By Leslie Scism
MetLife Inc.'s decision this week about whether to sue the U.S.
hinges on a former government official who hardly seems a candidate
for a confrontation with Uncle Sam.
But several little-publicized skirmishes with U.S. authorities
in recent years help explain why MetLife Chairman and Chief
Executive Steven Kandarian is weighing a showdown, said people
close to him.
A federal panel last month designated MetLife as " systemically
important," meaning the state-regulated firm poses significant
risks to the financial system and warrants tougher federal
oversight. It was the third insurer to receive that title.
Unlike his rivals at American International Group Inc. and
Prudential Financial Inc., who decided not to challenge the label
because they believe the new federal scrutiny will be manageable,
Mr. Kandarian has geared up for a potential fight, according to
people close to him.
Mr. Kandarian, who once headed the government agency that
insures private pensions, is concerned that the label will require
MetLife to hold an unnecessarily fat capital cushion that could
crimp its ability to raise dividends and buy back shares while
putting it at a competitive disadvantage to other life insurers
that aren't held to the same standard, these people said.
The 62-year-old Mr. Kandarian has until Friday to file a lawsuit
disputing the accuracy of the government's assessment. He declined
to comment about the potential outcome.
"His decision in this matter will carry a lot of weight in the
financial industry," said Partnership for New York City President
Kathryn Wylde, who knows Mr. Kandarian and persuaded him to join
the board of the economic development group.
If filed, the suit would challenge the decision of the Financial
Stability Oversight Council, a panel of regulators created by the
2010 Dodd-Frank law to identify nonbank financial firms that
warrant tougher scrutiny to avert another widespread financial
crisis. It is led by Treasury Secretary Jacob Lew, and its 10
voting members include Federal Reserve Chairwoman Janet Yellen.
Before he joined MetLife as its investment chief in 2005, Mr.
Kandarian was head of the federal Pension Benefit Guaranty Corp.
There he sometimes clashed with U.S. businesses. Investor Wilbur
Ross recalled being at odds with Mr. Kandarian over mounting
pension obligations at a steelmaker Mr. Ross wanted to buy. Mr.
Kandarian's agency assumed the obligations to protect assets for
retirees, but that move prevented management from shrinking the
workforce with early retirement offers.
"Steve is not a gunslinger-type person," Mr. Ross said. If he
sues the U.S., "it will only be because he is totally convinced his
position is right and the government is wrong."
Legal scholars and analysts have said it is tough, though not
impossible, to win a lawsuit against a regulator.
At MetLife, Mr. Kandarian is known for his caution and reserve,
a contrast to predecessors who broke out in song at company events
or relished town-hall-style employee meetings.
In 2011, Mr. Kandarian was tapped to lead MetLife partly because
of moves he made before the last real-estate bust that bolstered
the company's now-$475 billion investment portfolio. Those included
the $5.4 billion sale of Peter Cooper Village/Stuyvesant Town, a
housing complex on Manhattan's east side.
But it took only two months in the new job for his concerns
about U.S. regulators to surface. The CEO worried that Washington's
interest in overseeing the biggest insurance companies would hurt
MetLife competitively. So he decided to put MetLife's Federal
Reserve-regulated bank up for sale.
If he didn't unload the bank, a small part of the company's
overall operations, MetLife could end up "governed by regulations
written for banking institutions," he said in a July 2011
statement.
A sale to General Electric Co.'s finance arm was announced in
December 2011, but the deal didn't go as planned. It took a year
for federal regulators to approve the transaction, a delay that
frustrated Mr. Kandarian, said people who know him. The company had
told investors it expected the sale would close in about six
months.
Mr. Kandarian's frustrations intensified in early 2012 after
MetLife flunked a "stress test" designed to gauge its ability to
absorb losses in the event of another financial downturn. The
failing grade meant that MetLife couldn't increase its common stock
dividend and it couldn't restart a share-buyback program, as rival
Prudential Financial already had done.
Mr. Kandarian went public with his discontent and called the
Fed's stress test too "bank-centric." He said MetLife was the only
insurer among the 19 test takers, and "insurance companies operate
under a different model than banks." The CEO also said MetLife's
own "analysis showed we passed."
Some investors were surprised by Mr. Kandarian's tone and
critical of MetLife for not anticipating the Fed rejection. Mr.
Kandarian's response: "I don't second-guess myself," he said at the
time.
Privately, Mr. Kandarian found other ways to vent his
displeasure. People close to him recall how he reacted one weekend
as company lawyers advised him to pay tens of millions of dollars
to settle government allegations of home-foreclosure abuses, a
steep price for what company executives believed were isolated
problems. The only alternative was spending additional tens of
millions of dollars to finish a records review and still possibly
face fines, according to people familiar with the matter.
Mr. Kandarian fumed at what he perceived as the unfairness of
the situation, said people close to him, before agreeing to settle
for $46 million in February 2013.
"He's measured, but he's not timid," said private-equity
investor Thomas H. Lee, a former boss of Mr. Kandarian in the
1980s.
Write to Leslie Scism at leslie.scism@wsj.com
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