WASHINGTON — Judges appointed by President Barack Obama Monday in the federal government’s ongoing case regarding whether or not MetLife is a systemically important financial institution (SIFI) will constitute a majority on the panel that will review the Financial Stability Oversight Council’s appeal of a lower court decision earlier this year.
Related: FSOC defends MetLife designation
Judge selection was viewed as a negative for MetLife’s chances of sustaining the lower court decision handed down on March 30 by Judge Rosemary Collyer, who declared MetLife’s SIFI designation “arbitrary and capricious.” That ended the Federal Reserve’s oversight of the company. The government is appealing that decision. Oral arguments are scheduled on that appeal for Oct. 24 before a panel of the U.S. Court of Appeals for the D.C. Circuit.
Collyer’s decision was largely rooted in the arguement that the government had not taken into consideration the additional costs MetLife will bear as a SIFI.
The government’s formal appeal was filed June 15.
The case is MetLife v. FSOC, No. 16-5086.
Related: MetLife defends its SIFI challenge
The judges selected by a lottery in the U.S. Court of Appeals for the D.C. Circuit are:
- Sri Srinivasan, an Obama appointee;
- Patricia Ann Millett, an Obama appointee; and
- A. Raymond Randolph, an H.W. Bush appointee.
Thomas Gallagher, an analyst at Evercore ISI, said his initial analysis of the judges pool indicated the likelihood of getting a majority of Obama-appointed judges was below 20 percent.
Gallagher added that “there was a chance” the government might have pulled its appeal if the judge selection disadvantaged their case, as a lost case in the U.S. Court of Appeals could set a negative legal precedent. This could work against the FSOC in similar cases in the future, i.e., make it easier for Prudential Financial to also try and get out of its SIFI designation.
“However, with the judge selection now seemingly looking better for the FSOC case,” Gallagher said, “we expect FSOC to stick with it. In the event that MetLife still wins this appeal, it is unclear whether the FSOC would try and move it to the Supreme Court, given derivative implications for regulating other financial institutions more broadly.”
Gallagher said the outcome of this appeal would have been a lot more important to MetLife had it not been pursuing a breakup of the company.
“With a breakup already underway with Brighthouse and what we would view as a pretty clear final step to ensuring that MetLife sheds the SIFI designation, we believe there is still a high probability that MetLife is unlikely to be a SIFI in the next two or three years (around the time that insurance annual SIFI stress testing likely comes into play), regardless of the outcome of this case,” Gallagher said.