MetLife Inc., looking to avoid tougher oversight, was examining options for a breakup or restructuring of the firm 14 months before announcing this year that it’s considering a sale, spinoff or public offering for part of the domestic retail business.
Chief Executive Officer Steven Kandarian told regulators including Federal Reserve Chair Janet Yellen and Treasury Secretary Jacob J. Lew in November 2014 that MetLife might break up if it were subjected to stricter capital requirements. The insurer had hired an investment bank to determine “how bad does it get” if MetLife were designated as systemically important, he said.
“What we have under consideration is a breakup of MetLife,” Kandarian told members of the Financial Stability Oversight Council, according to portions of a transcript released in a federal court Wednesday. “You should be aware of that. And I say it to you only in the sense that I don’t want people to say later on, ‘Geez, we had no idea that you were thinking of this.”‘
MetLife, the largest U.S. life insurer, is suing the FSOC. The panel designated the firm systemically important in December 2014, a little more than a month after Kandarian made those remarks. The lawsuit is the biggest challenge yet to the FSOC, which was created by the 2010 Dodd-Frank law.
“FSOC should not assume that it can designate MetLife, see how it goes, come back to it two or three or four years later, and maybe we are not so systemic after all, and we can reverse things,” Kandarian told the council. “The market won’t allow us to operate that way, especially if the capital rules are really harsh. Activism investment alone will put tremendous pressure on the company to do a number of things, including restructuring the company.”‘
Kandarian said Jan. 12 that he’s weighing different options for much of the insurer’s U.S. retail operation, saying that its systemically important status could put that business at a “significant competitive disadvantage.” The New York-based insurer joins General Electric Co.’s finance unit in taking steps to shed assets and simplify operations after being designated systemically important.
The MetLife unit slated for separation would have about $240 billion of assets, similar in size to Lincoln National Corp. The operation would include some life-insurance entities and would also be a provider of variable annuities, retirement products that international regulators have said might have higher capital requirements.
American International Group Inc., a systemically important insurer that has been facing pressure from activist investor Carl Icahn, said this week it will offer a 19.9 percent stake in its mortgage insurer to the public in a step toward a complete exit of that business. Icahn has been urging AIG to break up and has called the systemic-risk tag a tax on size.
MetLife and the FSOC are scheduled to make oral arguments in a Washington, D.C., federal court next month.