NEW YORK (AP) — Shares of MetLife Inc. tumbled Wednesday after it was named as one of the four banks to fail Federal Reserve stress tests designed to determine whether banks are strong enough to survive a severe economic downturn.
THE SPARK: The Fed reviewed the balance sheets of 19 bank holding companies to determine whether they could withstand a severe crisis: unemployment at 13 percent, stock prices falling 60 percent over two years and home prices plunging 21 percent from today's levels.
The Fed released the results after the markets closed on Tuesday. Besides MetLife, the other three financial institutions that did not pass were Citigroup, Ally Financial and SunTrust.
THE BIG PICTURE: The 15 banks that passed got a green light from the Fed to boost their dividends and take other steps that will make their stocks more attractive to investors.
The Fed didn't order any of the banks that failed its test to raise specific sums. However, it won't allow them to increase dividends or buy back shares, and it told them to submit plans within 30 days outlining how they plan to get stronger.
MetLife said Tuesday that it was "deeply disappointed" with the Fed's findings. The insurance company had previously announced plans to free itself from the Fed's oversight by selling off its bank division.
THE ANALYSIS: Sterne Agee analyst John Nadel backed his "Buy" rating for MetLife, but cut his price target for the New York-based company by $2 to $47, citing the Fed's rejection of MetLife's plan to buy back $2 billion in stock and raise its annual dividend to $1.10 from its current level of 74 cents.
Nadel said it's possible that MetLife could decide to raise its dividend or buy back shares once the sale of its bank closes, which is expected to happen at the end of the second quarter.
At that point, the company won't be formally regulated by the Fed until it's designated as a non-bank systematically important financial institution, which probably won't happen until late this year, he said.
THE SHARES: In heavy midday trading, MetLife shares fell $1.87, or 4.7 percent, to $37.59, after dropping as low as $37.33 earlier in the day.
Over the past 52 weeks, the company's shares have traded between $25.61 and $47.10. Since the beginning of this year, MetLife shares have gained about 27 percent.