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Yesterday, MetLife Inc. (MET - Analyst Report) announced the closing of its forward residential mortgage business, which originated under MetLife Home Loans. Management had been already exploring a sale of this business as announced in October last year. The closure in turn is expected to lay off about 4,300 employees, about 6.5% of MetLife’s total 66,000 employee base, associated with this business.

MetLife Home Loans is the residential mortgage division of MetLife Bank, an operational segment of MetLife that has been posting radical losses over the last several quarters. MetLife Bank accounted for only 2% of the company’s operating earnings in the third quarter of 2011, while its bank holding company status has been attached with stringent regulations.

However, MetLife Home Loans will honor the majority of its contractual loan commitments, most of which are expected to be off the record within 3 months, thereby continuing to serve its current reverse mortgage originations.

Meanwhile, MetLife projects to incur costs of $90–100 million, scheduled for 2013. However, we expect increased compensation and benefit expenses over time, given the bulk of lay offs.

Furthermore, in an attempt to bow out of its banking company status, on December 28, 2011, MetLife had agreed to sell its bank deposits worth $7.5 billion to GE Capital – the financial services unit of General Electric Co. (GE - Analyst Report). The deal is expected to culminate by the end of the first half of 2012, subject to regulatory approvals. Meanwhile, MetLife is also exploring the sale of the remaining custodial deposits worth $3.0 billion in the upcoming months.

MetLife is likely to furnish a fresh capital plan to the Federal Reserve (Fed) this month, in order to hike dividends and recommence stock buyback, thereby deploying its excess capital (about $6-7 billion) efficiently. However, in October last year, the Fed had rejected the company’s plan based on the size and scale of its bank operations, and has been since then closely and strictly supervising MetLife.

Hence, the company has long been aiming to divest its banking segment. Management is also undertaking this step to re-focus on its core insurance operations. These efforts are expected to be accretive to earnings in the long run.

Overall, we believe MetLife should continue to benefit from its diversified business mix as well as its leading brand. The company's capital position remains one of the sturdiest in the industry and is supported by fundamental growth, thereby giving strong competition to its peers such as Prudential Financial Inc. ([url=http://www.zacks.com/stock/quote/pru]PRU[/url]) and American International Group Inc. (AIG - Analyst Report). The ALICO acquisition has already started to contribute to the company’s growth while also inflating the value of investment portfolio.

Although low interest rate environment along with detrimental performance of MetLife Bank and U.S. auto-home are likely to impact the results in the upcoming quarters, the long run upside potential remains intact. This opinion is also in line with the Zacks Rank #3, implying a short-term Hold and long-term Neutral recommendation.

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