Today’s quotable
Friday, Jul 10, 2015 - Posted by Rich Miller
* Bloomberg…
Allstate does not hold any general-obligation bonds of Illinois, where the insurer is based, as politicians haggle over a budget for the fiscal year that started July 1, CEO Thomas Wilson said.
“If you don’t like the income statement, the balance sheet or the governance, why would you loan them money just because they never defaulted before?” Wilson said yesterday at Bloomberg’s New York headquarters. “We have a philosophy that we’re not trying to take credit risk in the muni-bond world.”
The largest publicly traded U.S. home and auto insurer, whose ads say, “You’re in good hands with Allstate,” held $8.7 billion of municipal bonds as of March 31, down from about $25 billion in 2007. Wilson said in 2010 that borrowing by U.S. states “is way out of control.”
Wilson, who works at Allstate headquarters in Northbrook, said he’s told state lawmakers: “How’re you going to go broke? Gradually, then suddenly.”
* Wilson then added…
He said he’s been involved with “Illinois is Broke,” a statewide campaign about fiscal issues created by the Civic Committee of the Commercial Club of Chicago.
- Bluedog - Friday, Jul 10, 15 @ 11:07 am:
All State is smart and sees the writing on the wall! It seems everyone is running at the same time. All sellers and no buyers. That is why NYSE shutdown.
- walker - Friday, Jul 10, 15 @ 11:10 am:
Not surprising or inconsistent. Insurance execs are all about minimizing risk. It’s in their corporate blood. At least he is not singling out Illinois bonds. He’s reducing exposure across many states.
Hope he wasn’t part of the crew encouraging rating agencies to lower Illinois debt quality last year.
- Nick Naylor - Friday, Jul 10, 15 @ 11:11 am:
You can’t really argue with anything he said.
- Wordslinger - Friday, Jul 10, 15 @ 11:11 am:
Big talk from a guy who peddles a government-mandated product. He liked that governance just fine.
- efudd - Friday, Jul 10, 15 @ 11:12 am:
There’s broke, then there’s overextended. Illinois is overextended. Government always has the ability to generate income. Always nice to hear from those watchdogs for the taxpayer in the insurance industry though.
- Politix - Friday, Jul 10, 15 @ 11:13 am:
The 1% continues it’s campaign to sink Illinois, perpetuating the idea that we’re broke, a terrible place to start a business, etc. zzzzzzzzzzzzz
- walker - Friday, Jul 10, 15 @ 11:13 am:
==All sellers and no buyers. That is why NYSE shutdown.==
Really? And I thought it was ISIS. Or maybe even illegal aliens.
Had to laugh.
- efudd - Friday, Jul 10, 15 @ 11:13 am:
Slinger-you’re the best. You’re on Mt. Rushmore.
- A Jack - Friday, Jul 10, 15 @ 11:13 am:
I do own Illinois Bonds and several Illinois based companies, but I won’t be buying any Allstate stock based on their previous mishandling of homeowner claims during disasters.
- In a Minute - Friday, Jul 10, 15 @ 11:16 am:
Watch Allstate’s property tax bill shoot up 50% next year.
- Honeybear - Friday, Jul 10, 15 @ 11:16 am:
Sounds like one of those German austerity nuts.
- @MisterJayEm - Friday, Jul 10, 15 @ 11:17 am:
“All sellers and no buyers. That is why NYSE shutdown.”
Yes, except No.
– MrJM
- Huh? - Friday, Jul 10, 15 @ 11:18 am:
Bluedog the nyse shut down the other day because of a programming problem caused by an update, not because of a run on the market. The markets are going up, nobody is getting out.
If I had the money, I would be buying Illinois bonds.
- Anon2U - Friday, Jul 10, 15 @ 11:19 am:
=The 1% continues it’s campaign to sink Illinois=
Just stop playing the victim already. There is much room for improvement in Illinois and the so called 1%r’s didn’t do everything that got us in this mess.
- Anon - Friday, Jul 10, 15 @ 11:20 am:
In other news, the CEO of Allstate doesn’t understand the difference between a general revenue bond issued by a state and one issued by a municipality and has never heard of United States Trust Co. v. New Jersey in spite of being a CEO of a company that’s holds billions of dollars in bonds.
BTW - Rich, United States Trust Co. v. New Jersey is a pretty great case to look at when considering Illinois budget gap and over all debt. It’s one of my favorite opinions,
- steve schnorf - Friday, Jul 10, 15 @ 11:27 am:
Yeah, that’s a real sharp analysis of risk. There are all kinds of muni bonds and some revenue bonds from some communities, special taxing districts, muni-owned utilities, etc, do have more risk than an insurance company (and many others) would want. But full faith and credit bonds from states, including Illinois, have risk of default that blue chip companies would envy, and with Illinois you get an interest premium to go with it. If Mr Allstate has had a single default in his portfolio in the past 50 years, it wasn’t a state government general obligation bond
- A Jack - Friday, Jul 10, 15 @ 11:30 am:
And if you review the companies that beling to civic committee, you will see many of them are in financial trouble, Sears Holding, The Tribune, to name a couple. Rather like the pot calling the kettle black with that organization.
- A guy - Friday, Jul 10, 15 @ 11:32 am:
Have to agree with Mr. Schnorf here. The risk of muni’s is very small compared to much of the portfolio options. Interestingly, it would seem Mr. Good Hands would be better off suggesting the yield wasn’t high enough.
- Demoralized - Friday, Jul 10, 15 @ 11:34 am:
He’s making a political statement and not a sound financial decision.
- Ethos - Friday, Jul 10, 15 @ 11:35 am:
I’m not that concerned since Allstate was crowned the WORST insurance company in America by the American Association for Justice.
Google their report and you will see that Allstate continually put its profits over policyholders. The report has statements from former Allstate adjusters claiming they were rewarded for keeping the amount of money paid on claims low, even if they had to lie to their customers.
We shouldn’t be doing business with guys like this.
- Precinct Captain - Friday, Jul 10, 15 @ 11:41 am:
As insurance executive, Mr. Wilson knows something about bankruptcy, the moral kind.
- Politix - Friday, Jul 10, 15 @ 11:42 am:
Anon2U -
I wasn’t blaming the 1% for IL’s economic status.
Read.
- Anon2U - Friday, Jul 10, 15 @ 11:47 am:
Politix,
So you’re just blaming the 1% for telling the truth then?
- Ghost - Friday, Jul 10, 15 @ 11:48 am:
What about State Farm? They made money even during the economic downturn on their investments and are based in Illinois…. I would be more curious to know what a actual powerhouse investor thinks of Il bonds over one of the little insurance companies….
- VanillaMan - Friday, Jul 10, 15 @ 11:52 am:
“We’ve got dirty hands at Allstate”
- Cook County Commoner - Friday, Jul 10, 15 @ 11:54 am:
Nevertheless, insurance company portfolios are some of the largest and most expertly managed in the country. For Allstate to eschew Illinois GO paper is a big deal. Like it or not, when you need money, you sometimes have to visit Mr. Potter.
- Almost the Weekend - Friday, Jul 10, 15 @ 11:58 am:
Blue State budget with a Red Stata tax philosophy. He sees the writing on the wall.
I think this could be a similar philosophy to somebody working for the state under the tier 2 system. Why work years and years for the state with a pension that might not be there or if it is… it’s value is comparable to the poverty line.
- Lord Chatham - Friday, Jul 10, 15 @ 11:59 am:
~~~The risk of muni’s is very small~~~
Guy: I don’t think you understand what Mr. Schnorf said. He said munis are risky; state bonds are solid.
- MoneyTalks - Friday, Jul 10, 15 @ 12:02 pm:
The man hosted a Bruce Rauner speaking engagement at Allstate’s Northbrook HQ during campaign season. I’d say he’s a bit politically motivated.
- Cook County Commoner - Friday, Jul 10, 15 @ 12:07 pm:
“Watch Allstate’s property tax bill shoot up 50% next year” -In A Minute @ 11:16 am
Not if Allstate calls Madigan & Getzendanner.
- A guy - Friday, Jul 10, 15 @ 12:18 pm:
We should get a comment from both Flo and the Gecko on this.
- Soccermom - Friday, Jul 10, 15 @ 12:21 pm:
I was recruited for a very fancy job working for Mr. Wilson. Would have tripled my salary. Then I met him and withdrew my name. Life is too short…
- Bluedog - Friday, Jul 10, 15 @ 12:23 pm:
-Huh?-
Only people buying are retired moms and dads trading stocks in their basement so they can save gas money by not going to the casino. The whales are all sellers at the same time. Ask TD:
Via email, TD Ameritrade wrote, “This morning we experienced an issue with an order router supporting one of our trading platforms. The issue was related to a software update that we made overnight. 7/10/2015
- 4 percent - Friday, Jul 10, 15 @ 12:25 pm:
Actions have consequences. You may disagree with his comments but you can’t dispute them.
- Anonin' - Friday, Jul 10, 15 @ 12:49 pm:
Wonderin’ if Mr. Wilson ( same guy from Dennis he Mennace show) has an PR bonds in the old portfolio? Can’t understand why an insurance company would hold tax exempts anyway. But hey he probably lives closes to TeamBungle and the Bobblehead — #2 U Turn Circle — and is tryin’ to help.
- Wordslinger - Friday, Jul 10, 15 @ 12:53 pm:
Curiously, if you go to the Allstate Investment and Asset Management page on the company’s website, there’s nothing but sweet talk about muni bonds.
But they seem to focus on higher-risk, higher-return revenue bonds in areas such as wind and hydro power and multi-family housing, not GO bonds.
Still munis are more than ten percent of assets under management.
And they have a big stake in equities as well, where, of course, you’re chasing higher returns but risking the whole bundle, theoretically.
- The Dude Abides - Friday, Jul 10, 15 @ 1:04 pm:
He said that they are investing in California? California was in very bad shape, as bad as Illinois but they turned it around by increasing revenue and paying down their debts. They increased revenue by raising their state income tax. Go figure.
- nixit71 - Friday, Jul 10, 15 @ 1:23 pm:
Do any of the state pension portfolios hold significant stakes in IL bonds (in relation to their overall bond holdings)?
- Arthur Andersen - Friday, Jul 10, 15 @ 1:23 pm:
Schnorf is, as always, spot on. The guy is saying that he went into Baskin Robbins once and picked a flavor he didn’t like, therefore he has decreed “All Ice Cream is terrible.”
Mr. Wilson’s energies and efforts, as a fiduciary to the stockholders of Allstate, may be more productively directed at improving customer service instead of carrying water for Tylenol Fahner.
- A guy - Friday, Jul 10, 15 @ 1:29 pm:
==== Lord Chatham - Friday, Jul 10, 15 @ 11:59 am:
~~~The risk of muni’s is very small~~~
Guy: I don’t think you understand what Mr. Schnorf said. He said munis are risky; state bonds are solid.====
Lord, read his, and then mine, again. He stated “some munis, taxing districts…”
There are a lot of very safe, low risk muni bonds out there. I understood him just fine. Thank you.
- A Jack - Friday, Jul 10, 15 @ 1:34 pm:
And today Citi downgraded Allstate to a sell. Perhaps they didn’t care for Allstate’s income statement.
- A guy - Friday, Jul 10, 15 @ 1:35 pm:
=== Soccermom - Friday, Jul 10, 15 @ 12:21 pm:
I was recruited for a very fancy job working for Mr. Wilson. Would have tripled my salary. Then I met him and withdrew my name.====
No wonder he’s bitter. Talk about totally blowing it big time!!
Life is too short S-Mom.
- Anon - Friday, Jul 10, 15 @ 1:36 pm:
Here’s an excellent article about part of the reason for the condition of Illinois’ pensions. It’s about La Grange but this sort of thing is probably widespread.
http://www.nytimes.com/2015/07/09/business/bad-math-and-a-coming-public-pension-crisis.html?src=busln
Assumptions have a huge impact on the pensions and there is always pressure to make assumptions that are rewarding to pensioners and easy on taxpayers and politicians.
- steve schnorf - Friday, Jul 10, 15 @ 1:47 pm:
4, your comment intrigued me, so I went to the dictionary, only to find “disagree” listed as the first synonym for “dispute”
- steve schnorf - Friday, Jul 10, 15 @ 1:54 pm:
Anon 1:36, if you think the state’s pension problems exist because they are using 50 year old actuarial tables, you need to give up that weed for a week or two and let your system’s clear up and get back to normal
- Anon - Friday, Jul 10, 15 @ 2:18 pm:
Steve, this is clearly something that went well beyond La Grange.
From the article:
“Chicago represents the most glaring example,” wrote Mr. Glennon, the founder of an online news service, WirePoints, which covers the fiscal morass in Illinois. “An actuary could have looked only briefly at some of its pension reports from years ago and seen the calamity to come. Reporters, political leadership and most pension trustees could not. Those who could understand were able to remain silent.”
Also:
The actuary, Timothy W. Sharpe, had the biggest market share of police and fire pension business in Illinois.
- Anonymous - Friday, Jul 10, 15 @ 2:21 pm:
I wonder if he realizes states cannot go bankrupt. Where’s the risk? Sooner or later, revenues will be “enhanced”.
- Mama - Friday, Jul 10, 15 @ 3:30 pm:
The games continue…
- Southern Illinois Hoopdee - Friday, Jul 10, 15 @ 4:11 pm:
I just see a lot of attacks against Allstate and not much actual evidence he’s wrong. I would say these insurance types have a very good handle on risk; if they didn’t, they wouldn’t be leading companies like that.
Like someone already said, Blue State budget, Red State (highly regressive) tax system. Something has to give, right?