MetLife Sells Banking Business to General Electric

MetLife reached an agreement to sell the majority of its retail banking business to GE Capital, the finance division of General Electric, for approximately $100 million. The deal, which will involve $7.5 billion in customer deposits, will allow MetLife to escape the reach of the Federal Reserve, which has considerable regulatory power over banking institutions.

MetLife made the decision to leave the banking business late last year after the Federal Reserve refused their request to raise their dividend to shareholders. After the banking crisis of 2008, the Federal Reserve was given increased power in order to ensure the stability of the banking system; these powers included final veto power over a bank’s ability to pay dividends or repurchase shares.

As for General Electric, they were looking for ways to expand their own retail banking operation. GE Capital typically funds itself through short-term loans in financial markets, but this source of funding is generally considered to be less reliable than consumer banking deposits. In 2008, even General Electric was not immune to the credit crunch, which made capital scarce throughout the entire economy.

MetLife did the majority of its banking business through the internet, and GE Capital plans to continue that online presence in the future. Internet banking has become increasingly popular in recent years thanks to its minimal fees and higher interest rates on deposits. In addition, an internet-only bank has far lower costs than a traditional bank. However internet banks, just like brick-and-mortar ones, are subject to strict capital requirements, to which MetLife no longer wanted to be subjected. By returning to its core life insurance business, it will be able to avoid what they consider to be the most onerous of those regulations.

MetLife still has approximately $3 billion in bank deposits, but they plan on divesting themselves from those funds over the next year. Once those funds are sold, they will no longer be considered a bank and will be free to increase their dividend at will.

This entry was posted on January 10, 2012 at 6:30 pm and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed.