Will S&P Threat Unseal the Deal between MetLife and Alico?

Just when MetLife seemed to be close to sealing the estimated $15 billion deal to buy American International Group's Asian life insurance unit Alico, along comes Standard & Poor's to bust their bubble.

The rating agency Standard & Poor's hasn't exactly covered itself in glory. It was slow to get off the ground in analyzing the credit crisis along with fellow raters Moody's Investors Service and Fitch. Then it did such a poor job rating the bonds in insurers' portfolios that the National Association of Insurance Commissioners fired it and hired bond giant Pimco.

Now there's a chance that S&P could submarine AIG's first big chance at success; the opportunity to sell one of its major assets and begin to pay back a portion of the $180 billion it received in government backing.

It's a sad day. Or is it? S&P, given its dismal track record, has every reason to be cautious, but perhaps it's being overly cautious. Moody's and Fitch have yet to be heard from, and it's not clear whether they will take such a negative approach to the deal. Also, S&P didn't downgrade MetLife yet; it simply put the nation's largest life insurer on "Creditwatch with negative implications." In other words, a shot across the bow.

But MetLife hasn't run for cover. Even though it was downgraded last year from single A to A- it doesn't appear to be paying a whole lot more to do business. Remember that AIG was Triple A not that long ago. S&P spokesman Chris Breslin said the rater's move was a normal reaction, given that it didn't know what to expect from a very large deal.

No one does, except for MetLife's inner management circle, and they're not talking. When analysts sniffed around on today's earnings conference call, MetLife was coy about the details, saying only that it would be "accretive to earnings," or it wouldn't happen.

MetLife doesn't do deals too often, but when it does it tends to be both smart and conservative. The insurer sold much of its real estate holdings at the top of the market in 2005. It sidestepped most of the credit crisis by sticking with a high-quality portfolio, and it flat-out refused to take the TARP money offered by the government. It obviously considered a ratings hiccup before getting this far with the deal.