But Dennis Ward, Federal Trust's chairman, president and CEO, said in an interview that he does not expect the deal to fall through, and that he is not overly concerned about the regulatory order. "I don't see it as a significant issue at all," he said.
The deeply troubled $637 million-asset Federal Trust announced in November that Hartford agreed to buy it for about $10 million, or $1 a share. The deal hinges on the insurer getting a capital infusion through the Treasury Department's Troubled Asset Relief Program (TARP).
Hartford had yet to be approved for TARP funds last week. It returned a phone call, but did not have a comment on the issue by press time.
Ward said, "We are waiting on Treasury approval for the Hartford," and the deal would not proceed without it.
But all the other steps required to close the deal have been completed, he said, including OTS approval for Hartford to operate as a thrift holding company and a vote by Federal Trust shareholders in favor of the deal.
Hartford has said it would be eligible for $1.1 billion to $3.4 billion of government capital.
It is one of a handful of insurers that agreed to buy a struggling bank or thrift to qualify for TARP funds. Each deal depends on the insurer's participation in the Treasury program, and none have been approved for an infusion so far.
Federal Trust's thrift unit had a total risk-based capital ratio of 6.3% as of Sept. 30, 2008. A prompt corrective action from the OTS gave the company until Friday to boost that ratio to at least 8%, either through a sale or liquidation.
Suburban Federal Savings Bank in Crofton, Md., failed a week ago after missing a similar deadline in an OTS order.
A deal that Suburban struck to be acquired by Aegon NV fell through in December, after the Dutch insurance giant abandoned its plan to seek TARP funds.
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