Despite the shades of gray surrounding many corporate restructure plans, the recent news regarding MetLife and AIG’s plans has shined the spotlight on the positive benefits of regulatory change. While this light may seem dim, and it will come with some growing pains in the process, the long-term consequences are designed to benefit all parties involved, from the stakeholder to consumer.
Since AIG’s recent call with investors to unbundle its mortgage segment, its S&P credit rating has jumped from negative to stable within the week. While the discussions are far from over, at least a path has been set to become a more streamline and efficient company.
The AIG announcements in the wake of the MetLife news come as no surprise. The decision for these non-banking SIFIs to split off a significant portion of their business demonstrates the role regulatory environments have in shaping today’s businesses. It also emphasizes the role regulations will continue to play in shaping financial and non-banking institutions’ business models and corporate structuring. The process is never clear at first or swift, yet downstream consequences will ultimately be a win-win for the consumer and the firm.
The corporate restructures represent opportunities for the companies to improve their core business. For AIG, some investors will be happy of its move to unwind its mortgage business, United Guaranty. Other investors will not be as happy in hopes the company will break into three business units. As for MetLife, it would behoove the firm to spin off their life insurance retail business as the newly spun-off company and customers can all benefit from this action. The new company will be able to offer more competitive rates to its policy holders in line with industry-standard capital requirements, while MetLife’s balance sheet can be bolstered from the revenues raised from the spin-off.
Positive consequences of regulatory change
The big picture? These large corporate restructures represent a positive sign that the market can become more efficient and that regulatory requirements are effective, despite how any political party or sceptic wants to spin it.
Additionally, such a move could influence other SIFI organizations to use their “regulatory environment” as a business growth opportunity to restructure and reform – something which often gets overlooked amidst the sea of red tape and paperwork associated with process. The key question to ask first is, “Should we stay in this line of business?”
MetLife and AIG Restructuring plans reveal there’s no one simple solution
In short, these massive re-organizations represent a sign of things to come. Both in terms of more restructures, more drawn-out debates, and more long-term gains. We can absolutely expect to see more restructuring among major financial and non-banking institutions in the year. In the wake of the recent RBS restructure and JP Morgan’s take-over of Bear Stearns, we are well aware that this process is extraordinarily complex. It takes years to move toxic assets out of a business, to re-shape existing legal entities, to embrace newly acquired risky businesses, and to redirect risk to a new entity.
Yet with the global regulatory landscape becoming more convoluted and prudent, organizations and regulating bodies are (thankfully) thinking more pragmatically and moving forward in this process.
It’s a long process and GFT is involved in many of these complicated planning discussions with financial services firms around the world on numerous aspects of restructuring and cost improvement initiatives. Many of these initiatives involve product activity analysis, know your customer (KYC) analytics, and associated risk assessments in multiple jurisdictions.
It’s hard to see the forest through the trees at times, but there’s a silver lining with this AIG and MetLife news that is designed to benefit and protect the consumer and business.