Wednesday, November 18, 2009

Manulife lobbied Flaherty to kill income trusts, to sell more Income Plus, only to self-immolate. Some policy outcome that is?

Manulife sells $2.5-billion of stock

Andrew Willis
Globe and Mail Update Published on Wednesday, Nov. 18, 2009 5:05PM EST

Manulife Financial Corp. (MFC-T20.180.180.90%) launched a $2.5-billion stock sale late Wednesday as the life insurer moves to build what it's chief executive officer described as ‘fortress levels of capital.”

Canada's largest insurer rolled out its second massive equity offering of the past 12 months – it sold $2.275-billion of stock last December – as newly named CEO Donald Guloien attempts to shore up a balance sheet that is weighed down by exposure to the drop in equity markets. Manulife sold its clients billions of dollars worth of guaranteed savings products [Read: Income Plus] that were invested in stocks, and these annuities and other funds now represent an enormous potential liability for the company.

[Editor's Note: That's simply because Manulife went "naked" on these bets and failed to properly hedge them, in a gamble to generate greater earnings, albeit with greater risk, as they have now belatedly learned]

The financing, which dilutes the ownership stake of Manulife's existing shareholders, shows that financial services companies are still concerned about the future of stock markets and the economy, despite the rally in equities that has played out since March.

“We are positioning Manulife for the long term,” Mr. Guloien in a news release. “We believe this transaction achieves the fortress level of capital necessary to buffer against more conservative economic scenarios and to position us to take advantage of highly attractive acquisition and growth opportunities.”

A syndicate of underwriters being led by Scotia Capital In and RBC Dominion Securities Inc. agreed to buy $2.5-billion in Manulife common shares at a price of $19 each. That is a 6 per cent discount to Manulife's $20.18 closing price Wednesday on the Toronto Stock Exchange.

“Our action today is consistent with Manulife's conservative approach to capital management,” said Mr. Guloien. “Achieving these strong capital levels enables us to offer an even higher degree of security to present and future customers. It also gives us tremendous flexibility.”


CAITI said...


Manulife Financial Corp. (MFC) is raising equity for the second time in less than a year, shocking investors who have already been diluted and had their dividend halved. The move raised speculation the Toronto-based insurance company could be ready to make an acquisition.

"My initial reaction is negative, that's for sure," said Bruce Campbell, principal of Campbell-Lee Investment Management. He noted the equity issue is at a lower price than the C$2.1 billion issue made in December 2008, when stock markets were in free-fall and the global financial system was in crisis.

In that equity issue, Manulife sold shares at C$19.40 each. Its shares had been trading at C$20.18 just before the issue was announced.

Facing further dilution and an even lower dividend yield, Campbell said that, unless Manulife's outlook is far worse than the market anticipates, the only thing that would make the issue palatable would be if the company then makes a transformational purchase.

Tony Demarin, who also holds Manulife stock as principal of BCV Investment Management, felt much the same.

"The only thing that would give me confidence that they are doing this properly, is that there's a significant asset that they're coveting," Demarin said. "Then I would be much more in favor, then at least they would have the opportunity to grow. If they are just doing this to pile on more capital, then that's a poor reason."

Anonymous said...

What a ridiculously inappropriate photo.

Dr Mike said...

Where is Al "I see ponzi schemes" Rosen when we need him.

Dr Mike

CAITI said...

Okay Anonymous.

What picture would you recommend that best captures the concept of self destruction?

The self destruction that Manulife engaged in which it made guarantees of investment returns that were linked to the equity markets.....that it failed to hedge?

Something that Warren Buffet called "crazy".

Perhaps a picture of a lunatic in a straight jacket?

What are you creative suggestions?

Anonymous said...

Jim Flaherty/Steve Harper,

What do you now have to say to the below when Dominic D'Alessandro lobbied so hard to your government to tax trusts, for his own gain and re his Income Plus which has now gone broke?

Thanks a lot Jim!

Doug Boraas

Tomm said...


I can't believe that you are doing this.

Why don't you just a show Flaherty and Harper with their hidden devil's horns and tails and be done with all the other stuff.

Using a picture of a buddhist priest on fire to protest the war in indochina as a visual linkage with Manulife doing something that is perfectly legal in Canada is a little beyond the pale.

Dr Mike said...

The monk made his own choice.

The knife in the back that income trust investors took from Flaherty & Harper was not of our own making.

We believed them when they said they would not tax trusts--we trusted them.

It was not like this was a minor plank in their 2006 election campaign , this was a highlight--it pulled people like my wife & myself into the trust fold for the first time.

After all , if you cannot believe your PM who can you believe.

Question asked , question answered---not Mr Harper.

Dr Mike Popovich

CAITI said...


Your acute sensitivities amount to self-sensorship.

The picture in use serves as an ANALOGY or a visual REPRESENTATION of what Manulife was engaged in, namely practices that it got burnt by.....burnt by itself.

Sorry that the ANALOGY being drawn to Manulife's act of self-immolation was such a powerful one. Maybe next time I will use a picture of Jack and Jill going up the hill and living happily ever after?

Would that better suit your sensibilities and self-sensorship?

Tomm said...


Use whatever you wish. Censor yourself. That is what everybody does every time we hold a conversation on a topic of significant disagreement.

But think before you leap, OK?

Dr. Mike,

Point taken. But how many times can you say the same thing? We get it. I would much rather see the discussion points on a path that preserves the income trust idea.

In fact, this blog spends a lot of time pounding this issue without telling me why this little investment tool was world class, of value to this nation, and should have been kept.

That might be a more productive place to start.

Dr Mike said...


It`s fine to say that we need to make our case for preserving this structure--that is fine--can do that alright.

The point of this whole thing is that this gov`t removed the trust model without any explanation why--blacking-out 18 pages does not cut it.

That is like saying that an accused in court is guilty until he proves he proves himself innocent.

We have explained the case for the trust structure a thousand times but so far this gov`t has shown no proof that this structure was bad for this country.

It would be an easy step for them to present their proof & put this thing to rest instead of hiding behind the cover of the Privy Council.

I was a Con for 36 years & have never experienced such cowardice in all of those years.

It was indeed a sad day when we were betrayed by Peter McKay.

Dr Mike

CAITI said...


The case for income trust HAS been made many times and supported by FACTS. This contrast with the "case" made by Flaherty on behalf of s[pecial commercial interests like the life insurers who were "burnt" by their own greed. I dare not say "self-immolate", as that is too illustrative.

I suggest you read the piece by Gordon Tait of BMO Capital Markets from way back in December 2006 entitled Tthe incovenient trust about trusts"or the litany of other pieces or this short piece by Diane Francis:

Meanwhile, where is the Governments case AGAINST income trusts? The one with facts, rather than fiction?


This is the very point I made in my testimony before the Finance Committee in their public hearings on Income Trusts before Parliament in January 2007....which was to say...."this is government in reverse, a properly functioning democratic government means that it is INCUMBENT on GOVERNMENT to make THEIR case, rather than for me to refute it, even though it is so easily refuted, since there is no case or hard evidence to refute that has been forthcoming from the government."

Please report back on your findings after reading these pieces that I have referred you to.


CAITI said...

Spell Check: Sorry meant to write:


Your acute sensitivities amount to self-Censorship.

CAITI said...

Stephen Jarislowsky slams Manulife
Stephen Jarislowsky

Stephen Jarislowsky The Globe and Mail

One of insurer's largest owners ‘terribly disappointed' by $2.5-billion stock sale that came with ‘no warning'

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See also:

* Manulife share sale faces headwinds
* Insurance: Wary Manulife back for billions
* Insurance: Manulife's Guloien plots his own course

* Article
* Comments

Tara Perkins, Andrew Willis and Allan Robinson

Globe and Mail Update Published on Thursday, Nov. 19, 2009 9:46AM EST Last updated on Thursday, Nov. 19, 2009 4:16PM EST

Manulife Financial Corp. (MFC-T18.95-1.23-6.10%) chief executive officer Donald Guloien is confronting some angry shareholders following the company's $2.5-billion share sale to bolster capital levels to record highs.

“I was terribly disappointed because I was left very much under the impression that the company, if they cut the dividend, would have fortress levels of capital and that the last thing they wanted to see was more share dilution,” said Stephen Jarislowsky of Jarislowsky Fraser Ltd., one of the insurance company's largest shareholders.

“I think it's pretty godawful that there was really no warning about this coming, and all of a sudden this dilution came about,” he said.

Manulife shares fell sharply on the Toronto Stock Exchange Thursday, a day after Canada's biggest insurer announced another stock issue.