MetLife buys sovereign CDS

MetLife joined the growing body of investors (or what some critics and regulators might also call speculators depending on your perspective) in making a large $200 million credit default swap trade to buy protection on Portugal sovereign debt.

MetLife bought the Portugal CDS to hedge investment holdings related to its $16.2 billion acquisition of former AIG unit, American Life Insurance Company (Alico). The company made the announcement after releasing expected fiscal 2010 results and providing guidance for 2011.

[MetLife CIO Steven] Kandarian began altering MetLife’s portfolio in anticipation of the Alico purchase, buying $200 million of credit-default swaps to protect against declines in Portugal’s sovereign debt. MetLife has about $379 million in exposure to Portugal’s debt and $735 million to Greece.

On page 11 of its Investments Presentation and documents filed with the SEC, MetLife reports book values of $1.064 billion of sovereign Greek debt (with an estimated market value of $735 million as mentioned above), $87 million Irish debt, $392 million Italian debt, $379 million Portuguese debt and $275 million Spanish debt. MetLife’s total PIIGS sovereign debt exposure thus totals $2.197 billion (and is currently estimated to have a market value of $1.903 billion).

While most of the focus was on its large Portugal CDS position, the company makes public that it has dabbled in the credit derivative markets to hedge other parts of the Alico investment portfolio with specifying details. While sovereign exposure in peripheral Europe has been hedged with sovereign CDS and opportunistic cash bond sales, Financial Institution exposures have been dealt with by both managing down MetLife exposures and using CDS (presumably corporate CDS i.e. Bank of America or JP Morgan CDS).

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1 Comment »

Comment by Cristobal Bender
2012-04-15 21:51:00

Awesome blog post.Really thank you! Great.


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