MetLife to Sell Banking Unit to Avoid ‘Too Big To Fail’ Regulation

By and | July 22, 2011

MetLife, the largest life insurance company in the United States, has put its banking operations up for sale to avoid the “too big to fail” regulatory scrutiny that analysts have said was likely.

MetLife said Thursday it may sell MetLife Bank’s depository business, which includes savings and money market accounts. The company said it will still write home mortgages; life insurers tend to like mortgages as part of a diversified investment portfolio.

MetLife has hired Deutsche Bank, which ran the recent sale process for larger online bank ING Direct USA, to handle the sale. One industry source said many of the companies that lost out on ING Direct may look at MetLife Bank, among them Ally Financial and CIT Group.

Ally and CIT declined to comment.

One difference in this deal, a second industry source said, is that many of MetLife Bank’s customers are also customers of the life insurance business, raising questions about whether they would keep their deposits with the bank in the event it was sold.

As of June 30 MetLife was the seventh-largest bank holding company in the United States by total assets, according to the Federal Reserve. The bank itself is, however, usually ranked outside the top 50 by deposits and generated just 2 percent of the company’s operating earnings in the first quarter.

“We do not believe it is appropriate for the overwhelming majority of our business to be governed by regulations written for banking institutions,” MetLife Chief Executive Steve Kandarian said in a statement, adding it was “imperative that MetLife be able to operate on a level playing field.”


That notion of “level playing field” has been central to the global insurance industry’s argument against the regulation of insurers as too big to fail.

The argument goes that any such regulated insurer would have higher capital requirements and tighter risk controls than its peers, forcing it to underwrite less business and be more conservative in its decision-making than competitors.

“While it remains uncertain to what extent the new financial reform regulation will impact the large life insurers, we believe the sale of (MetLife’s) bank would help it avoid stricter capital standards,” Standard & Poor’s insurance equity analyst Bret Howlett said in a note.

FBR Capital Markets said MetLife may be regulated as too big to fail even with the bank sale, but potentially under a different set of standards for non-bank entities that would be more favorable to shareholders.

U.S. regulators are finalizing criteria for which banks should be named as “systemically important financial institutions,” or SIFIs. It is unclear when regulators will actually designate the companies, but it could be later this year.

A SIFI designation comes with tough regulation from the Federal Reserve that will restrain profits, because of stricter capital and leverage requirements.

The companies will also have to submit “living wills” to regulators. These documents will have to be continually updated and offer a blueprint for how the government can quickly and orderly dismantle the companies if they start to fail.

The insurance industry has voting representation on the systemic risk council, known as the Financial Stability Oversight Council, in charge of picking SIFIs.

Because of the bank, analysts have widely expected MetLife to be one of the insurers tagged as a SIFI. Other insurers, like Allstate, have sold or explored selling their banks to get out of such oversight.

MetLife closed up 2.8 percent at $42.04 on the New York Stock Exchange on Thursday.

(Additional reporting by Karey Wutkowski in Washington; Editing by Steve Orlofsky, Derek Caney, Phil Berlowitz)

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