Plan Could Push Insurers Into Mergers
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More Corporate Lending Also Could Be Sparked Under the Government's Rescue Program
If the Treasury Department's capital-infusion program for the banking sector expands to insurers, industry consolidation may follow.
Some of the life insurers whose names have emerged as supportive of a widening of the Treasury's $700 billion rescue program, the possibility of which emerged Friday, are considered by ratings firms to be financially healthy and capable of acquisitions. One is New York-based MetLife Inc. Industry analysts say it could be a contender to acquire at least some of the U.S. life-insurance operations of American International Group Inc.
The financial-services conglomerate has said it is trying to sell business units, including these and part of its foreign life-insurance operations, to pay back an $85 billion rescue loan it received last month from the federal government in exchange an 80% equity stake. That rescue, by the Federal Reserve, is separate from the $700 billion Treasury program.
Raising large sums of money for acquisitions is a tough challenge for any financial company right now, with credit markets still tight and stocks beaten down. Analysts say the infusion of low-cost government capital into a potential acquirer could prove crucial for AIG's efforts to strike deals in the months ahead.
A MetLife spokesman said the company wouldn't comment on any potential acquisition plans. An AIG spokesman said: "AIG is moving forward aggressively with its plan to permanently resolve its liquidity problems, sell a number of our world-class businesses and repay the Fed loan. We also continue to evaluate other possible options to restore AIG as a healthy competitor." He declined to elaborate.
Banking-industry analysts interpreted Friday's announcement that PNC Financial Services Group Inc. has agreed to acquire National City Corp. as an indication that the government is using the rescue plan as ammunition to push weak banks into the arms of strong ones. PNC will sell $7.7 billion of preferred shares and warrants to the Treasury Department to finance the stock-and-cash deal.
Colin Devine, a stock analyst at Citigroup Global Markets, said in a note to clients Monday that he anticipates "a wave of M&A activity" among life insurers, with Treasury infusions taking "the form of facilitated deal financing such as" PNC will receive. He rates MetLife a top pick, saying it has a strong capital position and is "uniquely situated" to acquire U.S. units from AIG. MetLife shares rose 3 cents, or 0.11%, to $26.21 Monday.
Meanwhile, Evan Greenberg, chairman of trade group American Insurance Association, said a substantial majority of AIA's members "do not support the inclusion of property-casualty insurers" in the Treasury program and wouldn't participate if it becomes available. Mr. Greenberg, chairman of ACE Group, said AIA members are "well-capitalized." Members include Chubb Corp., Travelers Cos. and W. R. Berkley Corp. Property-casualty carriers tend to have more-liquid investments than life insurers, and their core businesses aren't as volatile as the overall economy because cars, homes and businesses continue to be insured.
One goal of any potential expansion of the Treasury program appears to be trying to ramp up the insurance industry's role as a lender.
On Sunday, New York Life Insurance Co., one of the highest-rated insurers in the U.S., said that Treasury officials recently asked it and others in the life-insurance industry "for help in developing solutions for strengthening the financial system. We agreed to work with other industry leaders and Treasury so we could play a constructive role in helping shape this important discussion." The insurer, which is mutually owned, doesn't require additional capital and hasn't made any decision to accept capital, if offered, a spokesman said.
