MetLife Plans Stock Sale as Quarterly Profit Declines (Update1)

By Andrew Frye
Bloomberg News
October 8, 2008


Oct. 8 (Bloomberg) -- MetLife Inc., the biggest U.S. life insurer, plans to raise capital and cut jobs after saying third- quarter profit fell as much as 48 percent.

MetLife is selling 75 million shares, valued at $2.8 billion at current prices, the New York-based company said yesterday in a statement. The insurer wants to assure investors it has liquidity to meet obligations and enable the company ``to take advantage of potential opportunities,'' Chief Executive Officer Robert Henrikson said. Last week, Atlantic Equities analyst Alan Devlin predicted MetLife could raise capital to bid on assets of American International Group Inc.

The New York-based company is ``in great shape,'' Henrikson said on a conference call today.

Henrikson withdrew his full-year earnings forecast after falling equity markets hurt returns in the company's annuity business and the housing slump pushed down the value of fixed- income investments. The insurer was stung in the quarter by losses on stakes in failed companies including Lehman Brothers Holdings Inc. and Washington Mutual Inc. It also said hedge-fund and private-equity returns performed worse than expected.

Devlin cut MetLife's stock recommendation to ``underweight,'' in an Oct. 2 note to investors, citing ``concerns of the impact of credit and equity markets on the balance sheet and earnings.''

Operating Earnings

Operating earnings for the quarter that ended in September declined to between $600 million and $675 million, or 83 cents to 93 cents a share, the company said. That compares with year- earlier profit of $1.16 billion, or $1.52 a share. The company will report full results on Oct. 29.

The 9 percent decline in the Standard & Poor's 500 Index in the third quarter lowered variable annuity results by about $105 million net of tax, MetLife said. Variable-investment income, which includes hedge-fund and private-equity returns, was about $117 million below forecast.

MetLife rose fell $2.37, or 6 percent, to $34.50 before the official open of New York Stock Exchange trading, adding to yesterday's 17 percent plunge. The company, which has dropped about 40 percent in New York trading this year, recorded profit declines in the first two quarters that prompted Henrikson in July to lower the earnings outlook.

Severance contributed to a charge of $48 million in the third quarter, MetLife said. The company said it expects to have $130 million in annual savings related to these charges. MetLife also signaled today in a regulatory filing that it will cut jobs this quarter.

`Turbulent Time'

``Those associates who will be directly impacted will be told beginning in late October and concluding by the end of this month,'' the company said. ``This is a turbulent time for the credit markets.''

Chief Investment Officer Steve Kandarian, who oversees the insurer's $350 billion portfolio, predicted in June that more companies would default on their debt as the economy slows. MetLife cut its investments in airline, carmaker and homebuilder bonds, and in the second quarter sold commercial mortgages at a loss to reduce risk.

Gross unrealized losses on fixed-maturity securities jumped by $7 billion to $17 billion in the three months to the end of September, the company said. Gross unrealized gains fell $1 billion to $6 billion.

Raising Capital

Hartford Financial Services Group Inc., the Connecticut- based life and property-casualty carrier, said on Oct. 6 it would raise $2.5 billion in capital. Insurers, which invest premiums before paying claims, plunged in New York trading last week on concern that losses on holdings could erode capital.

The largest insurers in the U.S. and Bermuda have posted more than $80 billion in write-downs on mortgage-related holdings as subprime home borrowers fail to repay their debts. AIG, which wrote down almost $40 billion, announced plans Oct. 3 to sell its life insurance and retirement businesses in the U.S., Europe, Latin America and Japan to help repay an $85 billion government loan.

Investors would be willing to buy stock to support a bid by MetLife for AIG's assets, HGK Asset Management Inc. analyst Andrew Rothstein, whose $2.5 billion large-cap fund owns MetLife shares, said in an Oct. 3 interview. MetLife said in the statement it has more than $4 billion in excess capital.

``This is where people with cash make some outrageous deals,'' Rothstein said.

MetLife is ``very aggressively'' seeking to build its business abroad, Chief Financial Officer William Wheeler said on Sept. 10. The company, whose international expansion began with the $11.8 billion purchase of Travelers Life & Annuity in 2005, competes with AIG and No. 2 Prudential Financial Inc. to sell products that replace income or protect wealth for aging populations in nations including Japan, Mexico and South Korea.

MetLife ``is likely keen to take advantage of the once-in- a-lifetime opportunity to acquire assets from AIG,'' Devlin said

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