MetLife Inc., the largest U.S. life insurer, may be pressed to speed its exit from banking after the Federal Reserve rejected plans for a dividend increase and share repurchase.
“My sense is Met is going to accelerate its plans,” said Dan Theriault, an analyst at Portales Partners LLC, who has a “hold” rating on the stock. The Fed rejection is “clearly an embarrassment for the company,” he said.
Chief Executive Officer Steven Kandarian said yesterday in a statement he was “disappointed” in the regulator’s decision and reiterated his strategy to limit Fed oversight by divesting the company’s depository and mortgage-origination businesses.
MetLife announced its reversal of course on banking this year to avoid increased capital standards. The New York-based company, which as an insurer is regulated by U.S. states, is subject to banking oversight from the Fed, alongside firms such as JPMorgan Chase & Co. and Bank of America Corp. JPMorgan was permitted in March to raise its dividend and buy back shares, while Bank of America’s plan was rejected.
MetLife’s annual dividend of 74 cents a share is unchanged since 2007. Prudential Financial Inc., the No. 2 U.S. life insurer, boosted the annual dividend last year 64 percent to $1.15, its highest payout since 2007. Prudential wasn’t among firms that had a capital plan reviewed by the Fed in March. Charlotte, North Carolina-based Bank of America has a quarterly payout of 1 cent a share.
‘Delay, Not Denial’
The Fed’s rejection of MetLife’s plan “should be a delay, not a denial, longer-term,” said Randy Binner, an analyst with FBR Capital Markets, in a research report today. While the divestiture of banking assets “may take some time to accomplish, we have little doubt that Met will aggressively pursue the sale,” said Binner, who has an “outperform” rating on the stock.
MetLife advanced 36 cents, or 1.1 percent, to $33.19 at 4:15 p.m. in New York Stock Exchange composite trading. The firm fell 25 percent this year, compared with the 15 percent decline in the 24-company KBW Insurance Index.
MetLife has reported seven straight quarterly profits after posting $2.6 billion of losses in the first nine months of 2009. The company, which didn’t take U.S. bailout capital, may post $1.2 billion of adjusted profit when it reports third-quarter results tomorrow, according to the average estimate of eight analysts surveyed by Bloomberg.
“Our analysis shows that the company’s current capital level and financial strength support capital action increases,” said Kandarian, 59. “We look forward to seeking and gaining approval of our capital plan from the Federal Reserve early next year.”
Bank of America, which got a $45 billion bailout during the financial crisis, posted profit of $6.2 billion in the third quarter after a loss of $8.8 billion in the second.
MetLife expanded its banking unit with two acquisitions in 2008. Chairman Robert Henrikson, who was CEO at the time, added employees at MetLife Bank and positioned the company to profit from an eventual housing recovery. The Dodd-Frank Act, passed last year, placed curbs on banks, and Kandarian said in July he was focused on putting MetLife “on a level playing field” with insurers that aren’t regulated by the Fed.
“I had my fingers crossed that they would make it,” said Christine Clifford, vice president of Access Mortgage Research & Consulting Inc. in Columbia, Maryland. “MetLife was growing really rapidly and they had huge goals. And I just think executing all those goals in such a short period of time when it’s such a tough environment” was too difficult, she said.
Assets at the MetLife Bank unit more than doubled to $16.5 billion in the three years ended in June, according to Federal Deposit Insurance Corp. data. Second-quarter operating earnings at the bank plunged to $14 million from $67 million on higher expenses and reduced mortgage sales, the company said July 28.
Allstate Corp., the largest publicly traded U.S. home and auto insurer, said in August it would shut its bank after a plan to sell deposits to Discover Financial Services failed to win regulatory approval. Insurer Hartford Financial Services Group Inc. struck a deal in May to sell the lender that it had acquired in 2009 to qualify for a bailout.
MetLife issued stock in 2008 as it built capital to guard against investment losses and again in 2010 as it raised funds to expand outside the U.S. with the purchase of American Life Insurance Co. for about $16 billion. The insurer freed up $1 billion selling operations in Venezuela and Taiwan and portions of its businesses in the U.K. and Japan, Kandarian said in July.
MetLife, which pays a dividend once a year, said in March that it was too early to state its plans.
“Our capital distribution activity typically occurs later in the year, and if our board should decide to pursue any such activity, that action will need to be reviewed and approved by the Federal Reserve at that time,” the company said March 18.
Christopher Breslin, a MetLife spokesman, didn’t respond to an e-mailed request for an interview with Kandarian.
The Fed has said its review included a test of how banks would absorb stresses of a typical recession, such as a decline in value of riskier assets, and an 11 percent U.S. unemployment rate.
The Fed told banks in November to consider conservative payouts that would allow for a significant build-up of capital. Jack Gutt, a spokesman for the Federal Reserve Bank of New York, declined to comment.