Historical Stock Chart
3 Months : From Apr 2019 to Jul 2019
By Leslie Scism
When Steven A. Kandarian was named chief executive officer of MetLife Inc. back in 2011, it looked like smooth sailing ahead. The global financial crisis was over.
The problem was, the bond market never got the memo. Interest rates fell to never-before-seen levels, causing headaches for MetLife and other life insurers. The low yields depressed their interest income, a big part of their bottom line.
What's more, the Dodd-Frank regulatory overhaul ensnared MetLife. A new panel created by that law designated the company "systemically important" and subject to heightened oversight. Mr. Kandarian successfully sued the U.S. government to escape the designation.
As low rates persisted, in 2017 he spun off a fifth of the company -- its historic core selling life insurance to American families -- in part because the products required so much capital.
The 67-year-old executive is leaving MetLife April 30. He stayed two years past the insurer's customary retirement age to complete the spinoff and get succession underway. One of his deputies, Michel Khalaf, is succeeding him.
From his 56th-floor conference room in the MetLife building above Grand Central station in midtown Manhattan, Mr. Kandarian spoke about his eight years at the helm. Here, condensed and edited excerpts from that conversation:
WSJ: What decision was tougher: suing the U.S. government to challenge MetLife's designation as a systemically important financial institution, or spinning off the individual-focused operations symbolized by MetLife's long-time Snoopy logo into Brighthouse Financial Inc.?
Mr. Kandarian: The spinoff of Brighthouse was the more difficult decision. It was an emotional one. There was a lot of attachment to that business in our company, with our employees, former employees, customers and so on. The business dated back to 1868.
The spinoff enables our shareholders and investors in general to make a choice on both components of our business. The U.S. retail business has a different dynamic than the rest of our U.S. business focused on institutional clients and our international businesses.
The SIFI decision was more straightforward. In our view, it was an existential decision to our company: If we were designated, and if the Federal Reserve wrote capital rules for enhanced capital and regulation that put us on an unlevel playing field, it would make it difficult for us to remain as one company. We would have to ultimately give serious consideration to breaking up the company -- and for no good reason, we felt.
WSJ: Are you saying that divestitures beyond the Brighthouse spinoff might have occurred?
Mr. Kandarian: Brighthouse was 20% of the company. You would have to shrink the business significantly to get under whatever level FSOC felt hit their screen. It would have been a significant deconstruction of the company, beyond just the U.S. retail business.
WSJ: As it turned out, after challenging your designation by the Financial Stability Oversight Council, Donald Trump was elected president and began a rollback of Dodd-Frank. Two peers -- American International Group Inc. and Prudential Financial Inc. -- were "de-designated" thanks partly to Trump appointees to FSOC. Do you have second thoughts about the amount of money and management time you spent on the effort?
Mr. Kandarian: We felt that under Dodd-Frank we were not systemically important by the definition of the law, which is basically: Would material financial distress of MetLife pose a threat to the financial stability of the U.S.?
AIG and GE [ General Electric Co., another SIFI] dramatically changed their businesses, and I think that was a major factor in their de-designations. But Prudential did not. I don't think Prudential would have been de-designated had we not contested our designation in court and won.
WSJ: In other words, you helped a major rival?
Mr. Kandarian: We brought our case forward on behalf of our customers, our shareholders and employees of MetLife, and Prudential did benefit from that. We are still waiting for the thank-you letter from Prudential.
WSJ: You walked a fine line in pushing your case against the government and not being seen as too antagonistic. It has been clear that the SIFI designation rankled you. Talk about that.
Mr. Kandarian: I want to be careful here. But I've been thinking about this for a while and want to lay it out.
The federal financial regulators came under a great deal of scrutiny soon after the financial crisis broke out for having failed as regulators in certain cases....I think the SIFI designations for ourselves and Prudential were largely driven by the need of these regulators to restore their reputations and rebuild their standing in certain circles in Washington. It was more a political decision than an economic one.
We have an interest in an appropriately rigorous regulatory regime for our industry. We don't have in interest in gratuitous regulation or capital charges that are well beyond what is necessary for a solvent system, or a regulatory regime that puts companies on unlevel playing fields that make it difficult or impossible to compete. That is what the fight was about.
WSJ: What do you want to be remembered for from your tenure?
Mr. Kandarian: I think probably central to my tenure of CEO is the de-risking of our company.
When I was chief investment officer we de risked the asset side of our balance sheet prior to the financial crisis. We sold Peter Cooper Stuyvesant Town residential complex in New York City for $5.4 billion in 2006. That asset at that point comprised roughly half of our real-estate equity portfolio. I felt that was a too-concentrated position.
We also sold down the riskiest portion of our subprime mortgages. And we sold approximately $8 billion of credit assets that we felt would be most vulnerable in a consumer-led recession.
I focused a great deal on the liability side after becoming CEO. We exited some products entirely like long-term-care insurance, and reconfigured others to make them less capital intensive and less sensitive to assets rolling off our balance sheet and perhaps having to be reinvested at lower rates in the future.
WSJ: MetLife has committed to large share buybacks with its excess capital. It seems every day there is more criticism of buybacks. What can you say to people in this camp who think you are doing something wrong?
Mr. Kandarian: Some people have set this up as an either/or: Either you provide for your employees or you do shareholder repurchases. We do both. We provide health benefits to all of our employees. We provide sick leave to all of our employees. We have a $15 minimum wage. Everybody gets $75,000 or more of life insurance. And we provide a traditional pension to all of our employees.
At the same time we need to take care of those who provide us capital to run this business. Many of those are just ordinary people who are investing their retirement funds through institutional investors.
WSJ: MetLife shares have underperformed other big insurers during the period you were CEO. Anything you wish you had done differently?
Mr. Kandarian: It takes time to turn a big ship like MetLife. I'll give you one example. Sales that were made more than three years years ago represent 85% of our current bottom line. Because of the long-term nature of our liabilities, they stay with you for many, many years. In some cases, for many decades.
We addressed that to some degree by spinning off Brighthouse. But we still retain a significant number of liabilities related to our U.S. retail business.
We could have pursued shorter-term actions that may have driven up near-term earnings but could have exposed the company to losses in the future.
We know that to get better stock performance, we have to deliver clean quarters, show we can grow profitability and return capital to our shareholders when we can't use the capital more profitably.
WSJ: What's next? Will you run another company?
Mr. Kandarian: It is possible if I do that it would be with a privately held company.
I think the public company arena has become more difficult to operate in. The short-term nature of how investors look at things is one issue, and there are a lot of things today that CEOs didn't have to focus on as much in the past.
There are now roughly half as many public companies as two decades ago. That is an unfortunate statistic from the point of view of providing investment opportunities for ordinary Americans as they prepare for retirement. The private markets are less accessible to them than the public markets and the public markets are shrinking. So that's a regrettable consequence of short-term pressure on public companies.
(END) Dow Jones Newswires
April 25, 2019 10:40 ET (14:40 GMT)
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