Prominent hedge-fund manager John Paulson excoriated executives at Hartford Financial Services Group on the insurer’s quarterly conference call Wednesday, telling them they need to “do something drastic” to boost their stock price.
Paulson complained after executives discussed what they termed the “significant challenges” that stand in the way of Hartford splitting itself into two separate insurance companies, a strategy that some analysts and investors have suggested would revive the shares.
“What we need you to do is overcome the obstacles … not merely to point out that there’s obstacles,” Paulson said. “You need a better explanation of what you’re going to do to enhance shareholder value.”
Paulson’s hedge fund, Paulson & Co., appears to be Hartford’s largest shareholder. The fund held 8.7% of the outstanding stock, or 38.9 million shares, as of Sept. 30, according to FactSet.
Hartford Chief Executive Liam McGee responded on the conference call by saying Paulson’s “sense of urgency about realizing greater value for shareholders is shared by me and by this team.”
Of the challenges the company would face if it were to pursue a split, he said: “We did not say they were not surmountable.”
But he said “we do not believe that splitting them in the current environment … will create shareholder value.”
Hartford shares have declined roughly 30% in the past year, and the stock trades at less than half its book value, a measure of assets and liabilities.
Analysts including Morgan Stanley’s Nigel Dally have said the company should spin off its life-insurance operations from its property-casualty unit, which sells coverage to both businesses and consumers.
The stock was up 8.6% to $20.75 Wednesday.
Paulson’s remarks came after Hartford Chief Financial Officer Christopher Swift told analysts and investors on the conference call the company had gotten investor inquiries about whether such a split was feasible.
Swift said the challenges that stand in the way of splitting the company include the difficulty of allocating $6.8 billion in debt now held at Hartford’s holding company. A separated life insurance company would only be able to maintain its current financial-strength ratings if it assumed no more than one-third of the debt, Swift said. With the remaining two-thirds, the property-casualty company could require “potentially dilutive de-leveraging actions” to keep its ratings, he said.
Paulson, who manages about $24 billion assets, rose to fame with his bet against subprime mortgages during the financial crisis, which reaped him billions of dollars. But lately, his bullish call on an economic recovery and a bet in a controversial Chinese forestry company cost him dearly. One of his main funds was down 52% last year, ranking him among the worst performers in a year when the equities market was largely flat. His positions in gold, however, has fared well as commodities prices rose on uncertainties over an orderly resolution of the European sovereign debt crisis and concerns of a global slowdown.