MetLife announced Tuesday that GE Capital, General Electric’s finance wing, will be purchasing MetLife Bank, the deposit banking part of the massive life insurance company. MetLife announced earlier this year that they were planning on selling their bank so that they may circumvent new federal regulations on deposit banking.

As MetLife exits the deposit banking business, GE will be making its entrance.

According to a press release, GE Capital will be acquiring $7.5 billion in customer deposits, but not $3 billion in other deposits, some relating to MetLife Bank’s mortgage unit. MetLife will transfer this other $3 billion in deposits elsewhere in the next half year.

Alonso Torres/flickr source

Regulatory Pressures on the Insurance Agency

The sale of MetLife Bank marks the end of a brief foray into retail banking by the life insurance group, who founded the bank in 2001. MetLife CEO, Steven Kandarian, first announced that they planned to sell their banking business in July of this year, citing regulatory pressure from the Federal Reserve’s stress test program.

Because the bank holding company represented only two percent of the corporation’s operating revenue in the first quarter of this year, Kandarian said in a statement in July, he did “not believe it [was] appropriate for the overwhelming majority of our business to be governed by regulations written for banking institutions.”

Meanwhile, this acquisition represents GE Capital’s introduction to deposit banking. GE Capital, while it offers many financing services, has yet to open a deposit bank. Though apparently they had been planning on it.

Customers Are a Cheap Source of Funding

Dan Henson, president and CEO of GE Capital – Americas, said the purchase of MetLife “fits with our plans to launch a U.S. deposit platform,” in prepared remarks. By purchasing an already existing retail bank, GE Capital will make this transition quicker, and offer GE Capital “a more cost efficient funding base” for their existing financing activities.

Indeed, banks hardly have to offer customers anything these days to convince them to park their dollars there. With interest rates so low, deposit banking is a great source of cheap capital right now, so long as banks have prospective borrowers. While for MetLife, it might make sense to avoid new federal regulations because they are not a bank for the most part. GE Capital is a bank and has plenty to gain from the access to consumer deposits.

Currently, MetLife Bank offers 0.15% APY on savings accounts below $5,000. Between $5,000 and $9,999, the APY is just 0.25%. Only their 12 month CD offers a 1.00% APY, and that’s for a minimum deposit of $25,000. A cheap source of funding, indeed!

This offers some perspective into why non-banks are entering the banking business at a time when established banks are having a hard time making the business profitable (so they say). Walmart tried to get a bank charter back in 2007. Green Dot, the prepaid debit card company, recently acquired Bonneville Bank of Utah, thereby entering the retail banking business. Interestingly, GE Capital partnered with both of these companies in October of this year to expand Walmart’s MoneyCard prepaid product.

Perhaps by avoiding the overhead associated with retail branches that aren’t otherwise productive — in the way a Walmart location is — non-banks and quasi-banks are realizing the value of cheap customer based funding in a way that megabanks no longer can.

The GE-MetLife deal should be complete by mid-2012, pending regulatory review, according to both parties.

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