Sterne Agee Provides Color on MetLife, Buy

Sterne Agee provided color on MetLife (NYSE: MET) after a meeting with the company's new CEO Steve Kandarian. The conversation revolved around the issues of SIFI, capital deployment and macro exposures.

In a research report published today, Sterne Agee states regarding SIFI, "Given MET's status as a BHC, it is by definition a SIFI... Importantly, however, while MET is officially a BHC (has been since 1999), it's banking operations account for only about 2% of earnings and less than $20b (about $9b in core deposits) of the company's total $756b of assets (including separate accounts). In other words, it's hard to describe MetLife's bank as relevant either in the scope of the company's consolidated operations or more broadly within the banking sector overall. More in the body of the note on this subject."

With respect to capital deployment, Sterne Agee states, "Management reiterated its calculation of $6.5 - $9.5b of “excess” capital above a consolidated RBC level of 350-400%. This includes excess capital within the domestic and international insurance subsidiaries as well as cash/short-term securities at the Hold Co. While the investment community continues to look for an announcement from MET on its plans for deploying excess capital, CEO Kandarian reiterated that MET has targeted 2H11 for communicating its plans."

Regarding macro exposures, the report states, "CEO Kandarian reminded investors that MET actively reduced ALICO's exposures to peripheral Europe (including protecting some exposures through the purchase of CDS) and that MET “stand- alone” had little-to-no exposure to the region. On interest rates, mgmt reiterated its position that a sustained 2.50% 10-year Treasury yield would pressure 2011 EPS by $0.15 and 2012 by an incremental $0.05 in large part because the company purchased about $39b notional of interest rate floors, swaps and swaptions during the period 2003-2006 when rates were far higher (cost of protection far cheaper)."

At the moment, Sterne Agee has a Buy rating and a price target of $55 placed on the company's stock. On Thursday, MetLife added 1.61% to its value to close the day at $39.89. Its shares moved slightly higher in today's pre-market trading, rising 0.05% to $39.89.