Before the opening bell on Tuesday, the board of multi-line insurance giant MetLife Inc.MET announced the sanction of a new share repurchase program which will lift its existing share repurchase authorization to $1 billion.
Although the new buyback program is in line with management's long-term target of incremental shareholder returns, the news failed to cheer investors and the stock slumped 1.5% to $46.2 a share. Moreover, the stock has underperformed the S&P 500 index, posting a one-year decline of 14% against the S&P 500 loss of 2.6%.
Prior to this, the company had announced a $1 billion stock buyback program which was introduced in Dec 2014, and was completed in first-quarter 2015. The company is aggressively using its excess capital as it awaits the final capital rules yet to be drafted for federally regulated life insurers.
MetLife is contesting its designation as a systemically important financial institution, on grounds that its restructured operations pose less systematic risk than other banking institutions. The SIFI (systemically important financial institution) tag warrants stressful capital compliance scenarios, whereby MetLife will have to increase its capital-adequacy levels to guard against potential losses and contingencies.
MetLife ceased share buyback from 2008-2014 and as such did not return wealth to shareholders in its full capacity in the past. Though the company has closed its banking operations completely, the ongoing regulatory challenges and the acknowledgement of being a non-banking SIFI has put MetLife under the Federal Reserve's supervision once again as it has assets over $50 billion.
Stringent capital rules will tighten the company's operational and financial flexibility, resulting in additional compliance costs, which would ultimately weigh on lower-income consumers via higher product pricing. Additionally, the SIFI tag calls for regular financial scrutiny and eventual government-monitoring, which will also restrict the utilization of borrowed funds.
Although MetLife resumed share buybacks in Jun 2014, the SIFI compliances may hinder the completion of the previously targeted share repurchases worth about $8 billion by 2016.
MetLife carries a Zacks Rank #3 (Hold) currently. Some better-ranked stocks are Assurant Inc. AIZ , Cigna Corp. CI and FBL Financial Group Inc. FFG . Each of these stocks carries a Zacks Rank #2 (Buy).
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