Manulife Financial Corp, Canada’s biggest insurer by assets, soared a record 27 percent after Chief Executive Officer Dominic D’Alessandro said he plans to maintain the dividend and will consider acquisitions. Manulife Financial Corp. tried to reassure investors and clients on Monday despite the recent market turmoil that has affected its earnings outlook and stock value.
“Manulife remains conservatively reserved, has a high-quality balance sheet, and strong and leading business franchises around the world,” CEO Dominic D’Alessandro said in a statement released Monday. “We are well positioned to weather these difficult times.”
However, the Toronto-based insurance and investment firm said it is facing $250 million in credit losses applicable to third-quarter earnings. Of that, $50 million was being used to strengthen its reserve fund meant to supplement any shortcomings in the fees it collects versus what it has to pay out in terms of guaranteed benefits to clients. “We think that Manulife was sideswiped by the meltdown in the markets in a way that grossly exaggerates any impact that they’re going to have on us,” CEO Dominic D’Alessandro told analysts before markets opened.
Those assurances, after the company issued a detailed press release on Monday, sent Manulife’s stock price soaring 26 percent on the Toronto Stock Exchange early on Tuesday morning. The stock was up about C$7.00 a share, at C$33.67.
Canadian markets were closed on Monday for a Canadian holiday, while Manulife shares in New York gained 9.5 percent on Monday, after the company said it would take a third-quarter charge, and gave an update on its capital position. “We remain very well capitalized and we have no intention to issue equity capital, contrary to speculation that came to our attention,” D’Alessandro said. The call was meant to respond to “some pretty extreme concerns” in the marketplace that Manulife might have to undertake a dilutive share issue, he noted. “That’s clearly not the case,” D’Alessandro said. “There’s no reason for that.”
The company also has no plan to cut its dividend, he said. If necessary, Manulife would consider obtaining reinsurance or hedging its exposure to deteriorating equity markets, D’Alessandro said. “The capital resources for the company under almost any reasonable expectation of what’s going to happen are more than adequate today,” he said on the call. “If markets do deteriorate, we’re a big strong company and we’ll go and do something else to re-establish our capital levels at an acceptable threshold.” On Monday, Manulife said it expects to take a $250-million hit on its third-quarter earnings because of credit losses linked to the worldwide financial crisis.
The charge includes $50 million from an increase in its reserves for losses as a result of credit downgrades on bonds and other investments it holds.
D’Alessandro noted that while the firm plans to do more hedging, the costs are still “very high at this time.” “We’d like to exhaust other avenues, I don’t think it’s realistic that we could go away and hedge all of our exposure,” he said.
