Bloomberg News

MetLife CEO Hoards Cash, Extends Maturities Amid Debt Clash

July 29, 2011

(Updates with CFO’s comment in 12th paragraph.)

July 29 (Bloomberg) -- MetLife Inc., the biggest U.S. life insurer, is hoarding cash and extending maturities on Treasuries to brace for the possibility Congress and President Barack Obama fail to prevent a government default and downgrade next month.

“As painful as it is to watch this, it is kind of democracy at work,” Chief Executive Officer Steven Kandarian said today in a conference call with analysts. “We are well positioned even if there happens to be a one notch downgrade of the U.S. Treasury.”

Obama and House Republican leaders face an Aug. 2 deadline to raise the $14.3 trillion debt ceiling and provide the government with enough funds to pay its bills. New York-based MetLife had an investment portfolio of $466 billion as of June 30, including $35.6 billion of U.S. Treasury and agency debt.

“We have extended all of our near-term Treasury maturities past August,” Chief Investment Officer Steven Goulart said on the call. “We’ve added several billion dollars of excess cash, which we think is a prudent thing to do in an environment of uncertainty.”

Rates on six-month bills due Aug. 4 climbed to 0.24 percent, the highest since they were issued in February, in a sign investors are growing more concerned lawmakers will fail to reach an agreement.

“There’s a fair amount of stress that’s starting to build up,” Goulart said. “Treasury bills have cheapened for August. They’re actually trading at bigger discounts than September bills at this point.”

‘Difficult to See’

House Speaker John Boehner is struggling to find support among Republicans in the House and pass a bill to the Democrat- controlled Senate. Obama said today that Republicans and Democrats are in “rough agreement” on their plans and the time for compromise is “now.”

“It’s difficult to see it every day,” Kandarian said. “But I am hopeful that there will be action in Washington that’s appropriate that addresses these long-term problems in a sensible way.”

MetLife rose $1.22, or 3.1 percent, to 41.03 at 11:41 a.m. in New York Stock Exchange composite trading, the third-biggest gain in the 81-company Standard and Poor’s 500 Financials Index.

MetLife announced late yesterday second-quarter earnings that beat analysts’ estimates. Investment income jumped about 25 percent to $5.1 billion and operating earnings in the company’s international business more than tripled to $507 million. MetLife paid about $16 billion for American Life Insurance Co. in November to add clients and investments in more than 50 countries from Japan to Russia to Chile.

Share Buybacks

MetLife’s “results reinforce our view that it is well positioned to benefit from its diversified international platform,” Jay Gelb, an analyst with Barclays Plc, said yesterday in a research report. The insurer “could resume meaningful share repurchase activity in 2012 or earlier.”

MetLife Chief Financial Officer William Wheeler said the holding company is amassing excess cash that it may spend on buybacks, dividends, acquisitions or debt repayment. Wheeler said he’ll have about $4.8 billion available by the fourth quarter and cash will continue to build next year. MetLife struck deals to sell assets in Venezuela and Taiwan and divest portions of its businesses in the U.K. and Japan.

“Your capital position, Bill, as you laid it out, is frankly better than I think most on this conference call would’ve expected,” John Nadel, an analyst at Sterne Agee & Leach Inc., told Wheeler.

MetLife, which is regulated as a bank, is in talks with the Federal Reserve about its plans for capital deployment, Wheeler said. Decisions on expenditures may be put off until October as the insurer seeks to determine how regulation may tighten following the implementation of the Dodd-Frank Wall Street reform law, Kandarian said.

“We’ve seen a great deal of uncertainty still remain in the marketplace around regulatory issues,” Kandarian said. “So, we just think it’s prudent to wait at this point in time.”

--With assistance from Dennis Fitzgerald in New York. Editors: Dan Kraut, William Ahearn

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.


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