MetLife Inc. said it will sue to overturn a U.S. finding that subjects the insurer to tighter oversight under the Dodd-Frank law, becoming the first non-bank financial firm to file such a challenge.
A complaint will be filed today in federal court in Washington to oppose the U.S. Financial Stability Oversight Council's designation of the insurer as a systemically important financial institution, the company said in a statement. The largest U.S. life insurer called the label premature, and said it has offered “substantial and compelling evidence” it isn't a SIFI.
(More: How MetLife can avoid the too-big-to-fail bug)
MetLife “has operated under a stringent state regulatory system for decades,” Chief Executive Officer Steve Kandarian said in the statement. “Adding a new federal standard for just the largest life insurers and retaining a different standard for everyone else will drive up the cost of financial protection for consumers without making the financial system any safer.”
The insurer is mounting the strongest opposition yet to a provision of the 2010 Dodd-Frank law, which was passed to prevent future financial crises. It was the fourth firm to be deemed a non-bank systemically important financial institution, or SIFI, by the FSOC, which is led by Treasury Secretary Jacob J. Lew.
The FSOC's designation is the result of “a thorough analysis and extensive engagement with the company,” Suzanne Elio, a spokeswoman for the Treasury Department, said in an e-mailed statement. “We are confident in the council's work.”
MetLife has said it doesn't deserve the systemic-risk label because its failure wouldn't threaten the financial system. The SIFI tag subjects companies to stricter Federal Reserve oversight that could include tougher capital, leverage and liquidity requirements. Final rules haven't yet been written.
BEST INTEREST
“It's not wise to begin your new relationship with a federal regulator by suing them,” Isaac Boltansky, an analyst at Compass Point Research & Trading LLC, said by phone before MetLife announced the suit. “I don't think it's in their best interest.”
U.S. lawmakers voted in December to give the Fed more flexibility in how it tailors the rules after insurers said they shouldn't be subject to standards designed for banks. That change reduced the need for MetLife to sue, Mr. Boltansky said. By mounting the legal challenge, the insurer may be limiting its ability to influence how the rules are written, he said.
Gloria Vogel, an analyst at Drexel Hamilton, said a SIFI designation could cut MetLife's return on equity, and limit buybacks, dividends and acquisitions. The insurer's stock price already reflects those expectations, she said.
'MORE CAPITAL'
“It probably reduces the ROE a little bit because you've got to keep more capital,” she said by phone. “The market's already assuming they're a SIFI.”
MetLife climbed 1.6% to $51.23 at 9:34 a.m. in New York. The company has dropped about 3.3% in the past 12 months, compared with the 13% gain of the Standard & Poor's 500 Index.
The other non-bank SIFIs are Prudential Financial Inc., American International Group Inc. and General Electric Co.'s finance unit. Prudential, the No. 2 U.S. life insurer, initially opposed the label before deciding against a court fight. AIG and GE Capital didn't contest their designations.
Dodd-Frank also mandates Fed supervision for bank-holding companies with more than $50 billion in assets, such as Citigroup Inc. and Goldman Sachs Group Inc.
MetLife has said that FSOC should focus on activities that pose systemic risks, rather than on individual companies. The firm has said that its life products don't pose a threat.
'SIZE ALONE'
“It is not enough to designate companies as SIFIs merely because they are big,” Mr. Kandarian said. “The Dodd-Frank Act is clear that size alone does not make a company systemic.” Gibson Dunn & Crutcher LLP and Sullivan & Cromwell are the insurer's law firms on SIFI-related issues.
FSOC has 10 voting members including the heads of the Fed, the Securities and Exchange Commission and the Federal Deposit Insurance Corp.
The panel voted 9-to-1 to deem MetLife systemically important, with Roy Woodall, the council's independent member with insurance expertise, dissenting. FSOC cited the firm's size, investments and interconnectedness with other financial companies. The insurer had more than $900 billion of assets at the end of September, including corporate debt and other securities that could be tough to sell in a crisis, FSOC said.
“Material financial distress at MetLife could pose a threat to U.S. financial stability,” the council said.
