Hartford Financial soars on plan to join TARP

By Jonathan Stempel

NEW YORK (Reuters) - Hartford Financial Services Group Inc (HIG.N), a property and casualty insurer beset by worries about capital levels, said on Friday it agreed to buy a small savings and loan, making it eligible to raise up to $3.4 billion from the U.S. government's bank bailout plan.

An infusion may alleviate investor concerns about capital at Hartford, which suffered a $2.63 billion third-quarter loss, and last month raised $2.5 billion from German insurer Allianz SE (ALVG.DE). Shares of Hartford soared 20.9 percent on Friday, closing up $2.19 at $12.65 on the New York Stock Exchange.

Hartford said it agreed to buy Sanford, Florida-based Federal Trust Corp, which operates the 11-branch thrift Federal Trust Bank, for $10 million.

The insurer said it plans to recapitalize Federal Trust, and has applied to the federal Office of Thrift Supervision to become a savings and loan holding company.

Hartford said the developments should allow it to sell $1.1 billion to $3.4 billion of preferred shares to the government under the Treasury Department's $700 billion Troubled Asset Relief Program.

"We are taking these actions as a strong and well-capitalized financial institution looking for maximum flexibility and stability," Chief Executive Ramani Ayer said in a statement.

Investors have worried about the health of Hartford and other insurers since the near collapse in September of American International Group Inc (AIG.N), once the largest insurer by market value.

Hartford joins American Express Co (AXP.N), the credit card and travel services company, in changing its regulatory status to participate in TARP, and make it easier to gather deposits.

American Express said on Monday it has become a bank holding company.

The Federal Trust purchase is contingent on approval by that thrift's shareholders, OTS approval of Hartford's thrift application, and Treasury Department approval of the request for TARP money. Friday was the deadline to apply for funds.

Despite Friday's gain, Hartford shares have tumbled 85.5 percent this year.

(Reporting by Jonathan Stempel, editing by Matthew Lewis)