In an attempt to bow out of its banking company status, on Tuesday MetLife Inc. ( MET ) 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.
As of September 30, 2011, MetLife Bank deposits stood at $10.7 billion. The insurer is also the seventh-largest US bank holding company with $785 billion of assets.
Accordingly, the transition services agreement entered into by MetLife Bank and GE Capital include certificates of deposit and money market accounts. Meanwhile, MetLife is also exploring the sale of the remaining custodial deposits worth $3.0 billion in the upcoming months.
Besides, MetLife had appointed Deutsche Bank Securities Inc. of Deutsche Bank AG ( DB ) as its exclusive financial advisor, whileWachtell , Lipton, Rosen & Katz provided the legal advisory services.
The sale of the chunk of MetLife deposits to GE Capital complements the long-term business strategies of both the entities. On the one hand, the acquisition of consumer deposits opens up a door for internet retail banking to more than 100 million customers in the US, which is an avenue of penetration where GE Capital had shown its interest earlier this month. Moreover, a $7.5 billion account of deposits is estimated to be big enough to be among the top 100 banks in the US.
Taking up deposits from consumers will not only help GE Capital to expand an efficient funds base but will also help it to diversify from commercial paper and bonds. This in turn is expected to make GE Capital's business portfolio to be less reliant on the wholesale market, which a huge drag on the company's funding.
Meanwhile, MetLife's banking segment has been posting radical losses over the last several quarters and the bank holding company status has been attached with stringent regulations.
MetLife is also likely to furnish a fresh capital plan to the Federal Reserve (Fed) in January 2012, in order to hike dividends and recommence stock buyback, thereby deploying its excess capital efficiently. However, in October this year, the Fed rejected the company's plan based on the size and scale of its bank operations and has been since then closely and strictly supervising MetLife.
Hence, the company has long been aiming to divest its banking segment. 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.
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. TheALICO 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 run upside potential remains intact. This opinion is also in line with theZacks #3 Rank, implying a short-term Hold and long-term Neutral recommendation.
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