By Pam Martens and Russ Martens: June 30, 2016
Nothing would do more to obliterate the legacy of President Obama or the credibility of Federal regulators than for another major U.S. insurer to need a massive taxpayer bailout like AIG did in 2008 because of its exposure to Wall Street mega banks.
But the trading action of the giant U.S. insurer, MetLife, following the Brexit vote in the U.K. has tongues wagging on Wall Street. The question is why this company traded worse than even the biggest Wall Street banks in the immediate aftermath of the Brexit vote. In last Friday and Monday’s trading sessions, MetLife lost 17.3 percent of its market capitalization or $8.4 billion. Adding to the curiosity, this comes at a time when MetLife is fighting in court to avoid the government’s designation of it as a non-bank systemically important financial institution or SIFI.
Insurers like MetLife are supposed to be the safest of the safe. They hold life insurance policies to protect families in the case of the death of the breadwinner and annuities to provide income to retirees that rely on those policies to buy food and pay bills in retirement. Insurers like MetLife are not supposed to go into a swan dive when a country on the opposite side of the Atlantic holds a voter referendum.
The concerns about MetLife should have grabbed the public’s attention when the Financial Stability Oversight Council (F-SOC) released its report on why it was designating MetLife a SIFI on December 18, 2014. The report noted:
“MetLife leads the U.S. life insurance industry in certain institutional products and capital markets activities, such as issuances of funding agreement-backed notes (FABNs), guaranteed minimum return products (such as general and separate account GICs), and securities lending activities. These activities expose other market participants to MetLife and create on– and off– balance sheet liabilities that increase the potential for asset liquidations by MetLife in the event of its material financial distress. Efforts to hedge such risks through derivatives and other financial activities are imperfect and further increase MetLife’s complexity and interconnectedness with other financial markets participants…”
The report also found that MetLife was serially tapping the taxpayer bailout mechanisms during the 2008 financial crisis, writing:
“During 2008 and 2009, MetLife’s subsidiary bank accessed the Federal Reserve Term Auction Facility 19 times for a total of $17.6 billion in 28- day loans and $1.3 billion in 84-day loans. In March 2009, MetLife raised $397 million through the Temporary Liquidity Guarantee Program run by the Federal Deposit Insurance Corporation (FDIC), which enabled the organization to borrow funds at a lower rate than it otherwise would have been able to obtain. Additionally, MetLife borrowed $1.6 billion through the Federal Reserve’s Commercial Paper Funding Facility.”
F-SOC made the determination that “material financial distress at MetLife could pose a threat to U.S. financial stability” and included this very troubling passage about MetLife, which could have easily been describing AIG circa 2008:
“Large financial intermediaries, including global systemically important banks (G-SIBs) and global systemically important insurers (G-SIIs), have significant exposures and interconnections to MetLife through its institutional products and capital markets activities.”
The general public and shareholders of MetLife received only an opaque view of the internal workings of the company and its interconnectedness to Wall Street’s global banks in that 2014 report from F-SOC because the Federal government continues to treat the investing public as small children who must have their eyes protected from horror scenes on Wall Street. The 2014 F-SOC report on MetLife made this sweeping statement on what it was withholding from the public:
“The statement of the basis for the final determination that the Council provided to MetLife relies extensively on nonpublic information that was submitted by MetLife to the Council. For example, that analysis includes information such as the types and amounts of counterparty exposures to MetLife arising from the company’s securities issuances, guaranteed investment contracts (GICs), and derivatives activities; the size, collateralization, and liquidity of the company’s securities lending program; the impact on capital of the company’s use of captive reinsurance; the terms of inter-affiliate transactions; and the scale of the company’s insurance liabilities with discretionary withdrawal features. The Council is subject to statutory and regulatory requirements to maintain the confidentiality of certain information submitted to it by a nonbank financial company under review for a potential determination. As a result, this public explanation of the basis for the Council’s final determination omits such information and addresses the key factors that the Council considered in its evaluation of MetLife and the primary reasons for the Council’s determination.”
Translation: MetLife is a black hole and your Federal regulators plan to keep it that way, despite taxpayers having to cough up $185 billion for the last insurance black hole, AIG, that was on the hook to Wall Street.
Following AIG’s collapse in 2008, it was eventually revealed that major Wall Street banks, foreign banks and hedge funds received more than half of AIG’s bailout money ($93.2 billion). Public anger eventually forced AIG to release a chart of at least some of these payments made from September to December 2008. The chart shows that Goldman Sachs received $12.9 billion of the funds; Societe Generale received $11.9 billion; Merrill Lynch and its U.S. banking parent, Bank of America, received a combined $11.5 billion; the British bank, Barclays, received $8.5 billion; Citigroup got another backdoor bailout of $2.3 billion from AIG, to name just a few of those benefitting from this backdoor Wall Street bailout.
Federal regulators will continue to treat the taxpayer and the investing public as small children in need of seeing no evil until citizens collectively demand change.