MetLife CEO: Company Is Big and Important but ‘That Isn’t the Same Thing’ as Systemic
June 4, 2015 by Marie Suszynski
NEW YORK – MetLife Inc.’s chief executive officer said the company expects a district court judge to rule on its systemically important financial institution designation late this year or early next year as he laid out the company’s argument against the designation.
“We have said a number of times — we are big, we’re important. In the highly unlikely event of a failure of MetLife, it would be a big, messy unwind, but that isn’t the same thing as saying MetLife is systemic,” Steven A. Kandarian, chairman, president and CEO of MetLife, said during the Deutsche Bank 2015 Global Financial Services Investor Conference in New York on June 3.
MetLife is currently in a battle over the SIFI designation it has been given by the Financial Stability Oversight Council. MetLife has asked a U.S. district court to kill the designation, saying due process was violated because the FSOC was using a blend of legislative, executive and adjudicative functions.
On May 11, the FSOC said in a filing the insurer’s complex transactions and capital market activity could expose other market participants if a distress situation occurred (Best’s News Service, May 14, 2015).
Under the Dodd-Frank Act of 2010, companies given the SIFI designation by the FSOC were given the opportunity to use the court system if they don’t agree with the designation.
Now that MetLife has filed the complaint in the district court of Washington, D.C., Kandarian said there will be pleadings over the summer, followed by a hearing before the judge in the fall. The company expects the judge to write a decision in late 2015 at the earliest, he said.
He also explained why the government’s concerns about MetLife are flawed. According to Dodd-Frank, a SIFI designation means financial distress at a company could threaten the financial system of the United States.
“The law is directed at too big to fail. Not that big companies couldn’t fail in a market-based economy. They do; it’s part of our system,” Kandarian said. “It’s that the failure of a company doesn’t topple over other companies. They aren’t so interconnected that the federal government would feel compelled to come forward and engage in another bailout the way we saw the bailout occur back in 2008-2009.”
The government has pointed to a few of MetLife’s programs that it is concerned about, but Kandarian said the programs were in place in 2008 and didn’t “blow up” in the financial crisis.
One is MetLife’s $35 billion program for funding agreements in commercial paper.
“Funding agreements on commercial paper has about $13 billion of liabilities that could come due to us within 12 months,” he said. MetLife has $18 billion of liquidity to cover the liabilities, which means there’s a $5 billion buffer for a 12-month period of time for the program, he said.
He also noted commercial paper doesn’t fund MetLife. “If that money went away, there’s no issue of MetLife funding itself,” Kandarian said. Although the company would lose its profits it makes on the business, it’s a pretty small number.
“That doesn’t make you systemic, much less have you fail as a company,” he said.
The government has also pointed to MetLife’s $30 billion in securities funding activities. Kandarian said the business is highly regulated and very low-risk the way it is run.
Another is MetLife’s $48 billion guarantee investment contract business, which Kandarian said has enough liquidity that MetLife is “more than covered.”
“The programs they cite, frankly, are all well-regulated today, do not have liquidity issues, do not have issues around the quality of assets we’re investing,” he said. “All of these programs have been tested through the financial crisis of 2008 and came out fine.”
MetLife is the third insurer, along with Prudential Financial Inc. and American International Group Inc. to receive the SIFI designation (Best’s News Service, Jan. 13, 2015).
Kandarian also talked about MetLife’s succession plan in light of Bill Wheeler’s decision to retire in August as president of the Americas. Investors expected Wheeler would be one of the executives in line to succeed Kandarian.
“Our board, like most boards in corporate America, is very focused on succession planning,” he said. “We have a strong group of executives at MetLife who are being developed and are strong executives who potentially could be my successor.”
Kandarian is 63 and the company has a policy that CEOs and senior executives retire at age 65, although the policy can be waived.
The Americas business includes the United States and Latin America, and as MetLife looks for Wheeler’s replacement it is considering whether to break up the United States and Latin America into two businesses or to continue to keep them together, he said.
On the afternoon of June 3, MetLife Inc. (NYSE: MET) shares were trading at $54.06, up 2.31% from the previous close.
Metropolitan Life Insurance Co. currently has a Best’s Financial Strength Rating of A+ (Superior).
(By Marie Suszynski, Best’s News Service correspondent)
