metlife was smart on thursday to warn investors not to get too excited about its stock. metlife shares have risen strongly since donald trump <u+2019>s surprise election victory on tuesday. investors are reacting to rising interest rates. the yield on the 10-year treasury bond has risen to 2.12% late thursday, from 1.85% on tuesday. that is good news for insurance companies because it means they can earn more by investing customers<u+2019> premiums over time. metlife added fuel to the rally thursday by announcing that its board has approved $3 billion for share repurchases. metlife shares rose in afternoon trading. but the company tempered the mood in its comments at an investor-day event thursday morning, saying return on equity, a key measure of profitability for financial companies, still faces headwinds. <u+201c>never before in history has the yield on the 10-year u.s. treasury been as low as it was post-brexit, at 1.36%,<u+201d> said metlife chief executive steven kandarian. though they have risen since then, interest rates remain at very low levels. the 10-year treasury still yields less than the 2.30% it paid at the end of last year. rates could also shift lower on any bad news, such as new tensions with china or mexico. as long as rates remain as low as they are, the company will face pressure on roe. from 2011 through 2015, when rates were higher, metlife earned an average, adjusted, operating<u+00a0>roe of 11.3%, excluding some one-time gains and losses. metlife said thursday it has historically been able to earn an adjusted roe that is 8.4 percentage points above the 10-year yield. with the 10-year yield currently at 2.12% this suggests a possible roe of 10.5%. from investors<u+2019> standpoint, that is adequate but not great. financial institutions are generally thought to be underperforming if they can<u+2019>t do better than 10%, their theoretical cost of capital. this helps explain why metlife trades at a 25% discount to its book value, according to factset. mr. kandarian concluded his remarks on thursday by thanking metlife investors for their patience. they will have to stay patient before they see great returns.
metlife<u+2019>s sobering message to investors  - wsj
aaron back