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Manulife bags first upgrade in months
scored its first upgrade from Bay Street in more than two months after a leading analyst boosted hi Oakley Sunglasses Outlet s view of the company even as Standard Poor’s cut its rating on the insurer.
Arguing that firming equity markets combined with efforts to increase capital just Oakley Sunglasses Outlet ify greater confidence in Manu Oakley Sunglasses Outlet life’s earnings outlook, BMO Capital Markets analyst John Reucassel lifted the company to “outperform” from “market perform.”
“Given almost $5 billion in new equity and a 50% dividend cut, [the company] has achieved ‘fortress’ levels of capital,” Mr. Reucasel said in a research note, adding that the pessimism associated with Manulife around its exposure to guaranteed annuities has likely reached its peak.
Shares in North America’s largest insurer Monday closed at $19.95, up 3.2%, the highest level in more than a month, but down 25% since cutting its dividend five months ago. subsidiary John Hancock Financial Services Inc., could lead to a potentially harmful reduction in sources of cash flow.
On Dec. 31 Manulife completed the merger of John Hancock with its immediate holding company as part of a revamp aimed at lowering Manulife’s tax bill and reducing its exposure to equity market volatility. However, the ratings agency disagreed about the usefulness of the move saying the benefits would be out weighted by the negatives.
The downgrade, the second in about 12 months, comes nearly two months after S warned it would lower its rating if Manulife went through with the reorganization.
The insurance giant has been struggling to recover from exposure to guaranteed annuity products which it sold across North America.
Don Guloien, the chief executive, has stated several times in recent months his intention is to reduce risk and boost capital to “fortress” levels as a way to protect Manulife from the possibility of more stock market volatility.
In a research note published Jan 3, Mr. Reucassel said Manulife has achieved its goal of fortress capital levels though in doing so by cutting the dividend and issuing huge amounts of shares it has shaken investor confidence.
The bottom line, according to Mr. Reucassel, is that the bad news is mostly out and Manulife is now poised to benefit from stabilizing equity markets and strengthening earnings.
Since the worst of the crisis fallout in March Oakley Sunglasses Outlet , many Canadian bank stocks regained much of the ground they lost on the stock market, while insurers such as Manulife have languished by comparison.
Some observers predict the discrepancy will disappear as investors recognize the improved outlook in the sector.
The ratings firm also warned it could lower the rating another notch if equity markets decline significantly or if Manulife’s earnings remain considerably below historical levels.