MetLife (NYSE:MET) was one of four companies that failed the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) test, which was applied to many of the largest U.S. financial firms. Citigroup (NYSE:C), Ally Financial and SunTrust also failed the stress test, which applied worst-case scenarios through the end of 2013.
The Fed stated that the minimum total risk-based capital ratio should be 8% to withstand the stress scenario, and it estimated that MetLife would be at 6%. While MetLife is primarily an insurance company and did not participate in the Troubled Asset Relief Program, because it owns MetLife Bank it is considered a bank holding company. The company was therefore required to participate in the 2012 CCAR and submit its capital plan to the Federal Reserve for review. 
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MetLife plans to cease being a bank holding company by mid-2012. Last December, it reached an agreement with General Electric to sell its online banking operations, and it is also winding down MetLife Bank’s forward mortgage business. 
MetLife had excess capital of $3.5 billion at the end of 2011 and management expects that to grow to $6-7 billion by the end of 2012. The company wants to return excess capital to its shareholders, but its plan for $2 billion in stock repurchases and a dividend increase from $0.74 per share to $1.10 per share was rejected by the Fed.
According to Steven A. Kandarian, CEO of MetLife,
“The bank-centric methodologies used under the CCAR are not appropriate for insurance companies, which operate under a different business model than banks. The established ratios used to measure insurance company capital adequacy, such as the NAIC’s risk-based capital ratio, show that MetLife is financially strong. At year-end 2011, MetLife had a consolidated risk-based capital ratio of 450%, well in excess of regulatory minimums.” 
We have a price estimate of $39 for MetLife’s stock, which is about in line with the current market price.Notes:
- MetLife Misses Federal Reserve Target in Stress Scenario, March 14, 2012, Bloomberg [↩]
- MetLife Comments on Federal Reserve’s Comprehensive Capital Analysis and Review, March 13, 2012, Press Release [↩] [↩]