This year saw the end of Allstate Bank and the beginning of the end for MetLife Bank, two online banks, both of which were wholly-owned subsidiaries of their parent insurance corporations. Both banks were relatively short-lived.
Both banks closed due to concerns from their parent companies regarding new regulations on the banking industry. Should we expect similar moves from other insurers in the banking business in 2012?
Last Wednesday, Allstate Bank completed refunding and closing all of its deposit accounts, according to their website. In February, the insurance agency announced their intent to sell the bank , which was established in 1998, and Discover stepped in with an offer that eventually fell through, forcing the bank to dissolve.
Allstate, when they announced their plans to sell the bank, stated that regulatory changes in Washington forced them to leave the banking business.
Earlier this week, we reported on MetLife’s exit from the banking industry. They will be selling off their bank to GE Capital for $7.5 billion. MetLife, when they announced their intent to sell their bank, claimed new federal regulations on the banking industry made their banking unit more burdensome than it was worth, much like Allstate. And, like Allstate Bank, MetLife’s bank had only been around for about a decade.
The bank represented only 2% of their quarterly profits, and keeping it would lead to greater scrutiny from the Federal Reserve in the form of capital stress tests. So MetLife brokered a sale with GE Capital, which should be finalized by the middle of next year. Hopefully it goes smoother than the Allstate-Discover deal.
Both banks were founded at about the same time and left us at about the same time; will other similar banks follow suit?
Two that come to mind are Nationwide Bank and State Farm Bank, both wholly-owned subsidiaries of insurance corporations, and both were founded relatively recently; Nationwide’s in 2007, and State Farm’s in 1999.
State Farm Bank posted $35 million in losses in 2010, and $158 million in losses the year before. But it is much larger than either Allstate or MetLife: it was worth $15.1 billion a year ago. Nationwide Bank is a bit smaller, with only $3.9 billion in assets at the beginning of 2010. However, Nationwide’s bank is younger than the others and it is still growing according to their 2010 earnings statement — net operating income was up by $15 million between 2009 and 2010.
Perhaps for the fact that State Farm’s bank is too large to simply auction off, and Nationwide’s is still profitable, we won’t see these banks go the way of Allstate and MetLife in 2012. Then again, insurers might not want to face the regulatory heat of Dodd-Frank regardless of size and profitability.