# Manulife Financial (MFC)



## SixesAndSevens (Dec 4, 2009)

I have a question about the recent news of Muddy Waters' Carson Block short selling Manulife Financial (MFC) because of the lawsuit by some hedge funds about insurance policies that guarantee 4% annual return on unlimited deposits.

here are two articles.
first is about the Muddy Waters short position.
the second is a technical article describing the background of the problem.

Muddy Waters Shorts Manulife on Risks in Hedge Fund Trial

Side accounts could bring two life insurance giants to their knees

okay so i am not an expert at these interest rate swaps and universal life policies but i hold Manulife stock.
it is my largest holding by far but not more than 10% of my portolfio.
i bought it really low back in 2010-2011 so i have some nice gains on it.

so i need advice on what to do.
I know that Carson Block has a killer reputation.
I know what he did to Sino Forest, Silvercorp Metals and others.
if he is short, generally the longs end up eating crow.

should I get out now before any more damage is done?

many among you must have Manulife in your portfolios...it is a major Canadian stock, widely held.
what are you doing?


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## OptsyEagle (Nov 29, 2009)

A flip of a coin would give you as good of suggestion as anything we could ever offer.

I will say this. I am not a lawyer and with this one we are dealing with US law but this is how I see it. First of all, in Canada, a Universal Life policy has a maximum amount of money an owner can deposit to it. That maximum is a function of the death benefit and although I don't know what death benefit this hedge fund came up with, death benefits also have a maximum based on the estimated financial loss upon death.

As I said, however, we are dealing with the US and I do not know how insurance policies are structured there nor have any real understanding of law, but this is how I see it. I believe there is a better then even chance this will result in one of the following:

1) Manulife will just settle with the plaintiff for an amount of money that may be large, but insignificant to a company the size of Manulife. I suppose their fear here is other companies coming forward with older policies and doing the same thing. In the US I believe they can buy a policy off of someone else. In Canada that practice is forbidden. This is important because we are obviously dealing with older policies and any new company would need to come up with one to play this game.

2) The US courts may look at the intent of the contracts as opposed to just the actual wording. Obviously what this hedge fund is trying to do is benefit from an error in wording of this particular contract. It was never intended to support billons of dollars of deposit. So the question is, will the judge let a hedge fund, who is simply trying to abuse the law to garner money that was never intended to be garnered, get away with it.

Without reading the contracts it is very difficult to say. I am quite surprised that Manulife did not think to put in a maximum number for a deposit in their contracts. I mean, they obviously would not want to take any amount of money on deposit at any time. No bank/insurance company can handle infinite amounts of money. They have capital ratios to think about etc. So I really wonder what the contract actually said.

If I am right and the contract is not quite as specific as the hedge fund would say it is then I suspect the two parties are doing the following:

1) the hedge fund is hoping to extort some settlement money from Manulife, knowing that it is probably unlikely they will win this case...or certainly not certain.

2) Muddy waters knows that betting on any court case is a high risk proposition, so they are effectively flushing and dumping. They short the stock, get people all nervous with uncertainty and then buy back their short position at much lower prices, longgggg before this court case is ever settled. Taking money from investors who spend more time worrying and less time diversifying.

or I am wrong. Good luck.


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## OnlyMyOpinion (Sep 1, 2013)

SixesandSevens, I don't think we can say whether you should sell or not. That's your decision within the context of your overall portfolio and plans.
Some would consider a single equity holding over 5-7% (i.e. less than 15 companies) to be tilting to less than ideal diversification, but you may have your own reasons to.

I don't know how MFC will make out in the lawsuit, but I also don't care anymore. I took the news as an opportunity to unload my shares at cost. They were one of my poorer total return performers, and I am gradually liquidating and gifting assets anyway so it fit our plan.


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## doctrine (Sep 30, 2011)

I took a quick look and its hard to see this causing significant damage. Even if they end up settling, it's not going to be material to this company - it's a small lawsuit on a particular contract. Plus, MFC's results have been quite good - I see this is as an opportunity to get in, albeit cautiously as it is still setting new 52 week lows. When you see companies that are performing very well and improving operationally, the stock price usually catches up. These higher interest rates are going to put a fire under their upcoming financial results.


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## SixesAndSevens (Dec 4, 2009)

thank you all for looking into this and offering your thoughts

@OptsyEagle....I believe this lawsuit is filed in Canada and subject to Canadian laws, not American.
listen to Carson Block's interview on Bloomberg I gave link to...he seems to say that.

@OnlyMyOpinion...so you are the party dumping 1,000s of shares? 
stop selling 

i hope this ends up being settlement...
the hedge fund in question is a small hedge fund, not Muddy Waters, so hopefully they will settle for a few millions.

but the stock has been selling hard...now close to 52 week lows.


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## SixesAndSevens (Dec 4, 2009)

stk is selling off really bad now. below $20 now.
seems institutions and funds are pulling or reducing their long positions.
murmurs of OSC investigation...

this could be the beginning of something much worse or a huge buying opportunity...I am not able to decide which?

could rising govt' bond yields make this problem moot?
10 yr bond is paying about 3.20%.
the lawsuit is about 4% return.
if 10 yr bond yield rises to around 4% over the next 1 year...doesn't the whole problem go away?


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## doctrine (Sep 30, 2011)

If you're worried about getting in, you can simply just wait until the stock stabilizes. The 20 day moving average should be the starting point, and of course it is well below that. It's still below the 10 day moving average. The more averages it is above (10,20,40,50,100,150,200), the safer the position. Right now, it scores a zero for technical analysis.


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## newfoundlander61 (Feb 6, 2011)

Regardless of the outcome of the trial there will likely be an appeal and this could drag out for some time putting further pressure on the stock.


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## jargey3000 (Jan 25, 2011)




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## Rosey (Oct 23, 2018)

Tough call as others have stated. I own some, about 4% of portfolio with current price I am still slightly ahead so like you I'm trying to figure out my next move. I saw that RBC has a yr price point at $30 which makes me nervous as they've been wrong the past 3 plus years on it.


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## OptsyEagle (Nov 29, 2009)

Manulife issued a PR with respect to new and more well defined regulations pertaining to the lawsuit and of course the short seller who would be happy to bring down the entire life insurance industry if he can make more then $50 on a trade. I guess Saskatchewan didn't agree that was a good idea.

https://finance.yahoo.com/news/manulife-addresses-expected-impact-saskatchewan-114500425.html

and of course the new Saskatchewan regulation: Effective October 25, 2018 and applies to all eligible policies currently inforce.

http://fcaa.gov.sk.ca/public/CKeditorUpload/Insurance/What_s_New/2018/OC_517-2018.pdf



> 2 (a) no licensed insurer shall receive or accept for deposit funds or payments in excess of the amount required to pay the life insurance premium for the eligible period; and
> 
> (b) with respect to a contract that is not exempt from accrual taxation pursuant to the Income Tax Act (Canada), no licensed insurer shall receive or accept for deposit funds or payments in excess of the life insurance premium required to keep the contract of life insurance in force until the end of the eligible period.


That should be the end of that.


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## SixesAndSevens (Dec 4, 2009)

this is good news...hopefully this is the end of this.
stock has gone up over $21 now, but still well below the $27 it was at earlier this year....

as for Mr. Muddy Waters i'd wager he was already out of his short position before the regulations were announced.
most of these guys are charlatans and they take a short position then do a PR stunt to make the stock go down and then cover the short.


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## doctrine (Sep 30, 2011)

Manulife has bounced pretty hard and is now well above the 10 and 20 day moving averages. They sold off policies worth $1B, many of which were the universal type that they are under a likely failed short attack over, raised the dividend 14% and initiated a $800 million dollar buyback. In a rising rate environment, MFC is good value and a good hedge to other investments like utilities.


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## Eder (Feb 16, 2011)

Although I agree insurance companies offer a good hedge to interest sensitive equities, Manulife has been destroying shareholder value through poor management for years...they are the TransAlta of the financial industry imo.

(I hold Intact Financial)


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## like_to_retire (Oct 9, 2016)

Eder said:


> Although I agree insurance companies offer a good hedge to interest sensitive equities, Manulife has been destroying shareholder value through poor management for years...they are the TransAlta of the financial industry imo.
> 
> (I hold Intact Financial)


Yeah, I've looked at IFC for quite a while in consideration of dropping MFC and picking up IFC.

IFC certainly pays a rather small dividend, so some dividend investors might not accept a 2.7% yield, but its total return is quite a bit better than MFC or SLF.

If do a 10 year chart including dividends, MFC is certainly anemic. IFC has only been around about 10 years.

View attachment 19114


ltr


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## Eder (Feb 16, 2011)

Ya I like Intact as their business is insurance in Canada where I can keep an eye on it...also management are actively buying great companies to add to the stable. They took a licking with Ft Mac but are recovering quickly.


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## Synergy (Mar 18, 2013)

Hard to compare MFC to IFC as they are in two completely different insurance businesses. Intact is not without it's own set of problems - Ontario auto, increasing # of cat events, etc. Intact has also expanded outside of Canada - aka OneBeacon. I prefer P&C insurers over Lifecos but in our current market I hold one of each. The P&C industry will continue to consolidate which should favor the big players like Intact.


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## Eder (Feb 16, 2011)

I agree MFC and IFC are completely different businesses and difficult to compare to each other. 

Its my 6 pack mentality that makes me lash out against companies like MFC. I guess its the #MeToo philosiphy I have for many TSX stalwarts.


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## Ponderling (Mar 1, 2013)

I held MFC for about three years. Today it was trading well above analysts forecast for the year on no apparent news, so it was time to sell, and move over to SLF which appears to have some room to grow towards its 1 yr target. 

I also and still do hold IFC.


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## cainvest (May 1, 2013)

MFC had good results a couple of weeks back (hense the rise) and average price projections are around $26 CDN. I got it on sale in march so I'll hang onto it for a while and just collect the divy.


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## doctrine (Sep 30, 2011)

cainvest said:


> MFC had good results a couple of weeks back (hense the rise) and average price projections are around $26 CDN. I got it on sale in march so I'll hang onto it for a while and just collect the divy.


MFC is just below it's pre-pandemic high, when interest rates were also rising, and if it goes about 2.5% higher then it's going to be a 12-13 year high going way back to the '08 crisis. MFC is my only life insurer holding but I have a good sized position.

MFC is high for a very fundamental reason - interest rates are on their way up. And their wealth management business, especially in Asia, is doing very well. You don't need stock specific news to find this out.


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## londoncalling (Sep 17, 2011)

Manulife enters agreement to reinsure over 75% of U.S. Variable Annuity block to Venerable Holdings Inc. (tmx.com) 

more market optimism for the insurance companies.


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## doctrine (Sep 30, 2011)

I bought 200 more MFC shares last week. Now 1600 total. The first non-oil stock I have bought in almost a year. Best value by a significant margin in the Canadian financial sector. Low P/E, growing revenue, growing earnings, growing dividend, good outlook. 5 for 5 on my checklist.


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## Gator13 (Jan 5, 2020)

doctrine said:


> I bought 200 more MFC shares last week. Now 1600 total. The first non-oil stock I have bought in almost a year. Best value by a significant margin in the Canadian financial sector. Low P/E, growing revenue, growing earnings, growing dividend, good outlook. 5 for 5 on my checklist.


I picked up 4500 shares in June 2020 @ $18.18
So far so good.


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## londoncalling (Sep 17, 2011)

Press release (manulife.com) 

Impressive results in comparison to a year ago. I added to MFC in December would have bought more but had full weighting to financials with a large bank holding and POW.


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## fstamand (Mar 24, 2015)

I dumped MFC a long time ago. I realize it's not necessarily a growth stock but wow was it ever a dog. Good divvies though.


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## londoncalling (Sep 17, 2011)

What does one expect from a zero interest rate environment? I hold insurance companies for their bondlike nature. If interest rates rise as expected they should do alright.


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## Synergy (Mar 18, 2013)

fstamand said:


> I dumped MFC a long time ago. I realize it's not necessarily a growth stock but wow was it ever a dog. Good divvies though.


Depends on the price you paid. I've averaged 9-10% total return over the past 6 yrs or so. It's not a superstar by any means but the environment has not been working in it's favor (interest rates, etc.).


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## fstamand (Mar 24, 2015)

I made a decent profit as well, but it flatlined for months while banks took off like rocketships. I know, it's not a bank but money was placed better in banks in my opinion.


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## doctrine (Sep 30, 2011)

I've held MFC for about 21 months and have about a 65% return as MFC tries to take off again. This is the 4th time in 5 years that MFC is bumping up against its 13 year post-financial crisis high. If MFC traded at the average valuation of the big 6 banks, it would be close to a 100% upside from here. Too good not to hold for me, one of the few non-cyclical value stocks in the TSX today and I would still be buying today. Should be $40 which would still be a big discount to the banks.


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## cainvest (May 1, 2013)

Looks like MFC had a good year.


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## Gator13 (Jan 5, 2020)

Gator13 said:


> I picked up 4500 shares in June 2020 @ $18.18
> So far so good.


$27.93 as I types this. +53.6%
Annualized dividend income: $5,940


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## milhouse (Nov 16, 2016)

I've held MFC for a few years now and it's been a bumpy ride as they've needed to restructure a bit. Nice to have the divvies while waiting but I think they're starting to right the ship.


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## Gumball (Dec 22, 2011)

Just wanted to give this thread a bump.... 5.8% yield...4.89 P/E Ratio.... I was under the impression insurance stocks did well in rising rate environments... what do you guys see as the downside to MFC? is great west life a better buy?


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## like_to_retire (Oct 9, 2016)

Gumball said:


> Just wanted to give this thread a bump.... 5.8% yield...4.89 P/E Ratio.... I was under the impression insurance stocks did well in rising rate environments... what do you guys see as the downside to MFC? is great west life a better buy?


Well, as a gluten for punishment, I've owned MFC for a very long time along with SLF, GWO, etc., and I'd like to post a "Total Return" graph of MFC compared to SLF and GWO, so you can see where the last 15 years has been a wash.

But, in the last year, I admit, there is some hope for MFC as they finally increased their dividend and who knows, there may be a breakout in the works for the next 15 years.


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## cainvest (May 1, 2013)

like_to_retire said:


> But, in the last year, I admit, there is some hope for MFC as they finally increased their dividend and who knows, there may be a breakout in the works for the next 15 years.


I've owned MFC since the 2020 dip with the thought (right or wrong) they might have the most growth potential. For this sector and depending on the size of position you are taking I'd likely spread it out over a few of them and not just MFC.


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## AltaRed (Jun 8, 2009)

MFC certainly has been the ugly sister. We all know their 'risky' risk management processes whacked them in the financial crisis and that it would take awhile to unwind it all but surely 10 years should have been enough to regain momentum. I've been assuming a breakout would be imminent but it still remains unloved or still cannot get traction. It is a mystery to me.


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## cliffsecord (Jan 10, 2020)

Until MFC shows a clear uptrend then I'm staying away. I've been in and out hoping for a breakout and it hasn't happened. I switched over to SLF on some accounts and in my kids RESP I dumped it for e-series US fund. I've started getting more assertive with some of my holdings because I've got enough dividends now so growth is becoming more of a priority.


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## milhouse (Nov 16, 2016)

Yeah anecdotally, SLF seems to regularly have a better earnings report than MFC. (I don't follow GWO.) IMO, MFC's numbers aren't really bad and the strength of the business isn't accurately reflected in their share price. 
MFC is fairly dependent on Asia for a lot of its growth and with China's covid zero policy, it probably significantly impacts business activity when they go on lockdown mode for a few weeks. 
Their John Hancock business in the US is also a bit of a drag and if they can fix or dump it, it'd notably help their bottom line. 
On a positive, rising rates should be a tailwind for all the lifecos.


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