Monday, August 8, 2011

Frannie, Freddie, and Family

Jim Malone was brought in to head up Citizens in 2008; he is a specialist in turning flailing companies profitable. In reference to a lack of experience in insurance, he stated that
Because I don't have a strong bias going in, I have no selfish interest one way or another, and I don't have a long history of relationships to protect
But, he is also founding Sr. managing partner of Qorval with the following descriptor found on the company's website:
... He formed Qorval to emphasize saving, improving and rehabilitating companies, as opposed to liquidation. He has been CEO of five Fortune 500 companies in as many different industries, managed or participated in over 65 acquisitions and divestitures, led in and out-of-court reorganizations, and created international and domestic joint ventures and strategic alliances.
As successful as he is and in his late 60s, it is hard to believe that there are no existing relationships to protect.

In any case, in July of 2011, The Miami Herald reported that Malone proposed privatizing Citizens, which Rick Scott, former health insurance defrauder extraordinaire (eg. see here or just google the guy), quickly jumped on board . Malone stated,
My experience would say that any organization that has 1,400,000 customers, that has a premium revenue stream of close to $3 billion a year and a nice chunk of liquidity sitting on its balance sheet potentially has some value to the private world.
I am not an investment banker or one experienced in takeovers, but on the surface this seems reminiscent of the privatizing of Fannie and Freddie and the complicated relationships of financial responsibility that eventually led to economic meltdown (report found here). That Citizens is underfunded is a generally shared belief. If it fails while the state owns it then the Feds are left contemplating trying to save the state. But if it is privately owned, then they must contemplate saving a privately owned company. Why do that? This seems to place any benefits that are to be had by owning the company outside the state and the risk within it.

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