A securities analyst said it is unlikely that the Federal Reserve Board may force MetLife to raise more capital, a concern that has led investors to undervalue the stock.
In a note to investors Thursday, John Nadel of Sterne Agee said the recent underperformance of MetLife’s stock relates to investor concern that the Federal Reserve Board may force it to resubmit the capital plan that failed in March.
Since MetLife would likely fail this stress test again, investors fear this could lead to the worst case scenario: a year’s delay in MetLife’s ability to raise its dividend or buy back stock, or perhaps a requirement to raise more capital.
Nadel said another investor concern deals with the failure of the Federal Deposit Insurance Corporation (FDIC) to act promptly to process MetLife’s application to sell its bank to GE Capital.
“We understand investor caution with respect to potential bad-case outcomes,” Nadel said.
“Clearly, it’s possible the FDIC continues to delay the closing of the sale,” he said.
All that taken into consideration, Nadel said in the note, “we believe the likelihood that the Fed, knowing the bank sale is pending, would require MetLife to raise dilutive capital to meet the minimum risk-based capital and leverage hurdles, is an extremely low probability outcome.”
Nadel explained that the core investor concern is based on a fear that the Fed won’t grant MetLife approval to avoid resubmitting, in which case it appears highly likely MetLife’s resubmission would again fail since even excluding the capital deployment plans, MetLife’s risk-based capital (RBC) and leverage ratios both missed the minimum hurdles in March.