UPDATE 3-MetLife not rushing to return capital

Fri Apr 27, 2012 11:32am EDT

* Still working to shed bank charter

* SIFI status needs to be considered - CEO

* CFO expects up to $7 bln in ready capital by year-end

By Ben Berkowitz

April 27 (Reuters) - MetLife Inc will need to "examine a range of factors" once it sheds its bank holding company status before it can decide on returning capital to shareholders, the chief executive of the largest U.S. life insurer said on Friday.

The comments may have dashed some investors' hopes that the company could start buying back shares and paying a richer dividend as soon as July, though MetLife said it remains committed to returning capital at some point. Shares fell more than 2 percent in morning trading, even as S&P Capital IQ upgraded the shares to "buy" on valuation.

The Federal Reserve has twice blocked MetLife from raising its dividend and buying back shares in recent months, and the company is now selling off and shutting down businesses so it can shed the bank charter.

Some analysts had expected the company to return capital as soon as the bank charter was out of the way. But MetLife said Friday there were other considerations as well, including whether the company is designated a systemically important financial institution (SIFI) by the Financial Stability Oversight Council.

"It's a difficult environment from which to operate, from the point of view of providing clarity and certainty to our shareholders at this very moment on our capital plans," CEO Steve Kandarian said on a conference call with analysts.

He said the company was adamant the rules must be "tailored" to match standards usually used for insurers and not banks.

The council's decision is pending, and while the insurance industry has fought hard to make the case that insurers are not systemically important, most analysts and investors expect MetLife, and possibly a few others, to be tagged as nonbank SIFIs.

"Those things are still a moving target. To date, no one's been designated yet a nonbank SIFI, so we have to wait and see more on that," Kandarian said.

There were timing questions about the bank charter as well. Kandarian, asked whether MetLife was still hoping to close the sale of its deposit-taking business to General Electric by the end of the second quarter, said he couldn't be certain because it was in regulators' hands. It was that second-quarter estimate that had led some to assume the buybacks could begin starting immediately after, in July or thereabouts.

"We view (MetLife's) business mix and geographic reach as attractive, but note execution risk remains as MET seeks to exit banking and mortgage operations," S&P Capital IQ analyst Cathy Seifert said in a research note.

CAUTIOUS ON M&A

Either way, interim Chief Financial Officer Eric Steigerwalt said the company expected to have $6 billion to $7 billion of deployable capital by the end of the year, before taking into account any changes in dividend or share buybacks.

A number of analysts queried whether some of that money might be used for acquisitions, but Kandarian was cautious, saying any deal had to be a better use of capital than a buyback and had to almost immediately add to earnings.

"I'd say that right after the start of the crisis it was very much a buyers' market and ... now it's more of a neutral market. It's not like 2006, 2007 where it was clearly a sellers' market," he said, adding that MetLife is seeing a number of what it considers distressed sellers coming to market with properties they want to offload to repair their balance sheets.

MetLife shares fell 2.2 percent to $35.65 in morning trading. Through Thursday's close, the stock was up 17 percent for the year, against 11 percent gains for the S&P insurance sector. But the stock is off nearly 10 percent since a recent high on March 13, and Seifert said it now looks undervalued relative to peers.

On Thursday afternoon, the company reported a net loss for the first quarter after losing $1.3 billion on derivatives used to hedge changes in interest rates. It was the latest in a week of high-profile headlines for the insurer.

Earlier on Thursday, MetLife said it would stop selling reverse mortgages, cutting 500 jobs in the process. The company had been by far the largest in that industry, with a market share this year of about 23 percent.

On Tuesday, board member Eduardo Castro-Wright resigned amid a growing scandal over alleged bribe payments by businesses he oversaw for Wal-Mart.

On Monday, the company said it would pay nearly $500 million to end a multistate probe into its use of the Social Security "Death Master" file, after an investigation into whether it was doing enough to find dead policyholders.

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