Oh boy, MetLife has just put a huge bull’s eye on itself saying “We cannot afford to be downgraded!”
While the role of evil shorts in driving down financial company price is overdone (many firms’ shares should be trading at lousy levels, given the terrible outlook for earnings and dividends), this announcement will lead the stock to fall regardless. And perversely, low share prices increase the odds of a downgrade, since the rating agencies come to doubt the ability of the company to raise new equity on reasonable terms.
From Bloomberg (hat tip reader Steve):
MetLife Inc., the biggest U.S. life insurer, said a “major” credit-rating firm will conduct a review in the fourth quarter that may have “a material adverse effect” on results and the company’s financial condition.
“The difficulties experienced recently by many financial institutions, including our competitors in the insurance industry,” may prompt ratings companies to “heighten the level of scrutiny” for their reviews, New York-based MetLife said today in a regulatory filing.
Life insurance stocks have been pummeled in the last two weeks and Fitch Ratings lowered the industry’s outlook on concern that investment losses could erode capital. MetLife, which has dropped 46 percent this month, sold $2 billion in stock on Oct. 8 after reporting a third-quarter profit slide and a $7 billion increase in unrealized losses.
Rating firms, including Standard & Poor’s, Moody’s Investors Service, A.M. Best Co. and Fitch may increase the capital required to maintain credit grades, MetLife said. It didn’t identify which firm will do the review.