reported.
Insurance companies’ stocks have been sliding for two weeks as the credit crunch has worsened. Investors also are worried about the sinking value of the companies’ investment portfolios, as stocks, corporate and municipal bonds have been pounded since August.
On Wednesday, Hartford issued a statement saying it was "confident in our financial strength." MetLife said in a statement today that it was "financially sound" and "fully able to meet all its obligations."
In late June, Democrat Schumer made public a letter he had sent to federal bank regulators, expressing concern that Pasadena-based IndyMac Bancorp was on the brink of failure.
When regulators seized IndyMac in mid-July, they accused Schumer of fomenting a panic run on deposits that made the bank’s collapse inevitable.
Photo: Sen. Harry Reid (Jay Mallin / Bloomberg News)