MetLife Inc. beat back a U.S. attempt to label it too big to fail, which would've put America's biggest life insurer under tougher government scrutiny and forced it to put more money in reserves.
A federal judge in Washington struck down the designation on Wednesday, rejecting the Financial Stability Oversight Council's rationale for classifying the company as a systemically important financial institution. The reasons for the ruling were sealed by the judge.
The ruling undercuts the foundation of the Obama administration's plan to more heavily regulate four non-bank businesses it determined had the potential to destabilize the American financial system. MetLife had called the designation arbitrary and unjustified. Chief executive officer Steve Kandarian said earlier this year that his New York-based company will shed much of its domestic retail business because SIFI put it at a “significant competitive disadvantage.”
MetLife jumped 6% to $45.01 at 10:41 a.m. in New York trading. Prudential Financial Inc., which is the second-largest U.S. life insurer and was also named a non-bank SIFI, advanced 4.3% to $74.59.
(Related read: Why advisers shouldn't sweat MetLife's U.S. retail split)
Randy Clerihue, a spokesman for New York-based MetLife, didn't immediately respond to a message seeking comment.
Filed last year, the MetLife suit is the biggest challenge yet to the council that includes Federal Reserve chairwoman Janet Yellen and Treasury Secretary Jacob Lew. Other non-banks bearing its SIFI designation are American International Group Inc. and Prudential, neither of which have brought challenges. General Electric Co. has said it will divest its U.S. financial operations and then ask FSOC to rescind the classification.
At a February hearing, federal judge Rosemary Collyer sharply questioned Justice Department attorney Eric Beckenhauer, asking why the council said it would conduct a “vulnerability analysis” of MetLife before making its determination, then failed to do so.
She also asked the government's lawyer why FSOC assumed that MetLife would be at the brink of collapse in the event of a fiscal crisis.
“That's not risk analysis,” she said. “That's assuming the worst of the worst of the worst.”
The case is MetLife Inc. v. Financial Stability Oversight Council, 15-cv-00045, U.S. District Court, District of Columbia (Washington).
