December 22, 2017

Manulife has announced a 2.9-billion hit for 17Q4. Management must be distraught that such an important development had to be announced after the market closed for the Christmas holiday – with no time to publish a press release on their website, darn it! It only made it to Newswire – so I’ll help them out by passing along the word:

Manulife Financial Corp. is preparing to take two charges worth $2.9-billion in its fourth quarter as U.S. tax reforms and a new investment strategy reshapes the business.

The Toronto-based insurer said Friday evening that it would move to sell some private market assets, resulting in a one-time $1-billion hit to profits as the company aims to put capital toward investments that can offer higher returns.

At the same time, Manulife said that U.S. President Donald Trump’s overhaul of the U.S. tax code would result in a second $1.9-billion charge as a result of some accounting changes, but that the move would be beneficial to the company’s business south of the border over time. Both charges will be included in Manulife’s fourth-quarter results, which are set to be released on Feb. 7.

Over the next year and a half, Manulife plans to sell some of its alternative assets, which are long-term holdings in sectors such as timberland, farmland, infrastructure and energy. Many of these assets are located in the U.S.

As the alternative assets are sold, about $2-billion in regulatory capital will be freed up at Manulife. But the move will also mean that the company’s core earnings, a metric that strips out some accounting volatility, will be reduced by up to $60-million per year after tax until Manulife is able to put about $1-billion in capital to work in businesses that yield higher returns.

The second non-cash charge of $1.9-billion is an upfront hit related to major tax changes in the U.S. that are also expected to impact banks and other insurers. About one-third of Manulife’s business is in insurance and wealth-management operations in the U.S.

Readers of PrefLetter will be familiar with my long-standing qualms about Manulife’s focus on alternative assets. With respect to the $1.9-billion accounting charge, they have plenty of company:

Hours after the bill signing, announcements started to roll in from some of the world’s biggest companies — with some spectacular numbers. While the bill benefits most companies through a lower rate, it also requires them to recalculate some of the tax positions they may have been holding on their books for years.

Biotechnology company Amgen Inc. said it would take a $6 billion to $6.5 billion charge. Bank of America Corp. plans to take a $3 billion hit, and Credit Suisse Group AG will take a writedown of 2.3 billion Swiss francs ($2.32 billion).

The one-time changes are related mostly to what are known as deferred tax assets that accumulate on balance sheets when companies overpay taxes or take tax losses. On the other side of the ledger, deferred tax liabilities pile up when they’ve underpaid taxes on depreciated assets.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.8680 % 2,485.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.8680 % 4,560.1
Floater 3.70 % 3.83 % 32,731 17.78 4 -0.8680 % 2,628.0
OpRet 0.00 % 0.00 % 0 0.00 0 0.0000 % 3,144.3
SplitShare 4.67 % 4.16 % 72,787 3.47 5 0.0000 % 3,754.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0000 % 2,929.8
Perpetual-Premium 5.37 % 4.84 % 48,829 2.17 20 -0.0315 % 2,841.1
Perpetual-Discount 5.24 % 5.29 % 69,445 14.91 14 -0.0061 % 3,006.1
FixedReset 4.24 % 4.25 % 148,091 4.13 98 0.0668 % 2,500.4
Deemed-Retractible 5.08 % 5.27 % 88,550 5.91 30 -0.0856 % 2,935.7
FloatingReset 2.78 % 2.72 % 44,614 3.87 8 0.0325 % 2,693.5
Performance Highlights
Issue Index Change Notes
BAM.PR.C Floater -1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-22
Maturity Price : 14.44
Evaluated at bid price : 14.44
Bid-YTW : 3.88 %
IFC.PR.C FixedReset 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.40
Bid-YTW : 4.88 %
CM.PR.Q FixedReset 1.06 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-07-31
Maturity Price : 25.00
Evaluated at bid price : 24.71
Bid-YTW : 4.31 %
TRP.PR.B FixedReset 1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-22
Maturity Price : 16.24
Evaluated at bid price : 16.24
Bid-YTW : 4.42 %
CM.PR.O FixedReset 1.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-22
Maturity Price : 23.44
Evaluated at bid price : 23.84
Bid-YTW : 4.22 %
IAG.PR.A Deemed-Retractible 1.39 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.54
Bid-YTW : 6.36 %
CU.PR.I FixedReset 1.39 % YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-01
Maturity Price : 25.00
Evaluated at bid price : 26.17
Bid-YTW : 2.94 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.B FixedReset 125,240 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-02-25
Maturity Price : 25.00
Evaluated at bid price : 26.23
Bid-YTW : 3.68 %
RY.PR.Q FixedReset 71,403 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-24
Maturity Price : 25.00
Evaluated at bid price : 26.94
Bid-YTW : 3.23 %
RY.PR.J FixedReset 56,650 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-05-24
Maturity Price : 25.00
Evaluated at bid price : 24.80
Bid-YTW : 4.09 %
BIP.PR.B FixedReset 37,800 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.75
Bid-YTW : 4.41 %
BIP.PR.D FixedReset 33,418 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : 4.63 %
CM.PR.R FixedReset 14,960 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : 4.05 %
There were 5 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PR.K Floater Quote: 14.44 – 15.21
Spot Rate : 0.7700
Average : 0.5435

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-22
Maturity Price : 14.44
Evaluated at bid price : 14.44
Bid-YTW : 3.88 %

BAM.PR.C Floater Quote: 14.44 – 14.92
Spot Rate : 0.4800
Average : 0.3118

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-22
Maturity Price : 14.44
Evaluated at bid price : 14.44
Bid-YTW : 3.88 %

W.PR.M FixedReset Quote: 26.36 – 26.80
Spot Rate : 0.4400
Average : 0.2926

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-10-15
Maturity Price : 25.00
Evaluated at bid price : 26.36
Bid-YTW : 3.95 %

IFC.PR.E Deemed-Retractible Quote: 24.91 – 25.35
Spot Rate : 0.4400
Average : 0.2990

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.91
Bid-YTW : 5.27 %

PWF.PR.R Perpetual-Premium Quote: 25.65 – 25.99
Spot Rate : 0.3400
Average : 0.2225

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-04-30
Maturity Price : 25.25
Evaluated at bid price : 25.65
Bid-YTW : 5.10 %

PWF.PR.T FixedReset Quote: 24.36 – 24.69
Spot Rate : 0.3300
Average : 0.2388

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-12-22
Maturity Price : 23.90
Evaluated at bid price : 24.36
Bid-YTW : 4.20 %

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