(Image credit: Matthew Field.)
The MetLife news comes as no surprise. MetLife’s decision to split a significant portion of its US business elevates the role regulatory environments will continue to play in shaping financial and non-banking institutions’ business models, and the downstream consequences will ultimately be a win-win for the consumer and the firm.
It’s an opportunity to improve the firm’s life insurance retail business, and it would behoove MetLife to spin off this segment of the business. MetLife, the newly spun-off company and customers can all benefit from this; the new company will be able to offer more competitive rates to its policy holders in line with industry-standard capital requirements, while MetLife’s balance sheet can be bolstered from the revenues raised from the spin-off.
The big picture? This is a positive sign that the market is can become more efficient and that regulatory requirements are effective, despite how any political party or skeptic wants to spin it.
Additionally, such a move could influence other SIFI organizations to use their “regulatory environment” as a business growth opportunity to restructure and reform—something which often gets overlooked amidst the sea of red tape and paperwork associated with process. The key question to ask first is, “Should we stay in this line of business?”
In short, this is a sign of things to come; we can absolutely expect to see more restructuring among major financial and non-banking institutions. In the wake of the recent RBS restructure and JP Morgan’s takeover of Bear Stearns, we’re well aware this process is extraordinarily complex. It takes years to move toxic assets out of a business, to re-shape existing legal entities to embrace newly acquired risky businesses and to redirect risk to a new entity. Yet with the global regulatory landscape becoming more convoluted and prudent, organizations and regulating bodies are (thankfully) thinking more pragmatically and moving forward in this process.
It’s a long-haul, but my team and I speak with financial services firms around the world on numerous aspects of restructuring and cost improvement initiatives. Many of these initiatives involve product activity analysis, know your customer (KYC) analytics, and associated risk assessments in multiple jurisdictions. It’s hard to see the forest through the trees at times, but there’s a silver lining with this MetLife news that is designed to benefit and protect the consumer and business.
Could both points of view be reconciled by saying that liabilities created by the SIFI designation served as an accelerator to a logical, perhaps inevitable, departure?
Hello Ken,
Thank you for sharing your thoughts. Your point is well received. The article is driven from a Reg. compliance perspective rather than the classic business operating model one. Yes, as an investment firm, this makes sense as well. But given that it is an public investment firm and not a mutual, we can see more clearly how regulations affect such entities. Therefore we cannot rule out the influence regulations have in executive management thinking and behavior as a result.
However we choose to look at it, we are participants in a fast changing and evolving industry where there are multiple drivers and influencers. When I look at my banking clients and how they are responding to regulations strategically (business restructuring) and tactically (remedial action and de-risking), it is clear that for now, Regulation is a strong force for change across the industry.
Sorry, Mr. Morley, while I agree with your conclusion that a split-up MetLife is a positive development, I can’t agree with your reasoning. I think the SiFi/”regulatory environment” is a red herring or, perhaps better, a fig leaf: MetLife has been heading in this direction, inevitably, since it demutualized years ago. It once was a life insurance company; after demutualization it became an investment company. Is it any surprise, really, that it will now simply split up into an investment company + an insurance company?