PrefBlog

Manulife Financial announced today:

its decision to reduce the Company’s quarterly common share dividend by 50% from $0.26 to $0.13 per share, payable on and after September 21, 2009 to shareholders of record at the close of business on August 18, 2009. The revised dividend will preserve approximately $800 million for MFC on an annualized basis as part of the Company’s strategic focus on building fortress levels of capital.

Preferred share dividends were, of course, not affected. Preferred Dividends must be paid in full for as long as the common shareholders are getting even a nickel.

MFC is also offering discounted common shares to participants in its common share DRIP. Sadly, this DRIP is not open to preferred shareholders; there are only three such plans that offer discounted common to preferred shareholders, and one of them is iffy.

Manulife common performed badly on news of the dividend cut. It’s my guess that the cut has been on their to-do list for some time; doing it now means the stock price will be hurt, but doing it at the peak of gloominess earlier would have had it slaughtered.

The new release stated:

Manulife Financial Corporation (“MFC”) today reported shareholders’ net income of $1,774 million for the second quarter ended June 30, 2009, compared to $1,008 million in the second quarter of 2008. Fully diluted earnings per share was $1.09 compared to $0.66 in 2008.
…
The quarter’s earnings were primarily driven by the significant increase in global equity markets which resulted in non-cash gains of $2,622 million, of which $2,379 million related to segregated fund guarantees. Partially offsetting these gains were the impact of lower corporate bond rates and, to a lesser extent, the continued pressure on credit. The decline in interest rates and other fixed income related items resulted in non-cash charges of $1,116 million, primarily as a result of the lower investment returns assumed in the valuation of policy liabilities. In addition, credit impairments totaled $109 million, other than temporary impairments (“OTTI”) on equity investments were $53 million and actuarial related charges for downgrades amounted to $106 million. During the quarter the Company increased its tax related provisions on leveraged lease investments by $139 million and reported net charges for changes in actuarial methods and assumptions of $87 million. Excluding the aforementioned items, earnings for the quarter totaled $776 million compared to $745 million a year ago.
…
We expect to complete our annual review of all actuarial assumptions in the third quarter, and our current expectation is that the updated assumptions will result in a material charge to earnings that will likely be recorded next quarter. Although we have not completed our assessment nor have we reached any conclusions, the preliminary information indicates that the possible change in assumptions with respect to policyholder behavior for segregated fund guarantee products may result in a charge not to exceed $500 million.

Exposures:

Despite including this post in the “Regulatory Capital” category of PrefBlog, I will not discuss MCCSR. This figure is useless for analytical purposes, since:

• Corresponding US calculations are not disclosed
• As preferred share investors we are interested in the publicly issued preferred shares, at the holdco level

As noted by DBRS:

The incurrence of debt at the holding company to provide equity capital to operating subsidiaries constitutes double leverage, the use of which should be conservative. The analysis of double leverage requires a review of the unconsolidated financial statements of the holding company, which are generally not in the public domain.

Update, 2009-8-7: DBRS has commented:

that today’s decision by Manulife Financial Corporation’s (Manulife or the Company) Board of Directors to reduce its dividend rate by 50% is expected to preserve close to $800 million annually in shareholder capital. This is the latest in a recent line of actions taken by the Company to build and preserve capital following the adverse impact of weakening equity markets and falling interest rates on its actuarial reserves and reported earnings. While DBRS regards this dividend reduction as extraordinary for a Canadian financial institution, the decision is nevertheless prudent in the context of the current operating and market environment. There are no implications for the Company’s ratings at this time. However, DBRS recognizes that further large losses without a corresponding build-up in common equity capital would likely lead to downward pressure on the ratings.

This entry was posted on Thursday, August 6th, 2009 at 12:37 pm and is filed under Regulatory Capital. 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.