MetLife to Break Itself Up, Citing 'Regulatory Environment'
The Financial Stability Oversight Council will face critical tests in 2016, including a lawsuit over its designation of MetLife as a systemically important nonbank and whether it will de-designate GE as a SIFI.
The Financial Stability Oversight Council is an enigmatic interagency body that has not provided enough rationale for designating certain insurance firms as a threat to the economy, the Republican leadership of the House Financial Services Committee said Tuesday.
A major investor in insurance giant American International Group is calling on the company to break itself up into three companies to get out from under its designation as one of only four systemically risky nonbanks.
WASHINGTON — The insurance giant MetLife dropped a bombshell on Tuesday, saying it would separate a "substantial portion" of its U.S. retail segment, in part because of the current "regulatory environment."
The company made the announcement in a three-page statement emailed to reporters, in which it said it would create a new company worth roughly $240 billion in total assets.
"MetLife has been evaluating opportunities to increase sustainable cash generation and is directing capital to businesses where we can achieve a clear competitive advantage and deliver a differentiated value proposition for customers," Steven Kandarian, MetLife's chairman, president and chief executive, said in the statement. "This analysis considers the regulatory and economic environment in each market where we do business."
It said it had not yet determined how the separation would take place — either through the establishment of a new publicly traded company, spinoff or sale. But the firm said that it is preparing the necessary paperwork with the Securities and Exchange Commission to pursue either an initial public offering or a sale.
MetLife declined to elaborate beyond the details provided in the release, but said that the decision has no bearing on its pending lawsuit against the Financial Stability Oversight Council. The company sued the FSOC last year after MetLife was designated as a systemically important financial institution by the interagency council. Under the Dodd-Frank Act, nonbanks that are designated as SIFIs must face capital and liquidity requirements and be subject to supervision by the Federal Reserve Board.
MetLife said Tuesday that it has not yet determined whether it will seek to have the FSOC de-designate it as a SIFI after it completes the transaction.
The new company would consist of the following entities: MetLife Insurance Company USA, General American Life Insurance Company, Metropolitan Tower Life Insurance Company and "several companies that have reinsured risks underwritten by MetLife Insurance Company USA," the firm said.
MetLife would retain its Group, Voluntary and Worksite Benefits segment, Corporate Benefits Funding segment, and Asia, Latin America division and Europe, Middle East and Africa division. A handful of other insurance businesses operated by Metropolitan Life Insurance Company will remain with MetLife as well.
The firm said that any separation will be contingent on regulatory approval from the SEC and relevant insurance regulators, as well as the approval of the MetLife board of directors. Since the form of the separation has yet to be determined, it cannot estimate a timeframe for the breakup, but MetLif said that if it takes the form of an IPO, it expects to file a registration statement with the SEC in roughly six months.
Another FSOC-designated systemically important company, GE Capital, announced last April that it would spin off its financial assets in order to get itself de-designated. Likewise, last fall American International Group investor Carl Icahn sent an open letter to the firm calling for it to break up in order to duck the SIFI designation. The remaining nonbank SIFI, the insurance firm Prudential, has made few public statements on its designation.
The FSOC did not immediately return calls for comment.
Lawrence Baxter, the head of the Global Financial Markets Center at Duke University, speculated that notwithstanding the company's insistence that the decision has no bearing on the lawsuit, the firm's chances to prevail might have informed the decision. But it is also likely that the company simply crunched the numbers and found that its size was not acting in its favor the way it once did.
"It may have been a business decision," Baxter said. "Maybe they are not getting the synergies that they thought by having all the different pieces put together. It's possible they looked at the appeal and the uphill battle they might or might not feel they've got and decided that it's just not worth it. They said, 'We can make more money as separate entities.' "