MetLife Inc ex­pand­ing pri­vate lend­ing to cor­po­ra­tions

The Pak Banker - - Company& -

NEW YORK: MetLife Inc., the largest U.S. life in­surer, is ex­pand­ing pri­vate lend­ing to cor­po­ra­tions as Chief In­vest­ment Of­fi­cer Steven Kan­dar­ian seeks to bol­ster re­turns on the firm's $443 bil­lion port­fo­lio amid near-zero in­ter­est rates. "In four of the last five years, we've been the No. 1 as­set orig­i­na­tor in this sec­tor," Kan­dar­ian said to­day at a pre­sen­ta­tion in New York, where MetLife is based. "You get paid an illiq­uid­ity pre­mium for hold­ing these kinds of se­cu­ri­ties."

MetLife in­creased its in­vest­ment port­fo­lio by about 25 per­cent with the pur­chase last month of Amer­i­can Life In­surance Co. for $16.2 bil­lion. Kan­dar­ian said MetLife is draw­ing down the cash hoard built up for the ac­qui­si­tion and hedg­ing bonds that Alico, pre­vi­ously owned by Amer­i­can In­ter­na­tional Group Inc., had ac­cu­mu­lated in Por­tu­gal.

The in­surer built pri­vate place­ments to $46 bil­lion from about $35 bil­lion at the end of last year's third quar­ter, seek­ing higher-yield­ing as­sets than govern­ment debt and pub­licly traded cor­po­rate bonds as the Fed­eral Re­serve main­tains near-zero rates. His­tor­i­cally, the pri­vately placed debt pays as much as 50 ba­sis points more than sim­i­larly rated cor­po­rate debt in the pub­lic mar­ket, and last year paid a pre­mium of more than 70 ba­sis points, Kan­dar­ian said in De­cem­ber 2009.

"You have lower losses in this sec­tor, higher re­cov­er­ies than pub­lic bonds, and that proved to be the case in this last eco­nomic down­turn," Kan­dar­ian said to­day. "It's be­cause you have very good down­side pro­tec­tion, you have covenants and of­ten­times col­lat­eral posted as well for these kinds of se­cu­ri­ties." A ba­sis point is 0.01 per­cent­age point.

The Alico ac­qui­si­tion will help boost MetLife's earn­ings next year, the com­pany said. Op­er­at­ing profit, which ex­cludes some in­vest­ment re­sults, will prob­a­bly be $4.75 to $5.15 a share, com­pared with the av­er­age $5.02 es­ti­mate of 19 an­a­lysts sur­veyed by Bloomberg, MetLife said.

MetLife ad­vanced 36 cents to $40.50 at 11:44 a.m. in New York Stock Ex­change com­pos­ite trad­ing. The in­surer has climbed about 15 per­cent this year, com­pared with the 17 per­cent gain in the 24-com­pany KBW In­surance In­dex.

Chief Ex­ec­u­tive Of­fi­cer Robert Hen­rik­son is re­treat­ing from the mar­ket for long-term care in­surance as he seeks to ex­pand in more-profitable busi­nesses. Alico's pres­ence in more than 50 coun­tries al­lowed MetLife to add cus­tomers out­side a U.S. life in­surance mar­ket that the 63- year-old Hen­rik­son de­scribed in March as "rel­a­tively slow-growth."

Kan­dar­ian be­gan al­ter­ing MetLife's port­fo­lio in an­tic­i­pa­tion of the Alico pur­chase, buy­ing $200 mil­lion of credit-de­fault swaps to pro­tect against de­clines in Por­tu­gal's sov­er­eign debt. MetLife has about $379 mil­lion in ex­po­sure to Por­tu­gal's debt and $735 mil­lion to Greece, the firm said in the pre­sen­ta­tion to­day.

MetLife plans to boost hold­ings of in­vest­ment-grade and high-yield credit. The com­pany said to­day that in­vest­ment-grade bonds, which ac­count for 35.5 per­cent of its port­fo­lio, will prob­a­bly rise to about 36.75 per­cent of to­tal hold­ings. Junk bonds may make up 5 per­cent of the port­fo­lio next year, from 4.5 per­cent, MetLife said.

More­over, ric R. Di­nallo, the for­mer New York Su­per­in­ten­dent of In­surance who over­saw the in­dus­try dur­ing the peak of the fi­nan­cial cri­sis, joined De­bevoise & Plimp­ton LLP as a part­ner in the law firm's Man­hat­tan of­fice.

Di­nallo said to­day he ex­pects to rep­re­sent fi­nan­cial-ser­vices com­pa­nies on en­force­ment is­sues, in­ter­nal in­ves­ti­ga­tions and merg­ers and ac­qui­si­tions. He was ap­proached by De­bevoise part­ner Wol­cott Dun­ham af­ter los­ing a race in Septem­ber to be­come the Demo­cratic can­di­date to re­place An­drew Cuomo as the state's at­tor­ney gen­eral, Di­nallo said.

"It was the only firm I spoke with," Di­nallo said in a tele­phone in­ter­view. "It has a unique com­pen­sa­tion struc­ture. Part­ners within a class are paid the same, so there is no eat what you kill, just a bunch of su­per-smart lawyers pulling on be­half of the client."

Pre­sid­ing part­ner Martin Fred­eric Evans de­clined to be more spe­cific about Di­nallo's role. De­bevoise, with about 700 lawyers world­wide, rep­re­sented Amer­i­can In­ter­na­tional Group Inc. in its $20.5 bil­lion spinoff of AIA Group Ltd. in Hong Kong, and has ad­vised com­pa­nies in­clud­ing Ama­zon.com Inc., Pru­den­tial Fi­nan­cial Inc. and Dell Inc. on merger deals, ac­cord­ing to the firm's web­site.

The firm, with Mor­gan, Lewis & Bock­ius LLP, rep­re­sents JPMor­gan Chase & Co. in na­tional lit­i­ga­tion re­lated to mort­gage fore­clo­sures, Joseph Evan­ge­listi, a JPMor­gan spokesman, said in an e-mail. De­bevoise also has a large pri­vate-eq­uity prac­tice.

New York's ethics rules will pro­hibit Di­nallo from ap­pear­ing be­fore the state's in­surance depart­ment for six months. "There may be some mat­ters that I will need to re­view whether I will have to be re­cused," he said. -Bloomberg

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