MetLife Inc.’s agreement to sell MetLife Bank’s depository business to GE Capital Financial Inc., a subsidiary of GE Capital Corporation is viewed by Moody’s as being a credit negative move despite having some redeeming qualities pertaining to the trimming of excess and the shedding of cumbersome regulations that chaperone bank holding companies.
The $7.5 billion sale which is subject to approval by the Federal Reserve following a four to six month review period will relieve MetLife from being under the purview of the Federal Reserve Bank which brings with it capital adequacy, solvency, and liquidity scrutiny.
This is where Moody’s sees the move as a double edged sword to some extent: “the removal of the bank holding company structure is credit positive because the sale will allow MetLife operations more flexibility, which would make it better able to compete with peers unburdened by bank holding company regulatory regimes and more able to generate greater diversity of earnings and investor interest. We view the loss of the Federal Reserve Bank’s regulatory oversight as credit negative, said Neil Strauss, Vice President, Senior Credit Officer, Moody’s Investor Service in their Weekly Outlook for January 9, 2012.
However, the report notes that even though MetLife is jettisoning its bank holding company structure the respite from regulatory supervision may be short-lived. MetLife appears to be one of the companies that could be considered a systemically important nonbank financial firm because of its size as well as its use of derivatives and debt and the amount of credit default swaps that they have outstanding.
Pending the approval of the sale, MetLife will remain to be classified as a bank holding company and will be regulated on the Federal Reserve Bank until the sale closes.