MetLife Getting No Love From the Market
March 24, 2009 by RickBryan
I thought my buddy was joking last week when he told me “MetLife is at $11.50!” Are you kidding?! No, he wasn’t. And only a few weeks before that, MetLife had been downgraded by one of the ratings agencies. What’s going on? Even a casual observer of the industry can recognize MetLife is the best run company in the sector, and as a market leader outclasses just about every other company in the insurance business. The answer is, I think, that most analysts simply do not understand the insurance business and are not willing to put in the time and effort to dig deep under the hood, and simply follow the herd mentality when it comes to looking at the financial services sector.
At an insurance conference sponsored by JP Morgan last week, few of the speakers were positive on the industry, although there were some notable exceptions. One of the fellows running the meeting; I didn’t catch his full name (he’s referred to as “Jimmy”, I believe), did distinguish MetLife as one of the bright spots in the industry. I’ve excerpted a short segment of the conference call, FYI:
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At the conference, MetLife executives Eric Steigerwalt and John Rosenthal presented a nice powerpoint showing in great detail why the company is so well positioned, and the analysts and ratings agencies are just missing the boat when it comes to rating their company. Listen to this short clip from Eric Steigerwalt; of course he’s in a room full of friends and colleagues so must be cordial, but I think the undertone is “hey guys, you just don’t have a clue!”:
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The most stunning aspect of MetLife’s presentation I think was that the internal analysts and systems at the company are so strong, MetLife recognized the current economic collapse well in advance and took proactive steps to position itself defensively. Listen to these two comments by John Rosenthal:
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Also regarding the subprime mess:
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Here’s one more slide (the complete powerpoint was filed with the SEC and is available via EDGAR), which illustrates MetLife’s Commercial Mortgage Backed Securities (CMBS) portfolio well positioned to withstand a deep decline in commercial real estate prices:
MetLife CMBS Defensifely Positioned
So then what’s the story with the stock price, and the “negative” outlook rating by the agencies? That’s unclear, although the ratings agencies do not have a lot of credibility any longer, the analysts don’t seem to be picking up the ball to do their own due diligence and separate the wheat from the chaff, as it were.
One last item: someone asked the question about MetLife asking for a piece of the TARP (Troubled Asset Recovery Program) money, or more commonly the “bailout” funds. I thought it was an interesting question and more interesting answer, because the speaker had just spent thirty minutes explaining why MetLife was in such great capital shape and had hedged and/or foresaw and prepared for the collapse of the residential and commercial real estate markets, but now the answer is “we have consistently not commented.” Bizarre. Secondly, no one even remotely familiar with the insurance industry would believe for one minute that MetLife’s Board of Directors would voluntarily put the Company in a position where their executives would be called to sit at those long tables in front of the House or Senate Committees and potentially take a public pummeling, deserved or otherwise. Not in a million years. Of course, it’s part of the job to ask the question anyway.
In any event, the point is that the analysts and market-drivers continue to miss the boat when it come to the insurance industry. And, MetLife outclasses the rest of the field so dramatically it’s not even a competition. *That being said*, as an insurance professional and financial advisor, this only means so much to you and your business and your clients. Explaining to your clients about a company’s Commercial Mortgage Backed Securities position is not worth a hill of beans if your applications aren’t processed and underwritten properly and timely, or a call center rep wasn’t as polite as your client expected, or account statements are confusing, or sales literature isn’t available, or advanced markets support is missing. A company’s capital position is usually an insignificant factor when it comes to the point when the client signs the application. Penn Mutual and John Hancock and Guardian Life and New York Life and AXA/Equitable and Northwestern Mutual and Hartford and Lincoln and MassMutual and Prudential and on and on and on; all quality companies themselves with both positive and negative aspects. *Your career* and your clients’ interests are much more dependent on the local sales and support structure available to you as a financial advisor. As diligently as MetLife investigates its collateralized mortgage obligations is how diligent you need to be when choosing whose logo will appear above your name on your business card. Choose wisely.
UPDATE: 3/26/09
Here’s a filing which was made today by MetLife with the SEC regarding the Temporary Liquidity Guarantee Program (TLGP), which is related to the TARP program, but not exactly.
On March 26, 2009, MetLife, Inc. (the “Company”) issued $397,436,000 of Floating Rate Senior Notes due 2012 (the “Notes”) in a transaction exempt from registration pursuant to Section 3(a)(2) of the Securities Act of 1933, as amended. The Notes are guaranteed by the Federal Deposit Insurance Corporation under its Temporary Liquidity Guarantee Program. The sale of the Notes was made pursuant to the terms of a purchase agreement (the “Purchase Agreement”) dated as of March 23, 2009 among the Company and Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc., as representatives of the several purchasers named in the Purchase Agreement. The Notes bear interest at a rate equal to three-month LIBOR, reset quarterly, plus 32 basis points. Interest on the Notes is payable from March 26, 2009 to maturity on June 29, 2012 on each March 29, June 29, September 29 and December 29, commencing June 29, 2009. The Notes are not subject to redemption prior to maturity. The Company expects to use the net proceeds from the sale of the Notes for general corporate purposes.
The Notes were issued pursuant to a fiscal agency agreement dated as of March 26, 2009 between the Company and The Bank of New York Mellon Trust Company, N.A., as fiscal agent (the “Fiscal Agency Agreement”). The Company agrees to furnish a copy of the Fiscal Agency Agreement to the Securities and Exchange Commission upon request.
Frankly, analyzing and understanding what this is about is quite a few steps above my pay grade, and I’ve got an Order to Show Cause which needs to be drafted and submitted tomorrow, and three dozen other cases in various stages of progress, so I won’t be (I don’t think) looking into this; it’s beyond the scope of the purpose of this blog. Here’s a link to a Wikipedia article regarding the TLGP program. If someone could explain what’s going on, we’d all appreciate it.
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