MET MetLife Inc

Last week, MetLife Inc. (MET) announced its plan to sell MetLife Bank in order to avoid the stringent Federal regulations, which it faces as a bank holding company.

MetLife is primarily an insurance company, whereby the banking unit contributed to merely 2% of its operating earnings in the first quarter of 2011. Although MetLife is the seventh largest bank holding company in the U.S. on the basis of total assets, it lags far behind the top 50 position on the basis of deposits.

This reflects the small scale of the company’s operation in this area. Yet its classification as a bank holding unit impels it to abide by all the strict rules and capital requirements imposed on banks, including those imposed under the Dodd-Frank Act.

Therefore, management desires to liberate MetLife from these regulatory strictures as they are adversely affecting the non-banking businesses and putting it at a competitive disadvantage. The company’s competitors such as American International Group Inc. (AIG) and Prudential Financial Inc. (PRU) are not bank holding companies and hence, do not face the same statutory regulations.

However, MetLife will only sell its banking unit overseeing its savings account, certificates of deposits and money market accounts. Meanwhile, it will continue lending via residential mortgages under its MetLife Home Loans business, which was launched in 2008.

MetLife has appointed Deutsche Bank AG (DB) to manage the sale. Besides, companies like Ally Financial and CIT Group Inc. (CIT), which failed to buy ING Direct, are now expected to bid for MetLife Bank.

While the sale will free MetLife from the regulations imposed on bank holding companies, it might still be classified as a systemically important financial institution (SIFI) by U.S. regulators. The criteria for identifying SIFIs are expected to be finalized by the end of this year. SIFIs will also be subject to regulations, but they are not as strict as those for bank holding companies.

We believe that the sale of MetLife Bank could minimize regulatory hassles, it will also help the company focus on its core insurance operations, thereby enhancing MetLife’s competitive edge over the long term. 

Currently, MetLife carries a Zacks #3 Rank, which translates into a short term hold rating.

 
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