MetLife Bags Eastern Europe Aviva - Analyst Blog


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Yesterday, MetLife Inc. ( MET ) announced a contract to acquire life insurance and pension businesses of London-based Aviva plc in Hungary, Romania and Czech Republic.

While the terms of the deal remain undisclosed, the transaction is expected to culminate some time this year, once the regulatory approvals required are fulfilled. Besides, Metlife took the advisory services of Deutsche Bank AG ( DB ), while HSBC Holdings plc ( HBC ) advised Aviva about the deal.

Since last year, Aviva has been strategically channelizing its resources in the markets where it already holds a strong footing. Cosequently, Aviva vended its Investors' Australian business and ended its business alliance with United Arab Emirates' National General Insurance Co., in October and December 2011, respectively. Aviva had also significantly contracted its stake in Dutch insurer Delta Lloyd.

Hence, the decision to sell the eastern European assets is the outcome of Aviva acknowledging these three regions as low on its priority scale. The three European units up for sale had total assets of €57 million ($75 million) and accounted for less than 0.5% of total profits of Aviva at June 2011-end.

On the flip side, post its business restructuring into three geographical regions - The Americas, Asia and EMEA (Europe, Middle East and Africa) - MetLife is now keen on firming its footprints in EMEA as this region has ample scope for exploration of new business opportunities.

Hence, the recent part-acquisition of Aviva is expected to be a strategic fit in MetLife's long-term goals of expanding its reach in Europe. For this, MetLife is also well equipped with a diverse distribution network along with an extensive product basket, which includes well-resourced accident, health, retirement products and employee benefits. These efforts are believed to bolster earnings and capital growth, while injecting optimism among investors as well.

MetLife has long been aiming to divest its banking segment, given the stringent regulation attached to it. Management is also undertaking this step to re-focus on its core insurance operations. These efforts are expected to be accretive to earnings in the long run.

Accordingly, in early January this year, MetLife packed up its forward residential mortgage business, which originated under MetLife Home Loans. The closure in turn is expected to lay off about 4,300 employees, accounting for about 6.5% of MetLife's total 66,000 employee base, associated with this business.

Furthermore, in an attempt to bow out of its banking company status, on December 28, 2011, MetLife had agreed to sell its bank deposits worth $7.5 billion to GE Capital - the financial services unit of General Electric Co. ( GE ). The deal is expected to culminate by the end of the first half of 2012, subject to regulatory approvals.

Overall, we believe MetLife should continue to benefit from its diversified business mix as well as its leading brand. The company's capital position remains one of the sturdiest in the industry and is supported by fundamental growth, thereby giving tough competition to its peers such as Prudential Financial Inc. ( PRU ) and American International Group Inc. ( AIG ). Besides, the ALICO acquisition has already started to contribute to the company's growth while also inflating the value of investment portfolio.

Although, low interest rate environment along with detrimental performance of MetLife Bank and U.S. auto-home are likely to impact the results in the upcoming quarters, the long-term upside potential remains intact. This opinion is also in line with the Zacks Rank #3, implying a short-term Hold and long-term Neutral recommendation. Meanwhile, MetLife is scheduled to release its fourth quarter 2011 financial results after the market closes on February 14, 2012.

AMER INTL GRP ( AIG ): Free Stock Analysis Report
DEUTSCHE BK AG ( DB ): Free Stock Analysis Report
GENL ELECTRIC ( GE ): Free Stock Analysis Report
HSBC HOLDINGS ( HBC ): Free Stock Analysis Report
METLIFE INC ( MET ): Free Stock Analysis Report
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
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