Archive for October, 2009

The powers that be at Manulife extol share price performance by noting that any investor who owned shares since the company went public in 1999 (and has reinvested dividends) has enjoyed a compound annual return of 12 per cent.

I’ve cited those numbers myself when I promote my book in media interviews and speeches. After all, they are very impressive. Bernie Madoff had to commit fraud to produce similar results, I always add, tongue firmly in cheek.

But how many investors have actually held shares for ten years while reinvesting all dividends?

I imagine many individual investors are like me and hold Manulife shares in an RSP. The company didn’t pay dividends until 2000 and didn’t offer a dividend reinvestment plan (DRIP) until 2006, so for a long time individual shareholders could not make arrangements for their holdings to grow automatically. So how has the average investor done who followed a buy-and-hold strategy but did not reinvest dividends? Thanks to a handy calculator provided on the Manulife website, the answer is readily available.

The results? Surprisingly poor.

If you bought shares in MFC on the Toronto Stock Exchange in mid-October 1999 and still own them you’ve done just fine, even without reinvesting dividends. Your original investment is up 146 per cent. If you bought in mid-October 2000, 2001, 2002 or 2003, you’re up a lot less, between 10 per cent and 23 per cent, depending on the year of purchase. But at least you’re ahead of the game.

Anyone who bought in mid-October 2004, 2005, 2006, 2007 or 2008 is down between 18 per cent and 48 per cent, depending on your timing.

Montreal money manager Stephen Jarislowsky, one of the largest shareholders in Manulife, has predicted that share price will double in the next two years. We suffering shareholders can only hope he’s right.

Last night’s CBC National news was the first with Peter Mansbridge standing. I found myself checking his suit for wrinkles far more than necessary. I found none, not even in the crotch area, the usual worst place.

In what is clearly a rip-off of Wolf Blitzer’s CNN Situation Room, the entire hour is done with everyone standing. At times, they went to ludicrous lengths to stick with the awkward format. Mansbridge and a reporter stood facing each other on a riser the size of a ping-pong table with a rear screen in between them that projected points they were making.

For other stories, the reporter joined Mansbridge at a high-boy desk that only works if you’re a certain height. I can’t wait to see what happens later in the week with the three-member panel (Gregg, Coyne and Hebert) standing in three different locations.

At the end of the newscast, I realized that I couldn’t remember the main elements of any story they broadcast. Did the long line-ups for flu shots all get inoculated? What was that about the amber alert? How close was Wendy Mesley standing to her ex?

Maybe tonight I’ll stand to watch.

It’s hard to believe that Edgar Bronfman Jr. has just been charged, along with Vivendi executives, with misleading investors. First of all, the $34-billion Seagram-Vivendi merger in question took place in 2000. Surely the statute of limitations has run out long since.

Second, poor Edgar Jr. was not exactly on the inner circle with Jean-Marie Messier, the Vivendi CEO who bought everything in sight except the Arc de Triomphe, which was visible out his office window.

Once he got fed up with Messier, Edgar Jr. worked with other directors to oust the megalomaniac in 2002. Not exactly how you pass the time if you’re busy misleading investors.

Third, Edgar Jr. blew three-quarters of the family fortune on that ill-fated deal. The family’s net worth fell from $8 billion to $2 billion. He’s been trying ever since to redeem himself, so far unsuccessfully, at Warner Music.

Hasn’t he suffered enough?

Manulife has received approval to sell insurance in Shantou, a port city in China. While all the attention of late has been on variable annuities sold by Manulife in the U.S. and the strain that has put on the balance sheet, in many ways the future of the firm is in China.

After first receiving permission in 1996 to enter the Chinese market in Shanghai, Manulife has been adding cities at a fast pace. Manulife is now licenced in 38 cities and has more than ten thousand agents.

Most of those cities are huge. Shantou has a population of five million, making it twice the size of Toronto. Of the ten cities in which Manulife was licenced in 2007, for example, eight were bigger than Toronto. The plan is to have 30,000 agents in 100 cities by 2015.

For a Canadian firm to sell financial services in China sure beats shipping our natural resources from here for value added at the other end.

Manulife’s new CEO Donald Guloien has a management style that’s rare. During a recession when most business leaders are trying to squelch pessimism, Guloien is busy promoting something: prudence.
“I think at this stage of the cycle, prudence and conservatism is called for,” Guloien told Bloomberg’s Sean B. Pasternak in an interview. “The prudence our grandmothers had, the prudence farmers have in the Midwest; a little more of that needs to be applied in the executive suite.”
That’s why Guloien cut the Manulife dividend, reduced sales of variable annuities (VAs) and hiked hedging on VAs already sold.
Praise followed. “Don’s most important characteristic for me is that he just seems to be blunt and a straight shooter,” said Mario Mendonca, an analyst at Genuity Capital Markets. “He doesn’t seem to want to sugarcoat anything.”
But wait a minute, couldn’t Mendonca’s comments apply equally to Guloien’s aggressive predecessor, Dominic D’Alessandro, who oversaw fast-paced sales of variable annuities in the U.S. and Canada?
“Variable annuities became too big a part of Manulife’s portfolio, from both a marketing perspective and a risk perspective,” said Guloien. “We’re trying to dial back the risk.”
If backgrounds matter, D’Alessandro knows as much about prudence as Guloien. Raised by his widowed mother in a working-class Montreal neighbourhood, D’Alessandro’s boyhood clothing came from the Salvation Army.
But the tenor of the times changed during D’Alessandro’s final days at the helm. D’Alessandro might not have cut the dividend, but he raised billions in capital and had begun hedging.
Guloien has upped the ante. With familial roots in Saskatchewan, he knows whereof he speaks about the Midwest. After 28 years with Manulife, he also knows the company, although his moves since taking over in May must have surprised many.
They certainly surprised me. I interviewed him twice, once before he was picked to become CEO, and once after. At no time then, nor in his speech to the annual shareholders meeting, did he hint at the restraints to come.
We know now. Grandmothers are in. Long may they reign.