) announced receipt of the regulatory approval from the Federal
Reserve (Fed) and the Federal Deposit Insurance Corp (FDIC) to
deregister as a bank holding company. The company has been aiming
to shed its banking status for about two years.
Given the size and scale of its bank operations amid a
concerned capital position in times of contingencies, MetLife
failed to pass the annual capital stress-test of the Fed, both in
Oct 2011 and in Mar 2012. The strict oversight from the Fed had
even barred the company's capital plan of authorizing a stock
repurchase program worth $2 billion and hiking its dividend to
$1.10 per share from the current 74 cents per share. However, the
Fed asked MetLife to submit a refurbished capital plan by the end
of Jun this year, after it failed to submit a fresh capital plan
scheduled for Jan 5, 2013, before which it missed the deadlines
in Sept and Jun last year.
Nevertheless, the company rapidly divested or shut down most
of its banking operations last year. Last month, MetLife reached
the final phase of exit from the banking business, when the
regulators approved the long-pending deal with
General Electric Co.
), a Zacks Rank #4 (Sell), financial services unit GE Capital
Retail Bank, and sold its bank deposits worth $6.4 billion. This
helped the company file for deregistration of its banking status
sooner than expected.
On Tuesday, MetLife reported its fourth-quarter 2012 operating
earnings per share (EPS) of $1.25, which modestly beat both the
Zacks Consensus Estimate of $1.18 and the year-ago quarter's EPS
of $1.17. Total operating revenue for the reported quarter
increased 12% year over year to $18.36 billion and also topped
the Zacks Consensus Estimate of $17.22 billion. Operating return
on equity (ROE) stood at 11.3% at 2012-end from 10.1% in
The upbeat results were primarily due to higher net investment
income, premiums and fees that drove the top line, ROE and book
value per share. These were partially offset by
higher-than-expected operating expenses and higher derivative
losses driven by the unfavorable impact of foreign exchange rates
and low interest rate.
Share Buyback Yet to be Withheld
While MetLife aims to repurchase shares worth $8 billion in
the next 4 years, the company does not expect any buybacks in the
next 2 years. This is due to the inflationary pressure and a low
interest rate environment, which is expected to remain prevalent
over the next 2-3 years.
Subsequently, operating earnings guidance reflects faltering
growth in 2013, which is projected in the range of $5.5-5.9
billion or $4.95-5.35 per share. MetLife reported operating
earnings of $5.69 billion or $5.28 per share in 2012. Management
also expects a cut of about 30 basis points (bps) in the
investment portfolio yield in 2013, pegging it at 5.27%.
Meanwhile, ROE is anticipated within 10.2-10.9%, below 2012-level
and long-term goal of achieving 12-14% by 2016.
We believe that these factors create a stressful growth
scenario and pose direct risk to the operating and competitive
leverage of MetLife. Nonetheless, the company's capital position
remains one of the sturdiest in the industry and is cushioned by
a diversified portfolio mix as well as a leading brand, as
reflected by its strong book value growth and healthy
Going ahead, the exit from banking status will help the
company better-focus on strategically strengthening its
product-mix, particularly in the emerging nations, in order to
generate more predictable operating earnings and cash flow. This
should also help improve MetLife's risk profile and enhance free
cash flow, which could then be used to enhance shareholders'
MetLife carries a Zacks Rank #3 (Hold). Other strong
performers in the insurance sector include
XL Group Plc
), all of which carry a Zacks Rank #1 (Strong Buy).
GENL ELECTRIC (GE): Free Stock Analysis
METLIFE INC (MET): Free Stock Analysis Report
RLI CORP (RLI): Free Stock Analysis Report
XL GROUP PLC (XL): Free Stock Analysis Report
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