(Bloomberg) — MetLife Inc., the insurer seeking to exit a U.S. retail unit, said the risk of large equity market swings would be one reason to favor a spinoff, rather than an initial public offering.
“Had we planned this a year ago, and were scheduled for the first quarter this year, it would have been very tough to do an IPO,” Chief Financial Officer John Hele said Monday at a conference held by Barclays Plc. “But a spin can generally happen even if the IPO markets are a bit choppy.”
Investors shied away from initial share sales early this year, as the S&P 500 Index dropped more than 5% in January and extended declines in February. On Friday, global stocks fell the most since June, interrupting a period of stability.
MetLife plans to announce as soon as this month the path that it will take to exit the retail unit, which offers retirement products such as variable annuities. The remaining company will focus on international growth and offerings with more predictable cash flow, such as group benefits. RBC Capital Markets analysts said last month, after chatting with Hele, that they expected a spinoff to shareholders because that process can be faster.
One benefit of an IPO, however, is that the new owners of Brighthouse Financial, the U.S. unit, would be investors who decided that they are optimistic about its prospects, creating demand for the stock, he said. Some investors in New York-based MetLife, meanwhile, might not be interested in Brighthouse shares.
‘Pros and cons’
“It’s not a clear-cut decision,” Hele said. “There’s pros and cons on both sides.”
Low interest rates have pressured income from bonds, which are the majority of the company’s $540 billion investment portfolio. The search for better returns from alternative holdings, such as hedge funds, has led to disappointing results.
“We’ve had a pretty rough year in hedge funds,” Hele said, reiterating prior comments about how the company has been cutting back such investments, which bring tighter capital requirements from regulators. “It really just doesn’t hold its weight anymore.”
