BOSTON (AP) – Shares of MetLife Inc. fell on Friday after its CEO declined to predict when the life insurer might buy back shares or otherwise return capital to shareholders, in part due to uncertainty over federal oversight after the company failed a recent government stress test.
THE SPARK: In a conference call with analysts on Friday, Steven Kandarian said that the timing depends on several factors, including regulatory issues, the company’s financial performance and capital position, and the state of the economy. In response to an analyst’s question, Kandarian said: “Right now, I just don’t see any upside in me making predictions about what all those factors will look like at the point in time when we can return capital to our shareholders. I’m afraid that’s not the clarity you’d like to have, and frankly, it’s not the clarity I’d like to give you, but that’s the environment we’re living in.”
THE BIG PICTURE: Analysts have been pressing the company for details on when it might buy back stock or increase its dividend, given MetLife’s excess capital. Last month, MetLife was named as one of the four banks to fail Federal Reserve stress tests designed to determine whether banks are strong enough to survive a severe economic downturn. The 15 banks that passed got approval from the Fed to buy back shares and boost dividends to make their stock more attractive to investors.
MetLife and three others weren’t allowed to increase dividends or buy back shares. MetLife, which had planned to buy back $2 billion in stock and raise its dividend, said it was “deeply disappointed” with the Fed’s findings. The insurance company had previously announced plans to free itself from the Fed’s oversight by selling off its bank division. In announcing quarterly earnings after markets closed on Thursday, MetLife said it was getting out of the reverse mortgage business as part of its exit from retail banking.
In Friday’s call, Kandarian was unable to offer an outlook on when the company might obtain regulatory clearance to complete the bank sale and remove its status as a bank holding company. “We just can’t say with certainty when the regulatory approvals will be forthcoming,” he said.
THE ANALYSIS: Sterne Agee analyst John Nadel, who has a “Buy” rating on shares of MetLife, said in an email on Friday that “management’s tone shifted to a more cautious/conservative view on the potential timing for the closing of the bank sale to GE Capital, as well as the overall outlook for capital management thereafter.”
Because of the change in tone, Nadel said short-term investors in the stock may have been selling shares Friday. “But my suspicion is longer-term investors will now feel more comfortable stepping in given expectations should be reset,” he said.
Fitch Ratings on Friday said MetLife still faces significant federal oversight, despite its strategic dismantling of its bank holding comp any structure. Fitch said the insurer “may once again be subject to government scrutiny regarding capital deployment when the Fed reveals later this year which non-banks are classified as systemically important financial institutions.” Fitch said it continues to believe that it is “reasonable to expect” MetLife may receive such a designation.
THE SHARES: Share of MetLife fell 44 cents to $36.03 in afternoon trading, after dropping as low as $35.52 earlier in the trading session. The stock traded at a 52-week high of $47.10 last May, and is up from a low of $25.61 reached in October.