MetLife appeal of proposed ‘risky’ designation Nov. 3

MetLife will have it’s hearing on whether it is systemically risky before the Financial Stability Oversight Council (FSOC) Monday, Nov. 3, according to the New York-based behemoth.
The questions that remain aren’t whether the arguments MetLife make will sway the 10-voting-member Council, which voted on the proposed designation as a systemically risky financial institution (SIFI), with nine in favor and none opposed, with appointed Independent Insurance Expert Roy Woodall voting “present.”
The questions are what the ‘basis’ is for MetLife’s expected designation–which only FSOC nad MetLife know at thei time–and whether MetLife will take the matter to the court system after an appeal to FSOC is likely lost.
When Prudential Financial was designed a SIFI, the basis began with the company in distress and runs on the bank envisaged, Woodall dissented on that argument and on the vote, and pointed to an alternative basis of risky activities as a better approach. Since Woodall did not dissent but merely did not vote in MetLife’s proposed designation, the run-on-the-bank scenario may have been ditched in favor of another “basis.”
In a footnote in his Prudential Financial dissent, Woodall noted: “The Council has based its conclusion solely on what is referred to as the First Determination Standard; namely: “material financial distress at the nonbank financial company could pose a threat to the financial stability of the United States.” The Council did not consider Prudential under the “Second Determination Standard,” which relates to specific activities of the company….”
Woodall summarized that FSOC had identified three transmission channels as avenues by which a nonbank financial company could transmit risk of instability to the financial system: (1) exposure; (2) asset liquidation; and (3) critical function or service. The Council then determined that Prudential’s material financial distress could pose a threat to financial stability focusing on two of the channels: exposure and asset liquidation, Woodall pointed out in his dissent last year.
Recently resigned FSOC member John Huff, the Missouri director of insurance, now replaced after two terms with Adam Hamm of North Dakota as a state insurance regulator, expressed several areas of concern with the FSOC’s still not-public basis of MetLife’s proposed designation, according to the FSOC minutes of the Sept. 4 meeting.
Huff also opposed the Prudential SIFI designation, and wrote a dissent, but he was, as are all state regulators, non-voting members of FSOC.
Treasury-led FSOC has 60 days from Nov. 3rd to make a final decision, although it could decide earlier — i.e.–before the end of the year.
FSOC’s website press release just calls the event a closed meeting to discuss a nonbank SIFI designations (plural, as another nonbank, perhaps a reinsurer, is in Stage 2 of analysis or therabouts) and a discussion of recent market activity.)
MetLife is already designated by the global financial supervisory authorities as a global systemically important insurer (G-SII.) The company has operations in Latin America, Asia, the EMEA countries.
MetLife reported second quarter 2014 operating earnings of $1.6 billion, unchanged from the second quarter of 2013. On a per share basis, operating earnings were $1.39, down 3% over the prior year quarter. Operating earnings in the Americas grew 5%. Operating earnings in Asia decreased 3% on a reported basis and in Europe, the Middle East and Africa (EMEA) increased 37%.