Shares of MetLife Inc. MET surged after the District of Columbia federal judge Rosemary Collyer gave the verdict that the insurer is not "too big to fail" and should not be subject to stricter regulation. Shares of the insurer gained 5.35% to close at $44.73 yesterday.
MetLife was tagged as a non-bank Systemically Important Financial Institution (SIFI) in 2014 by the Financial Stability Oversight Council (FSOC). This tag also means that the insurer can shatter the U.S. financial system if it is distressed. The FSOC was just being careful lest the economy faces another financial downturn like the one when Lehman Brother collapsed in 2008.
Along with MetLife, the concurrent $182-billion bailout of American International Group Inc. AIG showed that it is not the only bank that can be held responsible for the financial crisis for an economy.
Once labelled, the company comes under the purview of the Federal Reserve for tighter monitoring and has to hold back more capital which restricts its capital deployment. In early 2015, MetLife slapped a case on FSOC stating that the decision was "arbitrary and capricious".
MetLife has been stating that its business model is designed is such a way that will not threaten the financial stability of the U.S. market. The insurer was also mulling over breaking up its business in order to get rid of the designation.
The reasons for the judgment haven’t been revealed yet. However, some of these could be made public if the parties agree on the meeting to be held on Apr 6. While this was a huge win for the insurer, it was a big blow for the FSOC.
Notably, following the win, shares of Prudential Financial Inc. PRU and AIG rose 2.0% and 2.12% respectively in yesterday’s session. Both these companies carry the SIFI tag. Another company that also has the SIGI tag is General Electric Capital Corp. – the finance wing of General Electric Co GE.
MetLife faces headwinds like low interest rates, adverse foreign exchange, taxes, the Department of Labor’s decision on sale of variable annuities and stiff competition. Removal of the SIFI status comes as a breather for the company. MetLife, however, maintains a diversified business mix and is one of the strongest brands in the world. Its consistent inorganic growth via acquisitions and divestitures allows it to focus on core growth areas, which in turn pave the way for long-term success. The insurer’s balance sheet is strengthened by its solid cash balance and lower debt level. Following the non-SIFI status, MetLife will not only have financial flexibility but will also be able to pursue business restructuring and capital deployment.
MetLife presently carries a Zacks Rank #4 (Sell).
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