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MET Life drops to 45% discount to Book Value

|Includes:MetLife, Inc. (MET)

Met Life shares have been throttled hard this quarter alongside its sector peers

  • MET shares are -39% this quarter to 26.8, which compares to the likes of PRU (43.93 = -31%); PFG (22.89 = -25%), AMP (39.77 = -31%), and LNC (15.3 = -46%).
Quite a few macro overhangs are sitting on top of the shares at the moment
  1. Weak Equity markets- hurts their large Variable Annuity business, in terms of potential for new sales growth and the adverse effects of mark to market (hits fee revenues and affects any guarantees to policyholders)
  2. Low interest rates - hurts the potential to earn adequate interest spread. Although MET are on record as saying they have hedges in place to help weather a low interest rate environment in the coming years, it does look as though the >30% discount to book value shows us the market fears a more prolonged Japan style scenario for future interest rate trends.
Maybe the market is afraid of a repeat of 2008 when the Met Life book value took a -40% hit (falling from 45.44 per share down to 27.33 per share).

Assuming such a scenario repeats itself (although the asset classes such as the MBS/ABS that contributed to the 2008 hit to BV are not replaying identically in 2011) then at 26.8 area, the shares might be closer to about 1x BV.

What is interesting is that MET expect in Q4-11 to have a $4.8B excess capital level for dividend increases and buybacks. If that excess capital level can weather the current capital markets headwinds, then it would be equivalent to 16% of the stock's current market capitalization...which isn't bad, and could set the stock up nicely for any market rebounds either in late 2011 or during 2012.


Stocks: MET