MetLife’s stock price soared more than 5 percent today as a result of a decision by the Federal Reserve Board to give MetLife more time to resubmit a capital plan that failed a stress test in March.
The stock rise was prompted by a MetLife securities filing today indicating that it will have until Sept. 30 to resubmit its capital plan.
The filing said that MetLife was informed by letter on Monday of the Federal Reserve Board decision.
“The extension allows additional time for the FDIC to act on the pending sale of MetLife Bank’s deposit business to GE Capital,” MetLife said in a statement.
The MetLife statement said, “once those deposits have been transferred out of MetLife Bank, MetLife will cease to be a bank holding company and [will] no longer be required to submit a capital plan or regulatory reports to the Federal Reserve.”
The Federal Reserve Board action followed by three days an investor’s note by John Nadel of Sterne Agee which said the recent underperformance of MetLife’s stock relates to investor concern that the Federal Reserve Board would force it to resubmit promptly the capital plan that failed in March.
Since MetLife would likely fail this stress test again, investors fear this could lead, under a worst case scenario, to a year’s delay in MetLife’s ability to raise its dividend or buy back stack, or perhaps a requirement to raise more capital, Nadel said.
After the 8k was filed with the Securities and Exchange Commission and MetLife issued a statement, MetLife stock was trading around 1:30 p.m. at $30.91, up $1.49 or 5.06 percent.
In the Sterne Agee investment note, the investor concern also deals with the fact that the FDIC decided not to deal with the sale issue at its June meeting.
In his note, Nadel said that the likelihood that the Federal Reserve Board, 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 Federal Reserve Board doesn’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 and leverage ratios both missed the minimum hurdles in March.
In the note, Nadel explained that the largest shortfall in MetLife’s recent stress test was in the risk-based capital ratio (RBC), which came in at 6% vs. minimum 8%.
This was because of MetLife’s low level of Tier 2 capital compared to its bank peers, not from higher risk, Nadel said.
As to the approval of the sale of the bank to GE Capital, “We remain hopeful the sale will show up on the agenda for the FDIC’s July meeting, though that agenda won’t likely be set for at least a few more weeks.”