Metlife and Allstate?
recap -------- MetLife falls after issuing guidance and share offering Down on Credit Exposure Concerns The Wall Street Journal/DJ News has been publishing daily lists of companies with exposure to Fannie Mae, Freddie Mac and AIG debt. Companies on this list have been getting hit hard as the investment portfolios are being discounted as a result of their exposure. Allstate (ALL) has been hit hard, down (-22%) as has MetLife (MET), down (-12.86%). Smaller companies, such as XL Capital (XL) are down as much as (-40%) today. On a technical basis there is not a great deal that can be said about these moves other than that they appear capitulatory. Update: MetLife falls after issuing guidance and share offering MetLife (MET) reported that its Q3 EPS was $1.38-$1.58, compared with analysts’ consensus estimate of $1.44. The insurer added that its revenue was about $8.6B, compared with the consensus estimate of $13.73B. MetLife said it was hurt by lower than expected variable investment income, as well as lower than expected fee revenue from its variable annuity business. MetLife withdrew its previous 2008 guidance, citing “current volatility.” Meanwhile, the insurer announced that it would offer 75M shares of common stock to the public. The proceeds from the offering will be used to bolster MetLife’s capital position, the company said. On a positive note, MetLife’s liquidity jumped to about $21B on September 30, versus $14B on June 30. MetLife’s shares plummeted $4.96, or 13.45%, to $31.91 in early trading. A number of other insurers also declined, with Hartford Financial Services (HIG) falling $1.06, or 3.70%, to $27.57, Prudential Financial (PRU) losing $2.51, or 5.40%, to $44.00, and Allstate (ALL) declining 59c, or $1.55, to $37.42.
If you didnt want to read Daj’s copy and Paste: MET basically said don’t trust our earnings we have shit that can go all over the place (which probably means down in this enviornment) but, by the way, please give us more money.
MET going down the same path as AIG?
MET’s news came on top of the Hartford’s (HIG) need for 2.5b capital infusion
They got some serious junk on the books. Exposure to WaMu, Fannie, Freddie, Lehman, mortgage backed, AIG. . . amongst a host of other illquid stuff. Not good.
CDS settlement for Lehman on 10th.Most of the insurers are counterparties.
MET is in a big time mess. With $17B in gross unrealized losses on their balance sheet, the capital offering of approximately $2B is amusing to say the least. Market rightly punished them for pulling a fast one. MET is now trying to go on the offensive (or atleast pretending to do so) by alluding to capital raising as means for potential M&A opportunities. Apparently, MET had approached HIG to buy them out, but this idea was downright rejected by HIG. But here is the very, very interesting part. MET is doing what LEH did earlier in the year–reporting big gains on their derivative liabilities. Sounds confusing, fear not. Enter FASB’S statement 159–option to cherry pick any asset or liability and fair value them. Thus, if MET has a derivative agreement (which they choose to fair value) where, for example, its CDS spreads increased relative to the counterparty’s, MET will report a gain as the widening of its CDS spreads represents a loss to the counterparty. In short, under this accounting, a company can report gains for being risky, unstable and having potential solvency issues. But MET is still a notch company. Watch out for PRU, LNC and PFG. Have a strong feeling one of them would be bought out.
Is Goldman a counterparty too?
Not sure.
Options traders flock to bearish contracts in Prudential Financial (PRU), picking up 13,000 puts and 3,000 calls, according to Trade Alert. There’s a lot of activity around October $30 puts, in particular. Priced at $7.10, the contracts make money if PRU dips below $22.90 before Oct. 17. Implied volatility on PRU options is also really high, suggesting dramatic swings in the company’s share price ahead. PRU down 35% at $27.92. On 9/19/08 PRU closed at $86 On 9/30/08 PRU closed at $72
PFG is a great target for TROW given PFGs sticky assets and 401K specialty/leadership position. PFG is down hard b/c Principal owns a significant number of structured securities and derivatives with value that is difficult to measure