MetLife Gets Three More Months To Clean Its Operations

June 22nd, 2012 by Trefis Team
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MetLife (NYSE:MET) can breathe a sigh of relief as the Federal Reserve moved the submission deadline for its capital plan from June 12 to September 30. [1] The insurance company had earlier failed the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) test as it was not able to maintain the minimum total risk-based capital ratio of 8%, required by financial firms to withstand a hypothetical stress-scenario.

Although this test was not intended for insurance companies, MetLife had to participate as it owns MetLife bank and is regarded a bank-holding company. After the initial failure, MetLife was required to submit its capital plan, outlining its proposed dividend and buyback activity for 2012. (See MetLife Fumes as it Fails Fed Stress Test)

Citigroup (NYSE:C), SunTrust Banks Inc. and Ally Financial Inc are the other financial firms who failed the Fed’s stress test in March.

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See our full analysis of MetLife

Extension Alleviates Worries

MetLife is trying to sell its bank assets in order to avoid the Fed’s regulations. The proposed sale of its retail deposit business in the U.S. to General Electric’s (NYSE:GE) GE Capital Finance is currently awaiting approval from the Federal Deposit Insurance Corp. The sale was announced last year, well before the Fed’s stress test. The authorities have recognized this as a special situation and have given MetLife a three-month extension to resubmit its plans and wind up its banking operations.  Once out of the Fed’s umbrella, MetLife will be able to raise dividends and buy back shares and will be on a level playing field with competitors Prudential Financial (NYSE:PRU) and Manulife (NYSE:MFC).

MetLife has been performing well so far this year and, despite failure on the stress test, it has adopted a risk averse strategy and decided to cut back on variable annuities while increasing its investments in emerging markets and progressive technology solutions. (See MetLife Updates: Cutting Back On Variable Annuities While Looking For Growth Abroad) As financial awareness grows among the U.S. demographics, we expect insurance sales to grow through the Trefis forecast period. U.S. retirement annuities account for 10% of our price estimate for Metlife’s stock.

We have a price estimate of $39 for MetLife’s stock, which is about 15% above the current market price. You can gauge the effects of a change in forecast by dragging the trend-line in the chart above.

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Notes:
  1. MetLife Wins Fed Extension to Resumbit Capital Plan, Bloomberg News, June 19th, 2012 [↩]