D’Alessandro’s public policy pronouncements have proven bad, not just for Manulife, but for all Canadians

Dominic D’Alessandro’s reputation is something of his own creation. Not mine. His actions, not my criticisms are responsible for his diminished standing in society and in the pantheon of “great” business people, assuming there is such a thing. I am only concerned about the negative after effects that his policy pronouncements have on ALL Canadians , and not about what that might mean for his reputation. Not my fault that he has proven himself to be completely wrong on the positions he took, after all they were ALL motivated by a consideration of what was in his own personal best interests, including his views on income trusts and “hollowing out”, the arguments against which all appeared to be centered around a desire to protect Manulife from foreign takeover, and not the larger issue that was essential to embrace in achieving that narrower end. The same tactic was taken on income trusts. Invoke the broader issues, to achieve one’s extremely narrow self-interested goal.

Dominic’s role in bringing about the income trust tax is well documented, despite the fact that he tried to mislead Parliament that corporations, such as Manulife, had nothing remotely to do with this policy’s introduction. Manulife benefited enormously from the elimination of income trusts as a competing investment vehicle, an opportunity seized upon by Manulife via their most timely and serendipitous introduction of Income Plus, the very week following Flaherty’s killing of income trusts.

Income Plus had grown to a $5 billion success in very short order, in the vacuum caused by the income trusts demise. Courtesy of Dominic D’Alessandro, it also turned into a much larger open ended liability on the books of Manulife, because of Dominic’s decision not to hedge these risks, as other issuers of variable annuities were doing. This decision, no different in substance than equally imprudent decisions made by AIG, was the reason that Manulife’s stock crated by 70% in the recent market meltdown, a decrease in value brought about by the leveraged effects of this very Income Plus product.

So here we witnessed the government taxing direct investments in the Canadians economy at 31.5% and directly targeting average Canadians saving for retirement, in order to give special dispensation to the likes of Manulife in order that they can substitue those direct investments in Canada’s economy with synthetic, fee-rich, derivative products like Income Plus........that blow up in the face of Manulfe?

Hello policy makers in Ottawa? Anybody home?

Meanwhile, for the privilege of giving Manulife privileged “domain” over the retirement savings of Canadians, all Canadians are faced with the costs that are directly borne by this bespoke tax policy of stupidity, which are:

(1) Major loss of tax revenue. The $56 billion trust takeovers to date have caused, over $1 billion a year in lost tax revenues. Had BCE been completed, that would have added an additional loss of annual tax revenue of some $550 million a year (versus the corp it is today) and $790 million (versus the LBO it almost became). Once all the trusts are acquired in similar ways, this bespoke tax policy that was introduced at the behest of firms like Manulife, will cost taxpayers $7.5 billion a year.

(2) Major hollowing out of Canadian business: The trusts were obviously targets for takeover from the very moment of Flaherty’s announcement. What I call his Happy Hallowing Announcement. The trust that have been taken over have gone from being 22% owned by foreigners to now, 44% owned by foreigners. Once again, this makes a mockery of Dominic D’Alessandro’s policy pronouncement’s ion matters like “hollowing out”. How could a person who was so instrumental in bringing about the income trust tax, that is the equivalent of a “for sale” sign on Canada, ever get off saying this:

“ I sometimes worry that we may all wake up one day and find that, as a nation, we have lost control of our affairs.”

Imagine, Dominic made this comment at a Manulife Annual General Meeting of Shareholders. This comment of his, was about the effects of hollowing out of Canada via foreign takeovers of Canadians business, but as things turned out, it could just as easily have been about how Dominic mismanaged the risks of Income Plus and destroyed shareholder value in the process and almost “lost control of our affairs”. The very shareholders he was preaching to about hollowing out, received another lesson in a different kind of hollowing out a short while later as the value of their investment plummeted by 70%, more than any other peer life company, and owing to the absence of hedging by Dominc on Income Plus.

Goodbye Dominic. Enjoy your retirement. You won’t be missed by those of us seeking truth in policies and policies that serve the broad interests of ALL Canadians, including ironically, Manulife shareholders. That can be your ironic legacy.