After a significant delay due to regulatory hurdles, MetLife (NYSE:MET) has completed the sale of its deposit taking business to General Electric’s (NYSE:GE) GE Capital Finance Inc. unit.  The deal will involve the transfer of $6.4 billion in bank deposits to the latter, and has allowed the insurer to start the process of deregistering as a bank holding company. MetLife has not disclosed the financial terms of the deal.
Our $39 price estimate for MetLife’s stock, implies a premium of 10% to the current market price. Please read our article: MetLife 2012 Review: Bank Sale Delay and Asian Expansion for a summary of the company’s performance in 2012 and future growth prospects.
How Does This Affect MetLife?
MetLife offered residential mortgage and deposit products through its banking subsidiary, MetLife bank. The division itself did not make a significant contribution to Metlife’s operations, accounting for just 5% of the company’s revenues and earnings before taxes (EBT). But as a bank holding company, MetLife was subject to the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR). The test was primarily designed for banks and required them to maintain a minimum total risk-based capital ratio of 8%, to withstand a hypothetical stress-scenario.
MetLife failed the test in March 2012, following which the Fed blocked the company’s plans to raise dividends and buy back shares. Despite the sale of its deposit business, MetLife might still be subject to strict regulations as it may be qualified as a systemically important financial institution (SIFI). We will keep a close eye on developments and update our model accordingly.
The upside implied by our price estimate is mostly based on MetLife’s plans for expansion in international markets, particularly in Asia. You can modify the interactive chart below to gauge the effect a change in MetLife’s share of the international insurance market on our price estimate.Notes: