MetLife's $1B Buyback Draws Flak amid Pending SIFI Tag - Analyst Blog

The board of multi-line insurance giant – MetLife Inc. (MET) announced the sanction of a new share repurchase program worth $1 billion, before the opening bell on Friday. Although the new buyback program was in line with management's long-term target of incremental shareholder return, the news failed to cheer investors as the stock slumped 4.3% to $52.82 a share. Moreover, the stock has underperformed the S&P 500 index, posting a one-year return of 12.8% against 3.2% clocked by the company.

The lackluster response was influenced by the upcoming decision on the non-bank systemically important financial institution (SIFI) status that MetLife could be tagged with later this month. Preliminary results released by the Financial Stability Oversight Council (FSOC) in Sep 2014 found the company  in the final leg before being acknowledged as a SIFI.

This tag will warrant stressful capital compliance scenarios, whereby MetLife will have to increase its capital-adequacy levels to guard against potential losses and contingencies. Along with a regular financial scrutiny, such extreme vigilance may exert pressure on desirable capital deployment, which curbed the excitement of shareholders over the new buyback last week.

Last year, the Federal Reserve had designated close peers of MetLife namely, American International Group Inc. (AIG), Prudential Financial Inc. (PRU) and GE Capital of General Electric Co. (GE), as SIFIs.

On the other hand, MetLife's leading brand is cushioned by its diversified business mix and a strong capital position, also reflected by its healthy ratings, dividend hike and resumption of share buybacks. In April this year, the company hiked its regular dividend payout by 27%, marking the second increment since 2007. Additionally, MetLife had resumed its share repurchase activity in June by targeting buybacks $1 billion by 2014-end.

MetLife had shares worth about $1.26 billion available for buybacks at Jun 2014-end from the authorizations in 2008. Of this, the company has bought about $967.1 million shares so far in the second half of 2014.

Overall, while MetLife is trying its best to steer clear of the SIFI radar on grounds that its restructured operations pose less systematic risk than other banking institutions, we remain on the periphery to analyze forthcoming developments on this issue.

Zacks Rank

MetLife carries a Zacks Rank #2 (Buy) currently.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
AMER INTL GRP (AIG): Free Stock Analysis Report
 
METLIFE INC (MET): Free Stock Analysis Report
 
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
 
GENL ELECTRIC (GE): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research