MetLife's Planned Spinoff of Retail Unit Puts Pressure on AIG

Many investors have still grown impatient with AIG, which has slumped 6.5 percent this year in New York trading through Tuesday. Josh Stirling, an analyst at Sanford C. Bernstein & Co. who surveyed AIG stockholders, said most investors want AIG to exit SIFI status and sell units or spin off divisions.

"The status quo is not an option, for management's strategy has practically no support," Stirling wrote of AIG Tuesday in a note before MetLife's announcement.

Prudential Financial Inc., the second-largest U.S. life insurer and another SIFI, has faced less pressure than AIG to reshape the company. The Newark, New Jersey-based company, which abandoned a fight against the SIFI designation in 2013, posted an operating return on average equity of more than 15 percent for the nine months ended Sept. 30, 2015.

"MET is clearly raising the bar for structural action at both companies to unlock value," John Nadel, an analyst with Piper Jaffray Cos., said about Prudential and AIG in a note to clients.

Prudential may need another year or two to execute the kind of restructuring outlined in MetLife's plan, according to Tom Gallagher, an analyst at Credit Suisse Group AG.

"It is not clear to us that PRU management would embrace this kind of restructuring, though it may consider it depending out the outcome and the share price performance for MET," Gallagher wrote Wednesday in a note.

Prudential said that while it is "continuously evaluating opportunities for enhancing shareholder value," the company is comfortable with its business mix. The insurer has focused in recent years on expanding asset management, along with life coverage in the U.S. and Japan. Prudential has sold operations such as a securities brokerage and a commodities unit before being named a SIFI.

Highly Complementary

"Prudential's diversified and balanced mix of U.S. and international businesses positions us well for sustainable long-term performance," Scot Hoffman, a spokesman for the company, said Wednesday in an e-mail. Acquisitions and divestitures in recent years have "produced a highly complementary set of businesses with competitive advantages."

MetLife said the new company, to be led by Eric Steigerwalt, would have about $240 billion of assets and accounts for about 20 percent of the insurer's operating earnings. The business would include variable annuities, retirement products where results can be tied to fluctuations in stock markets and interest rates. Steigerwalt previously led the domestic retail unit before being named in November as interim head of U.S. operations, a post with broader responsibilities.

The insurer plans to retain units providing workplace benefits and property-casualty coverage along with the corporate-benefit-funding division that offers pension and retirement products. Maria Morris, executive vice president and head of global employee benefits, was named interim head of the remaining parts of MetLife's U.S. businesses, according to John Calagna, a spokesman for the company.

While a sale of the unit might be the best outcome for MetLife, an IPO or spinoff is probably more likely, Ryan Krueger, an analyst at Keefe, Bruyette & Woods, said in a note to clients. Potential buyers might be discouraged by the operation's size and business mix, he said.MetLife will also continue operations in Asia, Latin America, Europe, the Middle East and Africa. The company didn't outline a timetable for the separation plan, saying the completion of a transaction could depend on market conditions, and also regulatory approvals.

MetLife, GE's finance unit, AIG and Prudential are the non-bank companies that were named SIFIs by the Financial Stability Oversight Council. That panel was created by the 2010 Dodd-Frank law and charged with monitoring potential threats to the financial system after the near collapse in 2008 of companies including AIG, which required a U.S. bailout that swelled to $182.3 billion.