In order to avoid the heavy scrutiny by the Federal Reserve after the Dodd-Frank Act, MetLife (NYSE:MET) decided to sell its retail deposit operations to GE Capital Financial Inc, part of GE (NYSE:GE) The two company recently announced an agreement under which GE Capital will acquire approximately $7.5 billion in MetLife Bank deposits, including certificates of deposit and money market accounts. The deal is expected to be closed in the second quarter of 2012.  Hartford Financial (NYSE:HIG) and Allstate also divested their banking operations to avoid Fed’s scrutiny. The sale of banking unit will bring MetLife on a level playing field with other insurers such as AIG (NYSE:AIG), Prudential Financial (NYSE:PRU) and Manulife Financial (NYSE:MFC).
We have a price estimate of $36 on MetLife’s stock, about 15% above the current market price.
The sale of banking unit is consistent with MetLife’s plans to exit its bank holding company structure and to put it on a level regulatory playing field with other life insurers. In July 2011, MetLife announced its intention to explore the sale of the bank. Fed oversight prevented the company from repurchasing stock or raising its annual shareholder dividend in 2011.
Given the small size of MetLife Bank relative to the parent company, the financial impact of the sale is not likely to be significant. The sale will, however, allow MetLife to better manage its capital in accordance with the current risk based capital requirements rather than bank focused Tier 1 capital rules.Notes:
- METLIFE TO SELL DEPOSITORY BUSINESS OF METLIFE BANK TO GE CAPITAL FINANCIAL, Press Release, MetLife Inc, Dec 27, 2011 [↩]