Blood, sweat and tears

Amidst all the kerfuffle about Manulife cutting its dividend, one question has gone unasked. But before I get to that, let’s review the proceedings. In a bid to build what he calls a “fortress” company, newly minted Manulife CEO Donald Guloien cut the dividend in half. The step, he said, would raise capital levels and yield $800 million annually for acquisitions.

But capital is already hale and hearty. Manulife’s Minimum Continuing Capital and Surplus Requirements (MCCSR) must now be at 250, a historic high, and well above the regulator’s required 150. When Michael Lee-Chin recently sold the rest of his AIC funds to Manulife, he took shares. No cash required.

To be sure, some investors applauded the move. Stephen Jarislowsky, the Montreal money manager who is the third largest shareholder in Manulife, says he’s buying more at these prices because share price will double in the next two years.

Of course, the step to slash the dividend is also all about Guloien distancing himself from the previous office-holder’s activities. Mario Mendonca, an analyst with Genuity Capital Markets, has described former CEO Dominic D’Alessandro’s management style as the “swing for the fences” variety. Guloien seems satisfied to lay down a sacrifice bunt.

So here’s the unasked question: why are shareholders being asked to pay the piper with this cut in dividends? As Winston Churchill famously said when the electorate threw him out of office after his successful leadership during the Second World War, “If this is a blessing in disguise, it is very well disguised indeed.”