General Electric Co. jumped into the retail deposits business on Tuesday, buying the online bank from life insurer MetLife Inc. in a deal that will let GE's capital arm expand its funding base and lessen reliance on wholesale markets.
The speed of the move took some analysts by surprise, as it has only been three weeks since GE said it wanted to start taking bank deposits from consumers.
In the wake of the financial crisis, during which GE had to seek a lifeline from billionaire investor Warren Buffett, GE Capital has been trying to diversify its funding base so that it is not so dependent on commercial paper and bond sales.
"This acquisition gets GE Capital halfway to the stated (funding) goal, much faster than consensus expectations," Sterne Agee analyst Ben Elias said in a research note.
GE Capital is taking on about $7.5-billion (U.S.) in deposits -- just enough to put it in the top 100 banks nationwide, roughly. It tipped its hand clearly earlier this month, when a top executive said the company needed a U.S. retail channel next year.
"We've got it in other parts of the world. We haven't done it in this country. We're going to do that very soon, just to give us more diversification in terms of how we fund the business," GE Capital Chief Executive Mike Neal said at an investor conference earlier this month.
MetLife shares rose 0.6 per cent to $31.30 and GE shares fell 0.9 percent to $18.07 in late-afternoon trading Tuesday.
For MetLife, the sale is what St. John's business professor Anthony Sabino described as a "win by subtraction."
The country's largest life insurer has been trying since July to sell MetLife Bank, its online retail arm, which was a small part of its overall business but which also led to bank holding company oversight from the Federal Reserve.
In October the Fed blocked the company from paying a dividend or buying back stock.
"This agreement is a significant step toward MetLife's no longer being a bank holding company," said MetLife CEO Steven Kandarian in a statement. Mr. Kandarian and others have talked of a "level playing field," where MetLife is regulated as an insurer and not as a bank.
"We feel that once MetLife is no longer a (bank holding company) and subject to Fed oversight, it will remove an important overhang and help 'change the story' for the stock," Bernstein analyst Suneet Kamath said in a note.
Financial terms of the deal, which is expected to close in mid-2012, were not disclosed. Sterne Agee's Mr. Elias estimated GE paid "several multiples" less than the 300 basis points Capital One paid in buying ING's U.S. online deposits.
Deutsche Bank was financial adviser to MetLife and Wachtell, Lipton, Rosen & Katz was legal adviser.