Archive for November, 2009

Let’s get this straight. Donald Guloien didn’t want to raise equity at $19.60, but $19 is OK. He didn’t want to do it in August, but November is fine even though the stock market is about the same level it was last summer. Shareholders who already took a hit when he cut dividends in half are being asked to suffer another wallop as he dilutes their holdings.

Guloien explains his activities by saying he is building fortress capital. If Donald Guloien were King Arthur, he would never have had time to meet with the Knights of the Round Table, he’d be too busy supervising more battlements.

Let’s face it. The foe he’s fighting, variable annuities, is minuscule. Of Manulife’s 22 million global clients, only 250,000 bought variable annuities, the cause of all this fuss. Why is everyone else paying so dearly for the difficulties involving 1 per cent of the customer base?

When I asked former CEO Dominic D’Alessandro what advice he had for his successor before Guloien took over in May, D’Alessandro said: “I’ve worked with Don for a long time. I think he’s got to become a little tougher. When you’re in these jobs, you can’t please everybody all the time.”

Well, Brave Sir Donald has certainly taken that advice to heart.

Suncor Energy Inc. has announced that Dominic D’Alessandro will be joining its board. Suncor will pay the ex-CEO of Manulife a $140,000 annual retainer, but half of that goes to buying Suncor shares until he owns $420,000 worth. Fees for attending the full board and committee meetings might add another $20,000 in income.

Rumor has it that D’Alessandro will also be joining the CIBC board where his annual retainer will be $100,000. Again, a portion (in this case $60,000) goes to buying shares. Meeting fees are higher at the bank than at Suncor so he might earn $40,000 for showing up, more if he’s named chair of a committee.

D’Alessandro has said he’ll be joining three boards. So, assuming a similar emolument, he’ll earn a total of $300,000 a year (plus the payment in shares) from the three. Not bad, but nothing like being CEO of Manulife where he earned $300,000 a week. (Company rules did not permit him to remain on the Manulife board.)

When all is said and done, compensation from board appointments doesn’t really matter. It’s all about staying connected and keeping the gray matter functioning. Or so say many appointees.

Of course, D’Alessandro receives a handsome pension from Manulife of $3 million a year, more than most individuals earn in a lifetime. In such a world, board fees are just pocket change.

The notice in the newspaper legal section was easy to miss, just one column wide by 10 cm. high. In the ad, Manulife Bank announced an application to the Minister of Finance for a licence to open a trust company, Manulife Trust.

Manulife has owned trust companies before. When Tom Di Giacomo was CEO, Manulife bought a handful of small trust companies and then gathered them all together to create Manulife Bank in 1992, the first insurance company to do so after the rules changed granting such entry into banking.

Why are you applying for a trust company licence, I asked? To offer retail savings products and mortgages, replied a Manulife spokesman.

But, I said, you can provide those through the bank. Is there something about a trust company charter I’m missing?

With that, Manulife clammed up, saying for the near future they would be concentrating on getting the licence. News about products and services would follow later.

To me, it all seemed a bit weird. After all, the things that a trust company can do that a bank cannot do are minor and inconsequential.

Then it stuck me. Manulife wants two institutions falling under the Canada Deposit Insurance Corporation’s provisions that insure $100,000 in eligible investments. High net worth individuals who have more than $100,000 invested with Manulife now have to shift any additional money to another financial institution for CDIC protection. That must have galled Manulife, to see money going to a competitor’s Guaranteed Investment Certificate, money that could have stayed in house and been put to work being loaned out on a profitable five-year mortgage.

With both a bank and a trust company, Manulife clients will have twice as much by way of CDIC backups. Call it doubling up at someone else’s expense.

If anyone has a better explanation, I’d be happy to hear it.

In his Streetwise blog Andy Willis today has a rumor that Dominic D’Alessandro will be named to the CIBC board of directors. The whole idea resonates with ironies. After D’Alessandro left the Royal Bank in 1988, everyone assumed he did so because he was passed over for the CEO role. As I say in my book, there were other reasons, but that move set in motion a years-long belief by others that D’Alessandro always felt jilted and longed to be a senior banker.

At Manulife, one of the deals he did not pull off was a merger with CIBC in 2002. Again, I won’t go into details that are in my book. Suffice to say that he would have been CEO in the combined institution. Another brass ring lunged for and missed.

So here he is, on the verge of joining the CIBC board. What will happen when the CIBC directors go looking for a successor to CIBC CEO Gerry McCaughey? What if they take a look around and decide the right man is right in their midst?

For D’Alessandro, it would be the back door to the job he almost had. Or, given the terrible track record of CIBC (a.k.a. The bank most likely to walk into a sharp object) it could be the trap door.

The third quarter numbers came out this morning and they ain’t pretty. Manulife lost $172 million in the three months ended Sept. 30 despite increased sales, two excellent acquisitions and improved stock markets.

How can you lose money when things are going so well? The answer lies in the first sentence of the news release: actuarial assumptions. Actuaries run a black box operation at all insurance companies figuring out such mysteries as mortality rates so life insurance policies can be priced properly.

Actuaries, it has been said, are accountants without a sense of humour. As such they’re deeply involved in financial results and have tremendous latitude. In this case, if the actuaries so chose, they could have taken the same circumstances and declared Manulife profitable.

But they didn’t because they’re taking the view that all problems should be blamed on the ancien regime led by Dominic D’Alessandro. The new CEO Donald Guloien, argue the actuaries, should have a few “bad” quarters, then they’ll declare he’s achieved a turnaround and start posting positive results.

Hang in investors, better days are ahead. As soon as the actuaries say so.