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Manulife shares fall 6 percent as analysts cut targets

24/10/08

By Lynne Olver

TORONTO (Reuters) - Shares of Manulife Financial Corp were down more than most other Canadian financial stocks on Friday, as analysts downgraded their views and one said that the big insurer might raise fresh capital to offset tumbling equity markets.

Manulife shares were down 6 percent at $24.44 on the Toronto Stock Exchange by early afternoon, compared with a 3.3 percent decline in the S&P/TSX financials index. Manulife stock hit a 52-week low of $23.75 earlier Friday.

BMO Capital Markets analyst John Reucassel cut Manulife to "market perform" from "outperform," and lowered his target price to $32.00 from $37.00, saying poor equity markets may prompt the company to issue new shares.

Manulife should emerge much stronger when markets stabilize but "we believe investors should wait for stabilized equity markets or an equity offering, either related to an acquisition or to strengthen its capital," Reucassel said in a research note.

The company may need to raise between $3 billion and $5 billion in additional capital, the BMO analyst estimated.

Sharp declines in equity markets mean that Manulife has to set aside more capital to ensure it can pay variable annuities and guarantees on segregated funds that it sells in Canada, the United States and Japan.

"We are increasingly of the view that Manulife should raise common equity to strengthen its capital position," Reucassel stated. "Alternatively, the company could use an acquisition opportunity to issue additional equity."

Severe declines in the market values of U.S. life insurers offer various acquisition targets, in addition to opportunities to buy parts of AIG , the analyst said.

AIG, which has extensive global insurance operations, was pushed to the brink of bankruptcy in September by losses on credit default swaps it wrote. AIG has appointed a chief restructuring officer and plans to sell some assets.

Separately, RBC Capital Markets analyst Andre-Philippe Hardy cut his 12-month price targets on three of four Canadian life insurers on Friday, including Manulife, and said upcoming third-quarter results would be weak.

"The short-term pressure on earnings is greatest on Manulife in our view, driven by greater exposure to equities," Hardy wrote. Great-West Lifeco , Canada's second largest life insurer after Manulife, faces the least near-term pressure, Hardy said.

The RBC analyst cut his Manulife price target to $33 from $36.

On an October 14 conference call, Manulife Chief Executive Dominic D'Alessandro said the company had no intention of issuing equity capital, and no plans to reduce its dividend.

Manulife is due to release third-quarter results November 6.

Sun Life Financial , the third biggest Canadian life insurer, announced a quarterly loss of C$396 million earlier this week. Its results came two weeks ahead of schedule and, while writedowns on certain of Sun Life's fixed-income investments were expected, some analysts were surprised by the extent to which equity market declines hurt its results.

Hardy cut his Sun Life price target to $40 from $43.

($1=$1.27 Canadian)

(Reporting by Lynne Olver; editing by Rob Wilson)

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