November 11, 2008 / 8:33 PM / in 10 years

UPDATE 2-CI Financial profit down on conversion costs

* C$11 million in costs for plan to shed trust status

* December vote scheduled on converting to corporation

* Shares fall 2 pct to C$15.45 on Toronto Stock Exchange

(Adds details from conference call, background)

TORONTO, Nov 11 (Reuters) - Profit at CI Financial Income Fund CIX_u.TO fell nearly 18 percent in the third quarter due partly to costs to convert the company back into a corporation.

The company also reported a sharp drop in its assets under management, and said they have continued to fall in the early weeks of the fourth quarter.

CI, one of Canada’s largest nonbank money managers, said profit was C$118.1 million ($98 million), or 42 Canadian cents a unit, in the three months to Sept. 30. That is down from a profit of C$143.7 million, or 50 Canadian cents a unit, in the same period of 2007.

The company said its results included C$11 million in costs, or C$7.3 million after tax, related to its plan to convert back to a corporation as well as restructuring expenses.

CI plans to convert from its current tax-shielded trust structure to an income-tax-paying corporation by year-end, if unitholders approve the change at a Dec. 19 special meeting.

CI’s chief executive, Bill Holland, has said the trust structure was hampering the company’s ability to make acquisitions and it did not want to miss any more opportunities. Income trusts will lose their tax-shielded status in 2011 in any event.

Shares of CI fell 31 Canadian cents, or 2 percent, to C$15.45 on Tuesday on the Toronto Stock Exchange.

CI’s unit price has fallen more than 40 percent so far in 2008 as money managers have seen total assets under management drop in tandem with equity markets. That lowers their fee income on the assets they manage or administer.

CI’s assets under management were C$62.9 billion at the end of September, and total “fee-earning” assets, including assets under administration, were C$92.3 billion.

By the end of October, its assets under management had slipped to C$55.9 billion, and fee-earning assets had fallen to C$82 billion.

Speaking on a conference call, Holland said he expected to see a resurgence in mergers and acquisitions due to asset prices that have dropped sharply.

“I think that we’re in an ideal environment for M&A and I will be really quite surprised if there’s not several meaningful acquisitions over the next 12 months,” he said.

“We’re certainly getting far more feeler calls today than we’ve ever had.”

CI’s ownership has changed recently, with Bank of Nova Scotia (BNS.TO) now owning a substantial minority stake. Scotiabank bought a 37 percent chunk of CI from insurance company Sun Life Financial (SLF.TO) for C$2.3 billion, bringing the bank’s stake to 37.6 percent.

$1=$1.20 Canadian Reporting by Frank Pingue and Cameron French; Editing by Peter Galloway

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