Mar. 19, 2014, 3:13 PM
- A check of sectors following the FOMC statement and updated projections suggesting a quickened pace of rate hikes in the future finds the banks and life insurers notably moving higher. Both groups have struggled earning a spread amid ZIRP and are positively levered to higher rates.
- Lenders: Bank of America (BAC +1%), Citigroup (C +1%), JPMorgan (JPM), Regions (RF +1.7%), KeyCorp (KEY +0.9%), SunTrust (STI +0.7%).
- Life insurers: MetLife (MET +1%), Prudential (PRU +0.7%), Lincoln National (LNC +1%).
- Related ETFs: XLF, FAS, FAZ, UYG, VFH, IYF, KIE, SEF, IYG, IAK, FXO, PFI, KBWB, FNCL, FINU, RWW, RYF, PSCF, KBWP, KBWI, FINZ, KBE, KRE
- Not necessarily positively levered to higher rates are the mortgage REITs (REM -1.6%): Annaly (NLY -1.8%), American Capital (AGNC -1.7%), (MTGE -1.9%), Armour (ARR -1.3%), Two Harbors (TWO -2%) CYS Investments (CYS -3.3%), Capstead (CMO -1.3%), MFA (MFA -1.8%).
- Related ETFs: MORT, MORL
Mar. 18, 2014, 11:04 AM
- Half a million doesn't buy much anymore. House Ways and Means Committee Chairman Dave Camp (R, Mich.) - a sizable recipient of Wall Street donations - has the large financial institutions displeased with his proposal to levy a tax on them. He says they deserve to pay up for the lower borrowing costs they receive because of their perceived government backstop, a notion the banks dispute.
- The proposal is part of larger tax reform expected to get serious discussion after the mid-term elections, and a Camp spokeswoman says the overall plan will make banks "some of the biggest winners."
- In discussions to hold a fundraiser for the NRC, Goldman Sachs (GS +0.9%) reportedly opted out over its concerns. Smaller bankers join in with their much larger brethren: "We're going to beat this like a rented mule," says Cam Fine, who heads the Independent Community Bankers Association. "This is a united effort."
- Camp's tax would apply to financial firms with assets greater than $500B, levying a 0.035% tax on total assets each year. Among those affected (in addition to Goldman) are AIG, BAC, C, GE Capital, JPM MET, MS, PRU, and WFC. The largest could pay more than $2B per year under the plan.
Mar. 11, 2014, 12:40 PM
- The insurance industry finds an ally in Maine Senator Susan Collins who introduces an amendment to Dodd-Frank seeking to clarify new capital rules for nonbank financials.
- Insurance companies have made the case they're not banks and already meet state-imposed leverage requirements, and thus shouldn't be subject to the same rules as banks, and the Fed - now a regulator of AIG and PRU, and maybe MET soon as well - has asked for guidance about whether Dodd-Frank allows it leeway.
- Not a member of the Senate Banking Committee, Collins testified the Fed does indeed have flexibility and her bill seeks to make that clear.
- Related ETFs: KIE, IAK, KBWI, KBWP
Mar. 8, 2014, 9:33 AM
- "MetLife (MET) is one of the cheaper stocks in a sector that is, itself, cheap relative to the market," says Eric Hagemann, an analyst at Richard Pzena's Penza Investment Management (an owner of the shares). A check of price/book (excluding investment gains) finds Met at 1.1x - grouped with Hartford (HIG) at 0.9x and Lincoln Financial (LNC) at 1.1x - but well less than Prudential's (PRU) 1.6x.
- Why the discount? Met is one of few remaining large financials not yet buying back any stock as it awaits direction from D.C. (which isn't expected until late this year or early next). In same boat, AIG and Prudential have both thrown caution to the wind and begun repurchases.
- On the other hand Met has boosted its dividend to $1.10 per share annually and the payout could approach $1.50 in 2015. There was also last year's $2B acquisition of Chilean pension fund provider Provida. If the new regulatory capital rules are too onerous, a breakup of Met into domestic and international businesses is a possibility.
- "In a record stock market, MetLife offers a nice package for investors: a rock-bottom P/E and price/book ratio, an attractive global franchise, and a financially astute management team," writes Andrew Bary.
Mar. 7, 2014, 9:42 AM
- The life insurers open strongly in the green as interest rates shoot higher following this mornings jobs report. Up the most is Prudential (PRU +3%) after BAML upgrades to Buy and boosts the price target to $103 from $94.
- The team views PRU's valuation as attractive after its sluggish start to the year - off 6% vs. a 1% increase in the median life name. There's also increased confidence the company can sustain an ROE above 14%, and a rising equity market means a lower cost of capital for the industry.
- Noting PRU's status as a SIFI, BAML takes a conservative view towards buybacks, assuming just $500M over the next five quarters. "However, we would not be surprised if PRU continued its current $1B a year pace of buyback, which we believe would help support the ROE."
- Others: MetLife (MET +2.1%), Lincoln National (LNC +2.2%), ING U.S. (VOYA +1.1%), Protective Life (PL +1.3%).
Mar. 4, 2014, 4:33 PM
- MetLife (MET) originated $3.3BN in agricultural loans in 2013, bringing its portfolio to more than $12B. Included in 2013's tally is $285M in loans to Brazilian crop producers, and the insurer is actively trying to drum up business in Canada, Australia, and New Zealand.
- "Agricultural lending provides MetLife with investment opportunities that match the long-term liabilities the company writes through its insurance products."
- Press release
Feb. 23, 2014, 2:40 AM| 1 Comment
Feb. 13, 2014, 11:56 AM
- "Low rates and regulatory uncertainty present risks, but the risk-reward seems attractive given potential for ROE expansion, MetLife's (MET -0.5%) improving risk profile, and attractive valuation," says JPMorgan's Jimmy Bhullar, following last night's earnings report. He rates the stock at Overweight with $58 price target.
- KBW's Jeffrey Schuman - who also has an Outperform, but with $64 price target - calculates core Q4 EPS at $1.40 (vs. $1.37 reported).
- Credit Suisse's Tom Gallagher - who also rates the shares Outperform and with $59 price target - is pleased with Met's international results given the mixed reports from Prudential and Principal Financial earlier this earnings season." Looking ahead to Q1, we still think our $1.41 estimate looks good as we expect higher earnings from Corporate Benefit Funding from higher spread income to offset our expectation for some near-term follow-through softness in annuities and Group Benefits, both likely subdued by quarter to date equity markets and adverse seasonal mortality."
- The company nearly doubled its quarterly dividend last year, but so far no buybacks while word is awaited from D.C. "We are not repurchasing shares at this time because we want to avoid the potential need to issue equity if there is an adverse regulatory outcome," says CEO Steve Kandarian on the earnings call.
- Earlier coverage
Feb. 13, 2014, 10:04 AM
- Reiterating MetLife (MET -1.1%) as a top pick with $59 price target following last night's earnings, Scotiabank says the next catalysts for the stock - which gained 64% in 2013 - will be ROE expansion and regulatory developments.
- "Do you think you're gaining traction with D.C.," an analyst asks CEO Steve Kandarian on the earnings call. "Still early days to make predictions," replies Kandarian, noting no SIFI designation has yet been made, but - for now - leverage will be kept at relatively low levels.
Feb. 12, 2014, 4:23 PM
- Operating earnings of $1.6B gained 14% Y/Y, with operating EPS of $1.37 up 10%. One-time adjustments for variable investment income, boosts to litigation reserves, and favorable catastrophe experience about cancelled each other out.
- Americas operating earnings of $1.4B up 13%. Latin America of $173M up 17% (ProVida acquisition), Asia of $324M up 64% (unusually high investment income from Japan), EMEA of $89M up 51%.
- Premiums of $13.1B -1% Y/Y. Book value per share (excl. AOCI) of $48.49 up 4% Y/Y.
- CC tomorrow at 8 ET
- Press release, Q4 results
- MET +0.1% AH
Feb. 12, 2014, 4:11 PM
Feb. 12, 2014, 12:10 AM
Feb. 11, 2014, 5:35 PM
Jan. 29, 2014, 12:59 PM
- Strong equity markets in Q4 should propel earnings for life insurers (set to start this week), writes Credit Suisse's Tom Gallagher, particularly those with variable annuity and asset management/retirement exposure. MetLife (MET -0.6%), Prudential (PRU -0.5%), and Lincoln National (LNC -1.1%), of course, have been busily trying to reduce exposure to variable annuities after nearly being brought down by them in the financial crisis.
- Deutshce's Yaron Kinar also strikes a bullish note, welcoming the big declines so far this year as a buying opportunity.
- Hartford (HIG -0.6%) is expected to post EPS of $0.90 vs. $0.54 a year earlier, and guidance should "be supportive" of his 2014 estimate of $3.62, says Gallagher, who rates the stock at Outperform.
- Principal Financial (PFG -0.9%) is expected to report $0.93 vs. $0.82 a year ago. Kinar expects a slowdown in buybacks to $23M. He rates the shares a Hold.
- Aflac (AFL +0.5%) is expected to post $1.39, down from $1.48 a year ago. Gallagher's numbers are higher, but he rates the shares only at Neutral.
- Capital returns at Ameriprise (AMP -0.6%) are estimated at $475M in Q4 - $375M in buybacks and $100M dividend - says Gallagher, rating the stock at Neutral.
- Prudential (PRU -0.5%) - rated at Outperform by Gallagher - should report $2.33 vs. $1.69 a year ago.
- MetLife (MET -0.6%) - rated a Buy by Kinar - may disappoint in the headline number thanks to a boosted share count due to the conversion of $1B in equity units. Investors hope to hear some clarity on buybacks, but shouldn't hold their breath until the insurer gets more guidance from the Fed.
- Gallagher rates AIG at Outperform though the insurer continues to suffer an underwriting loss - this creates opportunity, however, for a catalyst going forward from improvement in this trend.
Jan. 28, 2014, 8:37 AM
- They're working together to try and persuade regulators insurance companies don't carry the risks of the big banks and shouldn't be subject to the same rules for figuring capital levels, reports the WSJ.
- The group of seven includes MetLife (MET), Prudential (PRU), Nationwide, Mutual of Omaha, State Farm, New York Life, and TIAA-CREF.
- D.C. has already given AIG and Prudential the SIFI brand and Met is expected to also be so-designated in the coming months. AIG is notable for its absence from the coalition as its chief Bob Benmosche takes a make no waves approach with D.C.
- The push promises to be one of Janet Yellen's first tests as Fed chief as the insurers fall under central bank purview for the first time. The Fed has given itself until January 2015 to craft rules. Records show senior execs from MetLife and Prudential have each met with Fed officials - including Janet Yellen - eight times since August 2012.
Jan. 27, 2014, 3:40 PM
- The prospect of higher rates helped the life insurers on their big 2013 run, but - priced in and with rates still pretty low - what's going to be the catalyst going forward? Maybe capital management, namely repurchases, writes Adam Cancryn. Buybacks can be made when convenient and boosts EPS in this slow growth environment, while dividends lock the company into a quarterly payout schedule it may not want to keep.
- Acquisitions? Sector valuations are a lot closer to historical norms now, says Macquarie's Sean Dargan, and a deal might be the way for a company looking to spur growth and attract investor attention. "At the end of the day, you want there to be earnings growth, not just EPS growth due to share repurchase," Dargan says. "If you can't do that organically, I think it makes sense to be acquisitive."
- The bottom line is lower rates fed through (in a negative way) to the bottom line very slowly, and higher rates are going to boost income just as slowly. Performance going forward might be less about industry conditions and more about individual strategic decisions.
- "We started out the year recommending everything," says RayJay's Steven Schwartz. "We're down to four companies, which tells you where my head is at."
- Names of interest: MET, PRU, MFC, SLF, PRI, VOYA, PL, LNC.
MET vs. ETF Alternatives
MetLife Inc is a provider of insurance, annuities & employee benefit programs in United States, Japan, Latin America, Asia, Europe & Middle East. It offers life insurance, annuities, property & casualty insurance, and other financial services.
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