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When the deal was originally announced in December, the transaction was arranged between MetLife and GE’s Capital Bank, and the Federal Deposit Insurance Corporation was responsible for approving the deal. But according to a filing made with the SEC Friday, a different branch of GE’s financial services will make the purchase.
Under the newly determined structure, GE Capital Retail Bank will buy MetLife’s banking deposits, making the Comptroller of the Currency the regulator in charge. Previously, the transaction process had been held up by the FDIC, which required additional information from GE.
General Electric pursued the transaction in order to become less dependent on the sale extremely short-term loans known as commercial paper. Before the 2008 financial crisis, GE Capital’s strategy was to use its parent company’s then-AAA credit rating to borrow money at low interest rates and then lend the money at higher rates. Now, Standard & Poor’s rates the giant industrial company “AA+,” making that strategy less appealing. As GE attempts to limit its dependence on borrowing, the company has cut the amount of short-term loans issued from $43 billion down to $25 billion. MetLife’s banking deposit will give GE a low-cost funding source.
For MetLife, selling its banking operations will allow the largest U.S. life insurer to follow its plan to raise the company’s dividend and buy back shares. However, the Federal Reserve has thus far prevented the company’s plan. Last year, the Fed argued that the insurer should face stress testing before giving permission. MetLife failed stress testing early this year.
As per MetLife’s plan, the company has already shut down its mortgage operations. After ending the deposit business, the company will be able to surrender its bank holding company charter. Once MetLife no longer holds the charter, analysts expect MetLife to increase its dividend by 49 percent and buy back $2 billion in company stock.
MetLife’s shares rose 1.5 percent, to $35.40, following the change of terms, and the stock is up 13.6 percent in 2012. In comparison, General Electric was down 16 cents in afternoon trading, but its shares have risen by almost 26 percent so far this year.
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