PrefBlog

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.
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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.
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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.

This entry was posted on Friday, December 22nd, 2017 at 11:41 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.