Sunday, May 17, 2015

Feds Stance on Met Life Shows Irrationality and Will Hurt Shareholders

We've written about Met Life before, first as a well managed company with a strong domestic business, and a growing international insurance business in solid markets like Japan.  It is absurd that is considered to be engaged in non-traditional, non-insurance businesses that could generate systemic risk. In fact, the company's complaint contends that Met Life has been deemed a "non-bank financial company" and therefore falling under Dodd-Frank solely because it has 15% of its assets in foreign subsidiaries.

The Financial Oversight Stability Council's lack of transparency and unwillingness to share its data and methodology for its conclusions with Met Life has pushed the company into either acquiescing to FOSC's banana republic tactics, or fighting the action as the rules allow and incurring the ongoing wrath of the Feds.

The move for summary dismissal of Met Life's protest is again arrogant and ludicrous.  Let Met Life have its day in court.  If the Feds are right, Met Life will have spent its own money, but at least it would have sought to preserve future earnings growth, multiple expansion, which are in the best interests of its shareholders.  This is good governance.

Some so-called analysts have suggested the Met Life management should have agreed to divest its foreign businesses, thereby escaping the classification as a systemically important non-bank financial corporation. That is another irrational suggestion because that would admit that the classification process had validity, and it would sell off future growth engines for revenue, earnings, while increasing the dependence on mature economies for growth.

By the kind of reasoning, Berkshire Hathaway is the ultimate, non-bank financial company, with most of its non-bank businesses being financed by the float from its insurance and reinsurance businesses.  The Feds aren't fools and wouldn't dare take on their friend in Omaha: that battle would end before shots were fired.

As the numbers attest, Met Life operates through highly regulated insurance subsidiaries, both here and abroad, which together generate 95% of corporate revenues, hold 98% of consolidated assets, 96% of consolidated liabilities; these subsidiaries are true operating subsidiaries, selling and servicing insurance policies, while managing the assets which backstop the policies.  What could be simpler? Insurance has long been effectively regulated, as far as risk and policy holder protection, by existing state and federal laws.

Met Life shareholders should be, but are probably not, flooding the mailboxes of their elected representatives to end this folly.  Stay tuned.

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