After regulators slapped the too-big-to-fail label on MetLife Inc., Chief Executive Officer Steve Kandarian had several responses. One was to challenge government watchdogs in court -- a move shunned by other insurers that got the TBTF tag. The CEO also scaled back share buybacks to guard capital, and he announced a plan to make the company smaller.
Now that a federal judge has struck down the designation, Kandarian may have more flexibility on his plan to eventually have a sale, spinoff or public offering of a U.S. retail operation. And he could return more funds to shareholders, as he faces less of a threat of tighter capital rules. He may even be able to price insurance products more competitively after saying that Federal Reserve oversight would put his company at a disadvantage against less-regulated rivals.
“Kandarian can take a victory lap,” Robert Haines, an analyst at CreditSights, said in a phone interview after a U.S. judge ruled in the insurer’s favor Wednesday. “Big victory for MetLife shareholders.”
MetLife rallied about 5.3 percent to $44.73 at 4:15 p.m. in New York, the largest advance in the 90-company Standard and Poor’s 500 Financials Index. American International Group Inc. and Prudential Financial Inc., the other two insurers that were designated as non-bank systemically important financial institutions, posted the next biggest gains in the index, with each climbing at least 2 percent.
AIG, Prudential
Shareholders of AIG and Prudential will probably push those companies to challenge their SIFI designations as well, Haines said. Spokesmen for AIG and Newark, New Jersey-based Prudential declined to comment on how the ruling could change their strategy.
MetLife stock could be worth an extra $6 a share without the SIFI designation, John Nadel, an analyst at Piper Jaffray Cos., said in a note to clients. Without tighter capital rules that come with the label, the New York-based insurer could have an additional $2.5 billion or more to return to shareholders or deploy in other ways, he wrote.
“We’ll be studying all this over the coming days and weeks,” Kandarian said in a phone interview, when asked about the prospects for increased buybacks. He said that the U.S. has 60 days to file an appeal.
Kandarian said MetLife intends to follow through with plans, announced in January, to separate the retail unit. “They’ll proceed along the lines that we’ve been contemplating,” he said. The Treasury Department said Wednesday that it strongly disagrees with the court’s decision and will continue to defend the designations process at the Financial Stability Oversight Council, the body that declared MetLife a SIFI.
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