Lincoln, Insurers, May Become Banks in Quest for Federal Cash

Insurance companies including Lincoln National Corp. may seek to become banks to qualify for a slice of the $250 billion being doled out to financial firms by the U.S. government.

Lincoln National Chief Executive Officer Dennis Glass said today he’s weighing the transformation of his Philadelphia-based life insurer into a bank holding company. His comment came as Federal Deposit Insurance Corp. Chairman Sheila Bair said her agency, which protects bank customers, may play a role in regulating insurers.

Companies that reorganize as banks, a step already taken by securities firms Goldman Sachs Group Inc. and Morgan Stanley, may be able to more easily participate in the Treasury’s rescue package and get direct loans from the central bank. GMAC LLC, the money-losing mortgage lender, is already seeking such a transformation.

``We would do that,’’ Glass said on a conference call with analysts and investors today after the company said third-quarter profit fell by half. ``I doubt seriously it would prevent us from doing anything we are doing.’‘

Life insurers lost more than 40 percent of their market value this month on concern that declines in their asset-backed securities and corporate debt holdings would squeeze liquidity. American International Group Inc., once the world’s largest insurer, ceded control to the U.S. on Sept. 16 after losses from bad bets tied to housing.

The FDIC may expand to offer protection and regulations for more types of financial institutions, including insurers, Bair said today at a conference of international deposit insurers in Arlington, Virginia.

FDIC’s Role

``That might be a direction where our abilities would be expanded,’’ Bair said.

Brookly McLaughlin, a spokeswoman for Treasury, didn’t return a call seeking comment. David Skidmore, a spokesman for the Federal Reserve, declined to comment.

Investors who expect life insurers will get capital from the Treasury ``are too optimistic,’’ Eric Berg, an analyst at Barclays Plc, said in a note today. Berg said he reached the conclusion that government help was unlikely under the existing program after discussion with the Financial Services Roundtable, a trade association. His note to investors didn’t address the possibility of insurers becoming banks.

Goldman and Morgan Stanley last month transformed into bank holding companies and the federal government agreed to inject $10 billion into each of the New York-based firms. GMAC, the primary lender to customers of General Motors Corp., is seeking holding company status to quell doubt about its survival. The Detroit- based firm gained access to a separate program that’s designed to unlock the commercial paper market, a company spokesman said yesterday.

The federal government has already committed more than $160 billion to propping up banks.