Manulife 2008 results

Q:Why did Manulife fall after the result published?

A:
1. Market fall, especially the entire North America financial sector due to the fear about banks will be nationalized;

• If nationalized does happen, it will dilute the value of the existing shareholders;
• CitiGroup might have the highest possibility to go nationalize, but it is kind of expected;

2. Market fall will trigger a loss in Manulife's book;

• Since Manulife has a huge segurated fund portfolio and those seg funf products provide dealth guarantee and maturity guarantee benefit;
• If equity market fall, Manulife needs to top up the reserve to meet the future possible payment to the unit holders;
• Increase reserve will have a negative impact to income

3. Manulife's 2008 results did not meet analysts' expectation, it gives the market an excuse to give pressure on its stock price; But some fact you need to know about:

• Bilibala's estimation is better and more accurate than all the analysts this time;
• As I always say, no one cannot look value an insurance company simply by looking and estimate the net income;
• Such disappointment on net income was being interpreted as bad news and trigger a wrong signal to sell;

4. Given the market fall about 13% since Dec 31, 08, Manulife may have $1B loss if management team still did not create a hedge program to reduce its equity exposure.

• In my previous blog "Mkt view 09w08", I've estimated 1Q09 results should be around $500M net loss.
• Because I expect management will have a hedge program in place
  I also expect a market rebound by the end of March;
• If so, the result should not be that bad.

I will keep Manulife's fair value price at CA$31, until I review Manulife annual report (not publish yet).