MetLife said Wednesday is moving ahead with plans to spin off much of its Charlotte-based U.S. retail business, despite a federal judge’s ruling striking down the insurer’s too-big-to-fail label.
On Wednesday, the judge in Washington rescinded a federal panel’s 2014 classification of the New York-based company as a systemically important financial institution. The label, which MetLife appealed in court, would have put America’s largest life insurer under tougher government scrutiny and could have forced it to put more money in reserves.
In January, MetLife cited the label in announcing plans to separate much of its U.S. retail business. On Wednesday, MetLife spokeswoman Meagan Soffera said the judge’s ruling will not change those plans.
The company has said it intends to keep the separated company headquartered in Charlotte. MetLife has said it’s considering a possible spinoff, sale or an initial public offering of shares in an independent, publicly traded company.
MetLife has said the move will have no impact on its Global Technology and Operations campus in Cary, where it employs more than 1,200 people.
The reasons for Wednesday’s 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.
“From the beginning, MetLife has said that its business model does not pose a threat to the financial stability of the United States,” MetLife CEO Steven Kandarian said in a statement Wednesday. “This decision is a win for MetLife’s customers, employees and shareholders.”
Filed last year, the MetLife suit is the biggest challenge yet to the council that includes Federal Reserve Chair Janet Yellen and Treasury Secretary Jacob Lew. Other non-banks bearing its SIFI designation are American International Group and Prudential, neither of which have brought challenges.
General Electric Co. has agreed to sell more than $160 billion of assets since April under a plan to shed the bulk of its GE Capital finance operations. GE has said it intends to submit an application to regulators this quarter to drop the label.
At a February hearing, U.S. District 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.”
Beckenhauer said it’s the nature of such crises to be unanticipated. MetLife is asking her to override the “considered judgment” of the heads of nine major financial regulators, he said.
The government lawyer also said the council was acting upon its congressionally granted authority to assess which nonbank financial companies pose a possible risk to the broader economy. He focused on MetLife’s ties to other firms around the world – its interconnectedness – a factor that was crucial in the 2008 financial crisis.
MetLife’s lawyer, Eugene Scalia, son of the late Supreme Court Justice Antonin Scalia, said his client isn’t a financial institution that should be subject to such oversight. He also said the methods used by the council to arrive at its conclusions violated federal administrative procedure law and the company’s right to due process.
The designation process, he said, was “clouded in mystery.” Collyer expressed sympathy for his assertion that the FSOC had said it would conduct a study on MetLife’s risks, or vulnerabilities, but failed to do.
Scalia, a partner at Gibson Dunn & Crutcher LLP who has filed several cases seeking to overturn Dodd-Frank regulations, said companies hit with the FSOC designation were trying to restructure themselves to avoid the extra oversight and associated costs. MetLife has said the FSOC relied on “unsubstantiated speculation” and that it poses no risk to the financial system.
MetLife shares closed Wednesday at $44.73, up $2.27.
Bloomberg News contributed.