MetLife Brushes Off SIFI Tag, Cuts Cost, Remodels Business

On Jun 13, 2016, we issued an updated research report on MetLife Inc. (NYSE:MET) . The company’s first-quarter 2016 earnings of $1.20 were down by 16 cents from the year-ago quarter. Earnings were hurt by a combination of external involuntary factors such as weak equity markets, continued strength in the U.S. dollar and low interest rates.

Faced by external challenges which are beyond the company’s control, MetLife is trying to protect its profitability by addressing its cost structure. To this end, the company is planning to exit proprietary retail distribution in the U.S. with the aim of saving run rate expense by approximately $250 million per year after tax. It will also help the company to get rid of its significant exposure to market volatility and interest rate risk attached to the business of this unit.

After the first-quarter earnings decline, MetLife is also mulling over scaling back most of its hedge fund portfolio over the next two years which led to losses in investments. These measures will lead to more predicable cash flows which can be used to generate wealth for its shareholders.

MetLife is therefore, trying to focus on business that would generate higher return on equity. Hence, it is expanding internationally, where it holds several market-leading positions in both mature and emerging markets.

METLIFE INC Price and Consensus

METLIFE INC Price and Consensus | METLIFE INC Quote

MetLife also heaved a sigh of relief after it recently shrugged off the SIFI status which saved it from stringent capital regulations that it would otherwise have to follow. The company was vehemently contesting its SIFI status for the past several months and the final ruling. Its peers Prudential Financial Inc. (NYSE:PRU) and American International Group, Inc. (NYSE:AIG) are however still carrying the SIFI tag.

MetLife carries a Zacks Rank #4 (Sell). A better-ranked player in this space is FBL Financial Group Inc. (NYSE:FFG) with a Zacks Rank # 2 (Buy).