Risk Management

Welcome Back, Conseco: A New Crisis

In this financial debacle — unlike the one that drove it to bankruptcy in 2002 — it holds securities of Lehman, AIG, and WaMu.
Stephen TaubSeptember 17, 2008

Conseco Inc., a company that’s associated with an earlier financial crisis, said it has major exposure to three of the most troubled financial giants in the current upheaval.

The big insurer said that it held various securities of Lehman Brothers, American International Group, and Washington Mutual, totaling about $103 million as of Tuesday. The news sent Conseco’s stock to a 42-percent decline, ending at $4.45.

Conseco said that it held $49.9 million in AIG debt, consisting of senior debt of the holding company, GICs issued by a subsidiary of the holding company, and American General Finance Corp. senior notes. The company said that it held $34 million of WaMu paper, including senior debt of the holding company and Washington Mutual Bank subordinated notes. Conseco also holds $19.3 million of Lehman paper, including senior debt of the holding company, subordinated debt of the holding company, derivatives issued by a subsidiary of the holding company, and debt issued by a broker/dealer subsidiary that did not file for protection under Chapter 11.

The combined holdings were about $166 million at June 30.

Conseco added the during the third quarter, through Sept. 16, the company has recognized losses of about $40 million on sales of securities of these issuers.

In late 2002, Conseco filed what is now the fourth-largest U.S. corporate bankruptcy after the debt-laden company collapsed under the weight of a large amount of debt incurred from a large number of acquisitions, including the $6 billion purchase of Green Tree, the largest lender to the mobile-home market. It emerged from bankruptcy in 2003.