MetLife CEO Steven Kandarian: The Man Who Beat Uncle Sam

Long before MetLife Inc. Chairman and Chief Executive Steven Kandarian won his legal showdown with the U.S. government, he faced doubters inside his own boardroom.“What are the chances that we will win?” one skeptical director asked before the giant insurer sued its regulators, according to a person familiar with the situation. “On the better side,” he answered, according to another person familiar with the conversation. The decision to take on the federal government was a major gamble for the 64-year-old Mr. Kandarian, a low-key executive known for his caution and reserve.

MetLife was one of four nonbanks tagged by U.S. regulators as a threat to the financial system, but it was the only company to go to court to challenge that designation and the extra layer of regulation it brings. The challenge risked customer and regulator opprobrium.

On March 30, the bet paid off: A federal judge agreed that the December 2014 decision by U.S. regulators was flawed, freeing MetLife from potentially higher capital requirements and other restrictions. In her opinion, unsealed Thursday, the judge took regulators to task for what she called an “unreasonable” decision to ignore the cost of stricter supervision of the firm. The administration said it would appeal the ruling in the coming weeks.

“He has been vindicated,’’ said Morgan Stanley President Colm Kelleher, a friend of Mr. Kandarian’s who also has a business relationship with MetLife. “Many people thought it was a losing battle.”

Mr. Kandarian declined to be interviewed for this article.

The MetLife CEO seems an unlikely foe for Uncle Sam. A former government official who ran the U.S. agency that insures private pensions, he is quieter than his extroverted predecessors at MetLife who were known for breaking into song at company events and speaking to employees at town-hall-style settings. He joined in 2005 as the insurer’s chief investment officer.

MetLife Unsealed
Judge Rosemary Collyer’s Opinion

Judge’s Rejection of MetLife’s ‘Systemically Important’ Label Is Appealed (April 8)
Judge Ripped Regulators’ Metlife Call as ‘Unreasonable’ (April 8)
MetLife Tried to Shed Fed Oversight in 2008 (April 8)
MetLife Decision Could Pose Threat to Global Regulatory Efforts (April 5)
IMF Warns of Rising ‘Systemic Risk’ From Insurers (April 4)
Fed Pulls Overseers From MetLife in Wake of Ruling (March 31)
MetLife Wins Bid to Shed ‘Systemically Important’ Label (March 30)
Not long after becoming CEO in 2011, Mr. Kandarian, himself educated as a lawyer, began preparing for a legal challenge, according to people familiar with the events. He ultimately won over internal skeptics by promising to avoid the bombastic language of all-out war.

MetLife’s adversary was the Financial Stability Oversight Council, a group of top financial regulators with the authority to identify “systemically important financial institutions,” or SIFIs, that could threaten the U.S. economy should they fail in another crisis.

General Electric Co. is dismantling its giant finance business, GE Capital, after it was designated a SIFI, in part because the regulations hurt its returns. American International Group Inc., too, has come under pressure from investors to break up to escape the extra regulatory burden. MetLife itself has outlined plans to shed a chunk of its U.S. life-insurance business for what it said were strategic as well as regulatory reasons.

Mr. Kandarian’s major concern was that the Federal Reserve would require unusually thick capital cushions, forcing MetLife to raise prices or quit lines of business. He said publicly that such onerous oversight would put the company at a competitive disadvantage to rivals.

His view was that MetLife was swept up in “the overreaction and overzealousness of regulators to prove they were doing something” to prevent future financial crises, said one person familiar with the situation.

The first step toward an eventual lawsuit came in November 2012, when Mr. Kandarian reached out to a lawyer who is highly respected for challenging federal agencies: Eugene Scalia, son of late Supreme Court Justice Antonin Scalia and a partner at Gibson, Dunn & Crutcher LLP.

It was still months before MetLife officially would come under consideration as a SIFI, but Mr. Kandarian wanted help if MetLife decided to turn to the courts.

“I was impressed that he was seeing around the corner…in a legally sophisticated way,” Mr. Scalia said.

Mr. Kandarian at this point already was frustrated with federal regulators. In early 2012, an Internet bank owned by MetLife had flunked a Federal Reserve “stress test” designed to gauge its ability to absorb losses in another financial downturn. That test result quashed MetLife’s plans to buy back shares and raise its dividend.

MetLife was the only life insurer tested, and Mr. Kandarian complained publicly that the Fed’s “bank centric” test didn’t reflect important distinctions between life insurers and banks, which the Fed had historically regulated. Mr. Kandarian also suggested that the Fed’s math was wrong, a comment criticized by some investors and analysts.

The experience “left a bad taste in [MetLife’s] mouth,” said Ryan Krueger, a stock analyst with Keefe, Bruyette & Woods.

Mr. Kandarian, trained as a lawyer, learned a public-relations lesson from the stress-test failure and took his views about regulators behind closed doors. He began discussing the prospect of tighter U.S. scrutiny during nearly every private board meeting, people familiar with the situation said.

When MetLife directors asked whether a lawsuit would harm the company’s reputation, alienate customers or antagonize regulators, Mr. Kandarian promised a measured approach. During one board discussion in October 2014, he said MetLife “was not declaring war against the government,” said one person familiar with the conversation.

“Steve kept saying repeatedly, ‘If we believe that the decision is wrong as a matter of law, then it was important that we as a company take advantage of our rights to due process and correct what we believe is an irrational decision, as long as we did it in a respectful way,’” said William Kennard, a MetLife independent director and former Federal Communications Commission chairman.

When directors convened again that December, a month before filing the lawsuit, Mr. Kandarian’s deputies “wanted to be sure we would be comfortable,” a person familiar with the matter said. Their plan to publicize MetLife’s legal challenge was “very analytical, void of hyperbole or malice” and designed “not to come back to haunt the reputation of the business.”

Mr. Kandarian made it clear at that meeting he thought the company had a solid case. “We are even more convinced that we should proceed,” he said at the December 2014 meeting, according to another person familiar with the situation.

When a federal judge handed Mr. Kandarian the legal victory he predicted, he was on the phone with Mr. Kennard. “Wow, the decision just came out, and it looks like we just won,’” he said, according to Mr. Kennard.

Mr. Kandarian then emailed all board members about an hour later with a muted celebration: “We were successful.”

—Emily Glazer contributed to this article.