Government Seeks to Reinstate SIFI Designation for MetLife
June 17, 2016 by Frank Klimko
WASHINGTON – Government attorneys have asked a federal appeals court to reinstate the systemically important financial institution designation for MetLife Inc., saying the company remains a possible threat to the nation’s economy and needs prudential supervision beyond what it receives by state regulators.
Attorneys for the Financial Stability Oversight Council filed the appeals brief in the U.S. Court of Appeals for the District of Columbia Circuit. It seeks to reverse a March 30 decision by U. S. District Judge Rosemary M. Collyer, of the U. S. District Court for the District of Columbia, which stripped MetLife of the SIFI designation.
In that ruling, Collyer held the FSOC failed to follow its own rules in the designation process and should have assessed the costs of designation to MetLife before making a final decision (Best’s News Service, May 31, 2016).
Collyer was wrong, according to the motion filed by Daniel Tenny, one of the attorneys for the U.S. Department of Justice representing the FSOC.
“The district court overturned the collective judgment of the heads of the nation’s financial regulatory agencies that material distress at MetLife could pose a threat to the country’s financial stability,” the brief said. “The court’s ruling leaves one of the largest, most-complex, and most-interconnected financial companies in the country without the regulatory oversight that Congress found essential.”
Central to Collyer’s ruling was her finding the FSOC failed to follow its own interpretive guidance. Before the council designated MetLife as a SIFI, it should have established the financial health of the company itself, Collyer said. She also ruled FSOC should have figured out how MetLife’s theoretical demise would impact its counterparties.
The ruling ignores the broad discretion agencies are given in applying regulations, the brief said.
“The guidance does not suggest, much less require, that the council will consider the likelihood of a company’s failure,” the brief said. “Nor does the statute or the interpretive guidance indicate that the council will estimate specific counterparty losses. The district court’s assessment of the interpretive guidance was profoundly mistaken.”
MetLife’s range of financial products, the brief said, include approximately $35 billion in funding agreement-related liabilities and $48 billion in guaranteed investment contracts.
“The council found that MetLife offers a number of financial products that allow its customers and counterparties to demand cash or other assets,” the brief said. “The council also found that MetLife’s distress created a risk that the company could be forced to sell its assets at fire-sale prices.”
Treasury officials said in a statement the SIFI designation for MetLife would eventually prevail.
“We continue to believe that the council acted well within its legal authority in designating MetLife and are vigorously defending the council’s work on appeal,” the statement said.
MetLife issued a statement it would reply to the government’s brief in its own motion, which has to be filed with the court by Aug. 15.
There is some question over the timing of oral arguments. DOJ attorneys have asked for an expedited process, but attorney Eugene Scalia, of Gibson, Dunn & Crutcher, who represents MetLife, said he is unavailable for oral arguments in October and early November. Mark Stern, another DOJ attorney representing the FSOC, suggested the court move the oral hearing up to late September.
With the removal of the SIFI designation on MetLife, the only other two U.S. insurers so designated are American International Group Inc. and Prudential Financial Inc.
Operating units of MetLife have current Best’s Financial Strength Ratings of either A (Excellent) or A+ (Superior).
On the morning of June 17, shares of MetLife Inc. (NYSE: MET) were trading at $42.28, up 0.14% from the previous close.
(By Frank Klimko, Washington correspondent, BestWeek: Frank.Klimko@ambest.com)
