MetLife Inc. beat back a U.S. attempt to label it too big to fail, which would’ve put America’s biggest life insurer under tougher government scrutiny and could have forced it to put more money in reserves.
A federal judge in Washington struck down the designation on Wednesday, rejecting the Financial Stability Oversight Council’s rationale for classifying the company as a systemically important financial institution. The reasons for the 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. Chief Executive Officer Steve Kandarian said earlier this year that his New York-based company will shed much of its domestic retail business because SIFI put it at a “significant competitive disadvantage.”
“Most in the market would have had MET not prevailing in this case. This should probably send the stock ripping,” David Havens, a debt analyst at Imperial Capital, wrote in a note. “As for the bonds, the story is more neutral, to actually marginally negative. An extra layer of capital blubber and oversight has appeal to credit investors.”
MetLife jumped 4.6 percent to $44.40 at 11:28 a.m. in New York trading. Prudential Financial Inc., which is the second-largest U.S. life insurer and was also named a non-bank SIFI, advanced 3 percent to $73.66.
Randy Clerihue, a spokesman for New York-based MetLife, didn’t immediately respond to a message seeking comment. Prudential spokesman Scot Hoffman declined to comment. American International Group Inc. spokesman Jon Diat also declined to comment.
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.