MetLife Inc. wants to lose its bank but stay in banking.
Citing "regulations written for banking institutions," the insurance giant has put its $16 billion-asset depository on the block. MetLife, which ranks among the top 15 home lenders, would continue writing mortgages. But it would do so as part of the so-called shadow banking system.
MetLife is systemically important, and getting rid of its banking unit won't change that. The company's move to jettison the bank it chartered a decade ago reveals a growing presumption that new regulations for the largest institutions won't fully extend to those outside the federal safety net.
Put another way, the company is making a bet on regulatory arbitrage — the idea that certain categories of institutions can dodge scrutiny being placed on their competitors.
"This is emblematic of what's going on in every executive suite and boardroom where the banking organization is considered less central to the strategy," said Eugene A. Ludwig, founder and chief executive of the consulting firm Promontory Financial Group LLC, and a former Comptroller of the Currency.
"Any enterprise that has a bank that is not core to its business is going to be looking at whether the costs of supervision and regulation have increased to the point where the benefits and synergies are no longer worth it."
MetLife's president and CEO, Steven A. Kandarian, referred only obliquely the various regulations, from the Dodd-Frank Act to Basel III, that are making it less attractive to be in banking these days.
"We do not believe it is appropriate for the overwhelming majority of our business to be governed by regulations written for banking institutions," Kandarian said in a press release. "In a highly competitive global insurance marketplace, it is imperative that MetLife be able to operate on a level playing field with other insurance companies."
Kandarian said the bank accounted for a mere 2% of the insurer's first-quarter operating earnings even though MetLife ranked as the seventh-largest bank holding company in the U.S. as of June 30, according to the Federal Reserve.
"The primary reason for them doing this is so that they aren't treated differently than other insurance companies," JPMorgan Chase & Co. insurance analyst Jimmy Bhullar said. "It's preemptive. The capital standards for the bank sector are going to be relatively more onerous than for insurance companies."
What those standards will be for "systemically important financial institutions" that are nonbanks remains to be seen.
But Bhullar said the consensus bet is that SIFI regulation will be weaker and less comprehensive in the nonbank space.
MetLife has other potential reasons to want to divest its banking operations, Bhullar said, noting that the proceeds could be used to improve its capital position, pursue acquisitions, or increase the pace of its share buybacks.
But while other insurers own thrifts or banks, MetLife was an obvious target.
"Met was deemed more at risk of being singled out because they're the only one structured as a bank holding company and they're the only insurance company to be included in the stress tests," Bhullar said.
By selling its Covent Station, N.J., bank, MetLife would give up the ability to fund its lending though certificates of deposit, and to offer money market and savings accounts.
But it could retain access to Federal Home Loan Bank advances, since insurance companies are eligible for membership in the cooperatives. In the first quarter, MetLife had $20.8 billion in funding agreements and advances from the Home Loan Bank of New York and $600 million in funding agreements from the FHLB of Boston.
Some insurers that owned banks have taken a similar route.
The property and life insurer Allstate Corp. announced in February it was selling about $1.1 billion in deposits to Discover Financial Services and plans to wind down its Allstate Bank operations and cancel its bank charter. The Northbrook, Ill., company cited increased financial regulations as a reason for the decision as well as a desire to focus on core operations.
Bennet Koren, head of the consumer financial services practice at McGlinchey Stafford PLLC, said only those companies with a small slice of their business in banking will sell.
"If I don't see the rest of them walking away from banking," Koren said. "They like access to the [Fed's] discount window."