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MetLife reaches fork in the road with CEO transition


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MetLife reaches fork in the road with CEO transition

Outgoing MetLife Inc. CEO Steven Kandarian spent years having to explain what the company is not. His successor could provide a clearer picture of what it will be, analysts said after Michel Khalaf's promotion was announced.

MetLife's posture has been defensive as Kandarian has steered it out of the recession, CFRA analyst Cathy Seifert said. During his eight years in charge, MetLife fought off its designation as a financial institution large enough to require stricter federal oversight; spun off Brighthouse Financial Inc.; and dealt most recently with weakness in internal controls over some of its pension annuities.

Now Khalaf, whose appointment takes effect May 1, has an opportunity to "sort of set forth his vision for the firm," Seifert said.

MetLife and its life insurance peers have underperformed in recent months, with the company's shares having fallen from a post-crisis high near $55 in early 2018 to below $40 around the New Year. They closed up 0.52% at $42.77 on Jan. 8, trailing broader market indexes but ahead of the S&P 500 Insurance index.

Seifert, who believes that the shares are undervalued at present levels, said better reporting transparency could help improve MetLife's standing among investors.

Khalaf's promotion brings a new set of managers and a positive restart from an investor's perspective given the frequency of recent special charges, Sandler O'Neill analyst John Barnidge wrote in a Jan. 8 note to clients. The familiarity of promotion could help with the reset, Barnidge said.

"We note ... management changes came from internal promotions which we believe is supportive of continuity and a faster ramp up," Barnidge wrote.

With serious challenges safely navigated, the time presents itself as natural for a leadership transition, RBC Capital Markets analyst Mark Dwelle said in a Jan. 8 note to clients. Kandarian took the steps the insurer needed to improve its cost structure and reduce volatility, but investors became restless with a lack of major growth strategies, Dwelle wrote.

"Over time we think this provides [MetLife] the opportunity to set a new multiyear plan for energizing growth and improving margins and ROEs," Dwelle said.

Khalaf has served as head of MetLife's Europe, the Middle East and Africa operations since 2011, and added responsibility for U.S. business in July 2017. He said in a statement that he hopes to accelerate revenue growth, continue to optimize the company's portfolio and strengthen expense discipline.

Barclays analyst Jay Gelb said that message gives reason for optimism for long-term EPS and ROE potential.

"In our view, optimizing [MetLife's] portfolio could indicate plans to further focus on business lines with higher return profiles, limiting capital allocation to low-return businesses, and/or taking steps to reduce legacy businesses," Gelb wrote in a Jan. 8 research note to clients.