External Shareholders
Overview MetLife was notified of its non- bank Systemically Important Financial Institution designation on December 18th 2014 by the Financial Stability Oversight Committee (FSOC). The FSOC was established by the 2010 Dodd- Frank regulation to identify financial risks in the market and promote stability. One of FSOC’s responsibilities is to identify financial institutions that are ‘too big to fail’ (their collapse would be a threat to the stability of the entire market) and designate the firm as a SIFI. Any firm designated as such is met by stricter requirements in terms of: Closer Supervision by the Federal Reserve More Disclosure Stricter Capital As a response to this designation, MetLife decided to spin off part of its retail business. According to the statement of MetLife CEO Steven Kandarian ″Even though we are appealing our SIFI designation in court and do not believe any part of MetLife is systemic, this risk of increased capital requirements contributed to our decision. An independent company would benefit from greater focus, more flexibility in products and operations, and a reduced capital and compliance burden.″ MetLife’s journey with regard to its SIFI designation has been a long fought, drawn out battle with many views on all sides and much at stake. You are being asked to review 5 short readings from (1) a rating agency (Moody’s – 2 press releases), (2) the financial press (Financial Times), (3) case study – financial law, and (4) the company. You will learn more about the case and you will be asked to summarize disparate views. At the same time you will have the opportunity to: 1 see impact of regulatory actions 2 dissect rating agency communications 3 expand your knowledge about risk This is a real life drama touching on the external stakeholders we have been studying in one of the primary sectors (insurance) we have been discussing this semester. V Please read Moody’s Reviews MetLife Inc’s (A3 senior) … ratings for downgrade (13 January 2016; 2 page extract) Give 3 reasons why Moody’s thinks the restructuring of the company is bad for credit quality? When MetLife is split into 2 companies, what is in each? Does Moody’s expect the company to be designated a SIFI? Are any businesses being run-off? Which ones? Is MetLife headed towards more capital intense products or less? Does the split-off help or hurt diversification for MetLife? Will MetLife continue to have a property casualty business? Does Moody’s believe that MetLife is looking to boost stockholder returns?