MetLife to Shift U.S. Business, Target Global Growth

By Ben Berkowitz | May 24, 2012

MetLife Inc. will change `its product mix in the United States and push harder for growth in international markets to substantially boost returns by 2016, the largest U.S. life insurer said on Wednesday.

MetLife also said it had received two subpoenas in April and May from regulators looking into mortgage servicing and foreclosure practices at its banking unit. The company had shut its mortgage businesses by then, and is in the process of selling the deposit-taking portion of the bank to General Electric Co.

MetLife shares were down 2.7 percent in late-morning trading and were among the biggest decliners in the S&P insurance index . The fall was a continuation of the stock’s slide over the last two months.

The change in long-term targets is part of a strategic review in recent months by Chief Executive Steve Kandarian, who was promoted from chief investment officer a year ago.

MetLife said it would aim for a return on equity of as much as 14 percent by 2016, compared with 10.3 percent in 2011. Emerging markets should represent 20 percent of operating earnings in five years, up from 14 percent now, it said.

“The environment is not a wonderful environment; we all know that,” Kandarian said at the outset of an investor day presentation. “The key here is balancing growth, profitability and risk.”

Barclays Capital analyst Jay Gelb, in a note to clients, said the ROE target could be conservative because the company is assuming a “modest” level of share buybacks over the next five years.

The insurer plans to cut pretax expenses by $600 million through a variety of measures, Kandarian said, including consolidating vendors globally. Growth, on the other hand, would come from both existing businesses and acquisitions.

MetLife is one of several companies that have submitted first-round bids for the Asia life insurance business of ING , sources have told Reuters. MetLife boosted its presence in international markets in late 2010 when it bought global insurer Alico from AIG.

Sources have said a deal for the ING business could come in somewhere between $7.5 billion and $9 billion. Kandarian seemed to shy away from the prospect of a deal on that scale.

“If we’re able to pick up a property in Southeast Asia at a price that makes sense to us … we’ll do that, but we’re not going to simply chase blue sky deals,” he said.

MetLife’s comfort zone for dealmaking right now is more in the $2 billion to $3 billion range, he said.

ANNUITY OVERHANG

MetLife said it would shift its U.S. business mix toward products like accident and health insurance, and away from more capital-intensive businesses like annuities, to help make its cash flow more predictable.

“I think the variable annuity business is causing something of an overhang for MetLife’s stock,” Bill Wheeler, the president of MetLife’s Americas unit, said during the presentation. He said MetLife’s risk in that business was relatively limited, but the company would still keep sales down substantially from last year.

Wheeler also said operating earnings in the Americas should be “nicely higher” this year compared with the $3.9 billion posted for 2011.

Last month, the company reported a $174 million loss for the first quarter on derivatives losses tied to a rise in interest rates, but operating results were higher than expected. The strongest growth came in Asia and Latin America.

BANK IN LIMBO

In a separate filing on the subpoenas, the company said various state or federal regulatory and law enforcement authorities might seek monetary penalties from MetLife Bank, but it could not estimate the financial impact.

The sale of the bank to GE Capital is pending. At one time MetLife had hoped it would close by the end of June, but Kandarian cautioned last month that there could be no firm timetable because of all the regulators that had to weigh in.

A GE spokesman said the subpoenas should not have any impact on the deposit sale.

Getting rid of the bank, and the bank holding company charter that comes with it, is key to MetLife’s plans to raise its dividend and buy back shares. The Federal Reserve has blocked it from doing so twice in the last year.

Kandarian said Wednesday that MetLife had no more information now than a month ago on how soon the various regulators would consider the bank sale. He added the company would refrain from saying anything definite on share buybacks until the sale closes.

MetLife shares were down 84 cents at $30.23 on the New York Stock Exchange. Barclays’ Gelb described the valuation as “attractive,” as the stock currently trades at roughly two-thirds of book value.

It has been a volatile few months for MetLife investors. In the three months starting in mid-December, the shares rose about 36 percent. Since a mid-March peak, though, the stock had fallen some 21 percent as of Tuesday’s close.

 

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