(FROM THE WALL STREET JOURNAL 4/25/15)
By Leslie Scism
As General Electric Co. moves to get out of the banking business
and refocus on its industrial operations, it also aims to rid
itself of some regulatory headaches.
According to analysts at Credit Suisse, its move could provide a
roadmap to MetLife Inc., a company that has complained of
potentially burdensome oversight from federal regulators.
In a note, Credit Suisse analysts said GE's decision to exit
from banking could be a precursor to a similar move to slim down by
MetLife, the biggest life insurer by assets in the U.S.
GE Capital and MetLife are two of the four non-banks designated
as "systemically important financial institutions" by U.S.
regulators.
The SIFI label means federal regulators believe the companies
could pose significant risks to the financial system should they
collapse, and thus they warrant additional oversight, such as
tougher standards on capital buffers against losses. Besides GE and
MetLife, the designated nonbank SIFIs are American International
Group Inc., whose $180-billion-plus bailout in 2008, since repaid,
is a large part of the reason there is a SIFI-designation program,
and Prudential Financial Inc., which is almost as big as
MetLife.
While the majority of the GE divestitures are expected to occur
over the next two years, GE said it plans to apply with regulators
for the unit to be "de-designated" as a SIFI next year.
For its part, MetLife has been adamant that its activities don't
pose any sort of risk to the broader financial system, and that the
SIFI designation could put it at a competitive disadvantage to most
of its peers.
MetLife is challenging its status as a SIFI in federal court.
The Credit Suisse analysts see MetLife following GE's lead if the
insurer loses its legal fight, and if the new capital standards,
which have yet to be developed by the Federal Reserve, prove
onerous.
"We would expect [MetLife] management to strongly consider a
broad restructuring including a breakup of the company," Thomas
Gallagher and two other analysts wrote last week.
He went further in an email to The Wall Street Journal on
Friday:
"I think MET has already been formulating a restructuring plan
as part of its contingency planning," Mr. Gallagher said.
A MetLife spokesman said the company doesn't comment on analyst
speculation.
At an investor event in 2013, MetLife Chief Executive Steven
Kandarian was asked if a breakup of the company might be in the
cards "if the SIFI rules become too difficult to manage," and he
responded: "If the rules don't come out the way we think they will
in terms of being reasonable, all options have to be put on the
table."
Mr. Gallagher and the Credit Suisse team wrote that a potential
MetLife "breakup and restructuring would have some added complexity
compared to what GE recently announced, as GE is primarily selling
off wholesale funded assets, and using proceeds to pay down debt
and free up capital to buy back shares."
Credit Suisse said one option for MetLife might be splitting off
its international business from its U.S. businesses. MetLife
acquired much of its global footprint by buying an international
life-insurance unit from AIG in 2010, as AIG was slimming down to
repay U.S. taxpayers.
Or it could create a "good bank/bad bank structure" where parts
of MetLife remain together as a SIFI but other parts are spun
off.
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