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ReliaStar takes a hedge hit
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October 6, 1998: 8:41 p.m. ET
Financial services firm expects 3Q pre-tax loss of $4.3M tied to LTCM
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NEW YORK (CNNfn) - The casualty list of companies with exposure to Long Term Capital Management grew one name longer Tuesday as ReliaStar Financial Corp. warned of depressed third-quarter earnings tied to its $5 million investment in the troubled hedge fund.
ReliaStar, a Minneapolis, Minn.-based holding company whose subsidiaries offer a wide array of financial services from life insurance to mutual funds, said it expected third-quarter financial results to include a $4.3 million pre-tax capital loss associated with the investment.
LTCM averted collapse last month when a consortium of 14 Wall Street banks and brokerage firms, at the behest of the New York Federal Reserve, ponied up $3.6 billion to bail out the highly-leveraged fund.
Since the bailout, more than a dozen major financial firms, including giants such as UBS AG, Merrill Lynch and Chase Manhattan, have acknowledged exposure to hedge funds totaling as much as $3.2 billion.
In the latest such disclosure, Lehman Brothers revealed Monday that its exposure to hedge funds totaled $447 million, though the firm said LTCM accounted for only a fraction of that amount. Lehman said its investments were backed up by $583 million in collateral.
Similarly, ReliaStar asserted Tuesday that LTCM represented only a tiny portion of a $13.5 billion investment portfolio.
"It's a very small percentage, a miniscule percentage," said spokesman Dana Ripley, noting that LTCM was the only hedge fund in which ReliaStar had investments.
Ripley added that "it's not so untypical" for a company to place at least some of its money in a high-risk investment. Hedge funds, which make their money -- or lose it -- through a complex series of financial gambles, are considered one of the highest-risk investment vehicles.
Nonetheless, the steady trickle of disclosures has rippled across the financial sector, lending to a heightened sense of caution that economists say is already making business loans more difficult to secure.
ReliaStar also said Tuesday it plans to repurchase up to $125 million of the company's common stock by the end of the year.
ReliaStar is the 11th largest publicly held life insurance holding company in the United States, with more than $21 billion in assets under management and life insurance policies of $279 billion. In 1997, the company reported revenues of $2.5 billion.
The company's subsidiaries include PrimeVest Financial Services, Washington Square Securities, Northstar Investment Management, and ReliaStar Investment Research.
Shares of ReliaStar (RLR) ended up 1/2 at 34-7/16 Tuesday on the New York Stock Exchange.
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ReliaStar
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