Manulife Sees Canada Taking Back Seat in Post-Crisis Growth Push

  • CEO Guloien says Asia will eventually top Canada for sales
  • Guloien says Asia growth to push earnings, dividend higher

Manulife Financial Corp. says Asia will soon bring in more revenue than its home country of Canada, sparked by double-digit growth that should win back investors to a stock that still hasn’t recovered from the financial crisis.

Demand for insurance and asset-management services in China, Japan and other parts of Asia will contribute to overall earnings growth of at least 10 percent over the next few years, Chief Executive Officer Donald Guloien said.

Donald Guloien

Photographer: Chris Goodney/Bloomberg

Guloien said the earnings growth should support a stock that plunged at the height of the 2008 crisis after the company cut its dividend in half and was forced to sell about C$7.4 billion ($5.6 billion) in equity and debt.

“We had a big reset," Guloien said in an interview Tuesday at Bloomberg’s New York headquarters. "We scared a lot of people, quite honestly. It takes a long time to earn back some of the trust that eroded there.”

When Guloien took the helm of Manulife in 2009, it had about C$400 billion in assets and a heavy reliance on stock market growth to fund regular payments to customers with variable annuity products. Today, the insurer has more than doubled assets to C$883 billion, seeding them around the world and across types, with a focus on managing money for third parties such as pension funds. Guloien says that diversification and growth outside Canada is set to drive profit, yields and rewards for shareholders.

Smaller Piece

"Given the growth rates and the size of the Asian economies and the U.S. economy, Canada will become a smaller piece of the overall pie," Guloien, 58, said. "We expect to grow earnings over the next four to five years. I suspect our last dividend increase wasn’t our last. We can do all that without any acquisitions."

Canada, the U.S. and Asian countries each make up about a third of profit for the Toronto-based insurer. In the next five years, Canada’s contribution will drop to about a quarter, with the rest coming from the other two regions, Guloien said.

The Canadian economy has slowed as the price of oil slipped, prompting the central bank to lower its economic growth forecast for the next two years, with 2015 coming in at 1.1 percent. The U.S. economy is expanding at twice that rate and the Asia Pacific region is set for 5 percent growth next year, according to economists’ estimates.

Wealth Management

Wealth-management operations, which include mutual fund sales, pension plan deposits, and fees for managing institutional assets, rose in each region in the second quarter. Asia had the fastest expansion, with assets flowing into the unit more than doubling to $5.2 billion. Manulife reports third-quarter results Nov. 12.

One of Guloien’s first moves as CEO was to cut the dividend in half, to 13 cents a share, aiming to bolster capital for acquisitions and to gird against losses. He then moved away from variable annuities and set his sights on Asia, including China, where the company has operated for more than a century.

Fee Income

The insurer took its experience managing its own assets to others, including pension funds, universities, and other institutions, for a steady stream of fee income. In 2013, it started a private markets unit, in which Manulife allocates client assets to real estate, commercial mortgages and private-placement debt. The insurer also manages agricultural goods including cranberries and is considering investing in hard commodities.

Though Manulife’s stock has returned 35 percent including dividends since 2009, it has lagged behind Canadian peers such as Sun Life Financial Inc. and Great-West Lifeco Inc., which have more than doubled over that time. Manulife is up 1.8 percent this year to C$22.57, about half the C$44.19 price at its peak in 2007. Winnipeg, Manitoba-based Great-West has rallied 2.7 percent in 2015 and Sun Life jumped 8.8 percent to a seven-year high.

"Shareholders didn’t like that tough medicine of cutting dividend, raising equity -- and therefore diluting them," Guloien said. "But as a result you have this earnings trajectory that is growing every year quite comfortably."

Firm’s Outlook

Analysts forecast a brighter future. The stock has a higher rating than its Canadian peers with 18 buys, or 86 percent of analysts who rate the stock, compared with 68 percent for Sun Life and 7 percent for Great-West, data compiled by Bloomberg show. Manulife has two holds and one sell rating. Manulife’s dividend yield of 3 percent trails its smaller Canadian rivals.

“The company is different now. They’re looking for growth - and it’s a different kind of growth than pre-financial crisis," said Greg Newman, a portfolio manager at the Newman Group Wealth Advisors, which oversees C$400 million in assets including Manulife. "I don’t think the expectation should be for them ever to go back to $44. They might in time, but I think they’re a different company than they were then with a different game plan."

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