MetLife Outside Counsel: Company’s Designation as Non-Bank SIFI a ‘Flawed Process’
January 14, 2015 by Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com
NEW YORK – MetLife Inc. was designated as a non-bank systemically important financial institution through a “flawed process,” says the company’s outside counsel in the matter.
This process “gave decisive weight to boundless speculation and ignored the actual evidence in the record” in the factors the Financial Stability Oversight Council was required by Congress to consider, said Gene Scalia, of Gibson, Dunn & Crutcher, who is serving as one of MetLife’s outside attorneys. H. Rodgin Cohen of Sullivan & Cromwell is the other.
MetLife held a legal briefing conference call the afternoon of Jan. 13. Randy Clerihue, a spokesman for MetLife, said MetLife filed its complaint that afternoon in the U.S. District Court for the District of Columbia, asking a federal judge to reverse FSOC’s designation of MetLife as a SIFI.
The complaint makes procedural and substantive challenges to FSOC’s decision, Scalia said, saying MetLife is asking the court to set aside the designation decision.
“Procedurally, the complaint objects that the designation decision was premature because there was important relevant information that FSOC lacked,” Scalia said. This included information about the consequences of designating MetLife — not only for the company but also for its shareholders, customers and for the general economy.
A basic element of sound government decision making is for it to carefully consider the effects of the action it’s about to take, he said. “But FSOC declined to do that.”
“Ultimately, we allege these procedures denied MetLife constitutional due process,” Scalia said.
Earlier, MetLife said it would file the action in federal court to overturn the FSOC’s designation of the company as a non-bank SIFI.
“We had hoped to avoid litigation after we presented substantial and compelling evidence to FSOC demonstrating that MetLife is not systemically important,” said Steven A. Kandarian, chairman, president and chief executive officer of MetLife, in a statement. “Now we will take the next step in the process established by the Dodd-Frank Act and ask a federal judge to review FSOC’s decision.”
Scalia said the complaint contends FSOC committed a number of serious errors. Among them are that FSOC was required under the statute and its own guidance to consider and give weight to the state regulatory system that MetLife already is subject to, Scalia said, noting FSOC “failed to do that.”
“In fact, the rationale it gave for its decision could have been essentially the same if the state insurance regulatory system didn’t exist at all,” he said. “Except for a remarkable portion of its decision, which suggested that intervention by state regulators would actually cause systemic risk,” he said, noting there’s no evidence of that.
The decision is also “exceptionally vague and speculative and at odds with the actual evidence before FSOC and basic economics,” Scalia said. For example, it “rests heavily on a theory” that if MetLife failed it would cause so-called contagion in the insurance markets.
“We looked very closely at past insurance failures and showed FSOC that there was no evidence of this contagion occurring but FSOC effectively ignored that historical evidence,” Scalia said.
FSOC also relied on other parties — counter-parties to MetLife — but “completely failed to show” that those exposures would translate into meaningful losses if MetLife failed, Scalia said.
In mid-December, MetLife acknowledged the FSOC had designated the company as a SIFI. At that time, MetLife said the fact that two of the three insurance entities that have received these designations are life insurers could create unfair competitive advantages for companies that have not received these designations.
MetLife joined Prudential Financial Inc. and American International Group Inc. as the only insurance companies to be designated as SIFIs.
