Manulife Financial Corp profit plummets 51% as company warns of headwinds in 2015
Aaron Lynett/National Post filesManulife Financial Corp reported a weaker-than-expected fourth-quarter profit on Thursday and warned macroeconomic factors like low interest rates would produce “headwinds” in 2015.
Manulife Financial Corp., Canada’s largest insurer, said fourth-quarter profit slid 51% as oil and gas investments languished and it paid out more for policies in North America.
Net income fell to $640 million, or 33 cents a share, from $1.3 billion, or 68 cents, a year earlier, the Toronto-based company said Thursday in a statement. Profit excluding some items was 36 cents a share, missing the 41-cent average estimate of 15 analysts surveyed by Bloomberg.
Manulife, which earns the bulk of its profit in North America but also has a fast-growing Asian unit, said core earnings declined due to unfavourable “policyholder experience” as well as the timing of certain expenses.
“Core earnings, due to a variety of experience factors, were below our plan,” Chief Executive Officer Donald Guloien, 57, said in the statement. “The macro environment, including low interest rates, produces headwinds for 2015.”
Financial firms are grappling with low interest rates and plunging prices for oil, which has declined about 50% since June. Manulife has about $1.8 billion in oil and gas equity holdings through its NAL Resources Management Ltd., according to Bank of Montreal.
“Despite that and despite interest rates doing what they did, we ended up with net income of over $600 million, which is way higher than we expected,” Chief Financial Officer Steve Roder said in a phone interview after results were released.
Energy Investments
Manulife had to mark down its oil and gas holdings, including private equity, at the end of December, according to Roder, who said less than 1% of the insurer’s investments are in energy. The decline in oil drove down returns from energy assets held in Canada and the U.S. and resulted in a $353 million loss in the period ended Dec. 31.
The volatility and low oil prices actually make it a good time for Manulife to buy more oil and gas properties, Chief Investment Officer Warren Thomson said in the statement.
Net income from each of Manulife’s regions declined in the quarter from a year earlier. The U.S. division’s profit slid 39% to $506 million on losses on private-equity oil and gas holdings and higher payouts to policy holders, according to the statement. In Canada, net income slid 80% to $73 million as lending competition increased, and the Asia unit’s results dropped 54% to$336 million.
Net income includes variable charges such as the sale of the company’s Taiwan unit, hedging costs and currency charges that are stripped out from core earnings figures.
The firm continued expanding its wealth-management operations in Asia, benefiting from higher fee income and sales. Money management sales there rallied 64% in the quarter to US$2.5 billion as the company increased marketing and sold new products. In Canada, wealth sales slipped 8% to $2.9 billion as competitors lowered lending rates in a slowing mortgage market. In the U.S., asset managing sales of US$7.1 billion were the same as last year.
At year-end, the company managed a record $691 billion.
The results come a day after Manulife rival Sun Life Financial Inc also reported weaker-than-expected fourth-quarter results.
Bloomberg News, with a file from Reuters
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