August 5, 2010 / 7:32 PM / 8 years ago

WRAPUP 2-Manulife, Sun Life results hit by weak markets

* Weaker stocks, low bond yields send Manulife to loss

* Manulife drops 11.3 pct as S&P downgrades

* Sun Life falls 4.7 pct (Adds CEO comment, details)

By Cameron French

TORONTO, Aug 5 (Reuters) - Manulife Financial (MFC.TO) and Sun Life Financial (SLF.TO) said weak stock markets and low bond yields battered their quarterly results, sending their share prices into a swoon on Thursday.

Both companies also warned of billion-dollar-plus earnings hits over the next few quarters that promise to continue to muddy results in the sector.

Manulife, Canada’s largest insurer, surprised both investors and analysts with a deeper-than-expected C$2.4 billion ($2.35 billion) loss in the second quarter. After the news its shares dropped more than 11 percent to their lowest level since March 2009.

“Obviously it was not a good quarter in terms of earnings,” Chief Executive Donald Guloien said in an interview.

The result, which sent the shares to their lowest point in more than a year, prompted Standard & Poor’s to lower its credit ratings on the Toronto-based company. [ID:nWNA7195]

Manulife, which operates under the John Hancock banner in the United States, said the decline of global stock investments stripped C$1.7 billion from its bottom line, while lower interest rates erased C$1.5 billion.

Its per-share loss of C$1.36 compared with a year-before profit of C$1.09, and missed analysts’ estimates of a loss of 60 Canadian cents a share.

“The result was far worse than expected,” said Edward Jones analyst Craig Fehr. “Clearly, on a near term basis, earnings and capital are going to be dominated by these short-term market fluctuations.”

The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE, fell 6.2 percent during the second quarter, while corporate bond yields declined, in part due to a flight to quality by shaken holders of European debt.

The weaker stock prices and bond yields — which hurt Manulife’s return on the assets it holds — forced the company to increase reserves to cover obligations to policyholders.

The company is in the process of hedging certain obligations in order to reduce its exposure to market volatility.

Guloien said the market impact on profit could reverse itself if bond yields move upward and stock markets advance, a move he said has already begun, noting a 4.5 percent rise in markets since the beginning of July.

“The turnaround in equity markets in July alone should reverse a substantial portion of these losses,” he said, adding that under U.S. accounting rules, the company would have reported a quarterly profit.

However, company officials cautioned that third-quarter results could be all but sideswiped by charges expected to total more than C$1.3 billion on items such as a re-evaluation of assumptions on bond returns and its long-term care business.


Weak markets also took a bite out of Sun Life’s bottom line, but to a lesser extent than Manulife’s.

Canada’s No. 3 insurer said late on Wednesday its profit fell 64 percent to C$213 million, or 37 Canadian cents a share.

The result was actually ahead of analysts’ estimates of 27 Canadian cents a share, but the stock dropped nearly 5 percent during Thursday’s session, following the lead of Manulife.

“We were certainly ahead of the estimates, and therefore I guess I’m a little surprised we’re down,” Sun Life CEO Donald Stewart said in an interview.

The company said declines by its stock investments stripped C$187 million from its bottom line, while a decrease in interest rates knocked off C$99 million.

Sun Life also warned it could take a non-cash goodwill writedown of about C$1.7 billion next year due to the implementation of new International Accounting Standards Boards rules.

The writedown will relate to past acquisitions, and Canaccord Genuity analyst Mario Mendonca said he expects similar charges at Manulife, and perhaps at Great-West Lifeco (GWO.TO), which is Canada’s No. 2 insurer.

Great-West reported a slightly higher second-quarter profit on Wednesday as it recorded strong sales in certain markets. Its shares slipped 1.3 percent to C$24.88 on Thursday.

Manulife fell C$1.80 to C$14.20, while Sun Life dropped C$1.33 to C$27.27

$1=$1.01 Canadian Reporting by Cameron French; editing by Rob Wilson

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