MetLife fights risk label by saying it’s not a U.S. finance firm

(Bloomberg) — MetLife Inc.’s fight to free itself from a costly government label is increasingly focusing on a bold argument: The giant insurer isn’t actually a U.S. financial company.

 

In court papers filed in Washington on Friday, MetLife said it doesn’t meet the legal definition of a U.S. non-bank financial firm, in part because it has substantial foreign operations.

 

“Under the plain language,” of the 2010 Dodd-Frank Act, MetLife isn’t eligible for designation, because the company is not “predominantly engaged in financial activities,” MetLife said in its filing.

 

The filing is the latest salvo in the court battle between MetLife and a council of U.S. regulators that last year deemed the New York-based insurer a potential threat to the financial system. The label subjects MetLife to tough Federal Reserve oversight, and could lead to strict constraints on how much money it can borrow and how much capital it must set aside.

 

The MetLife suit represents the biggest challenge to the Financial Stability Oversight Council’s authority since it was created under Dodd-Frank.

 

‘Speculation, conjecture’

 

The council, led by Treasury Secretary Jacob J. Lew, is charged with identifying financial companies that are so big and interconnected that their failure could threaten the U.S. economy. A MetLife victory could weaken FSOC’s ability to designate companies and encourage other firms to appeal its decisions.

 

In a brief filed Aug. 4, U.S. government lawyers argued that MetLife fell short of its legal burden to show that the council’s decision was arbitrary or capricious.

 

“Although the company repeatedly accuses the council of engaging in ‘speculation,’ ‘conjecture’ and ‘guesswork,’ in fact it simply disagrees with the council’s analysis, predictions and conclusions,” the government said.

 

In response to the government, among the arguments made by MetLife lawyers in Friday’s filing was that FSOC rejected information that would have better informed its decision.

 

“There are well-established principles to guide risk analysis,” MetLife lawyer Eugene Scalia said. “FSOC ignored them.”

 

The council has designated three other non-bank financial companies systemically important: Insurers American International Group Inc. and Prudential Financial Inc., and General Electric Co.’s finance unit. GE, which is exiting most of its lending businesses, has said it will ask the FSOC next year to remove the systemically important label from GE Capital.

 

The case is MetLife Inc. v. Financial Stability Oversight Council, 15-cv-00045, U.S. District Court, District of Columbia (Washington).