Updated with market close information and comment from St. John's university professor Anthony Sabino.
NEW YORK (
is ending the year by taking a big first step in ridding itself of the "bank" label that's been dragging on the shares, but the company is unlikely to escape continued
That's why the shares rose only slightly, to close at $31.20, after the announcement of a partial sale of the life insurer's
. The sale is expected to be completed in the second quarter of 2012, "subject to certain regulatory approvals and other customary closing conditions."
The sale includes the bulk of MetLife Bank's deposits and its Internet deposit gathering platform, but does not include the bank subsidiary's forward mortgage business, or associated deposits.
A MetLife spokesman confirmed that the bank was still opening new deposit accounts over the Internet and taking mortgage application.
MetLife was included among
, with so much of the stock's upside reflecting the 30% year-to-date drop in the shares (as of Dec. 16). The weakness in the shares is based in part on the market perception that being considered a bank holding company -- while the bank's balance sheet made up only 2% of MetLife's total assets as of Sept. 30 and "banking, corporate and other" revenue only made up 3% of total third-quarter revenue -- was not in the best interest of the life insurer.
The bank's contribution to MetLife's bottom line is quite small, despite the growth of its mortgage origination and servicing business. MetLife was the 10th largest mortgage loan servicer in the U.S., with servicing volume of $116 billion as of March 31, according to Credit Suisse, which cited data provided by Inside Mortgage Finance.
Following the announcement that MetLife was exploring the sale of the bank subsidiary in July, the holding company recorded a $65 million third-quarter goodwill impairment charge on the banking unit. MetLife announced in October that it would also pursue the sale of its forward mortgage origination business.
When MetLife announced on Oct. 25 that the Federal Reserve had rejected its capital plan -- which would have included an increase to the company's annual dividend -- the company stated quite clearly that even though its "business activities are predominantly in the insurance sector, by virtue of its ownership of MetLife Bank, it is a bank holding company," and its "capital planning and distribution activities relating to dividend increases and stock repurchases are subject to prior review and approval by the Federal Reserve."
The company is required to submit another capital plan by Jan. 7, for the Fed to use in its latest round of
, which will include a severe set of economic assumptions, in order to make sure large financial holding companies can withstand current and increased returns of capital to investors, even in a difficult recession.
CEO Steven Kandarian said that the company would "take the necessary steps to no longer be a bank holding company," in order to "ensure that MetLife is able to operate on a level regulatory playing field with other insurance companies" however, it is pretty clear from the Federal Reserve's
of large financial companies, that the largest life insurers will be included among the "systemically important" entities.
So where does this leave investors?
The regulatory battle continues, as the public comment period following the Federal Reserve's rules proposal will end on March 31, but it's pretty clear that large insurers like MetLife will still be forced to submit annual capital plans to the Fed, even if they are not considered to be bank holding companies.
So investors may have to wait longer than they anticipated for increased dividends and/or share buybacks.
But MetLife's shares are cheaply priced, and selling-off the entire banking business will be a good thing, focusing the company on its core business, while avoiding some of the political targeting of banks.
St. John's University business and law professor Anthony Sabino said "Grandma used to say 'stick to your knitting,' and that's precisely what MetLife is doing here," adding that "with the Great Recession having crushed the notion of the 'financial supermarket,' MetLife is rightly seeking to stay within its core competencies of insurance and related products. GE Capital, likewise wounded by the Recession, is looking to bolster its holdings."
MetLife's shares traded for just 6.2 times the consensus 2012 earnings estimate of $5.04, among analysts polled by FactSet, based on Friday's closing price of $31.10.
Out of 19 analysts covering MetLife, 16 rate the shares a buy, while the remaining three analysts have neutral ratings. Based on a mean price target of $45.37, the shares have 46% upside for 2012.
Interested in more on MetLife? See TheStreet Ratings' report card for
Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.