As Manulife Financial Corp. prepares to welcome a new CEO in the fall, reports have surfaced that the company is flirting with divesting its U.S. operations.
The Wall Street Journal said on Thursday that Canada's largest insurer had hired investment bankers from Morgan Stanley to assess strategic options for its Boston-based John Hancock Financial Services Inc. division, adding Manulife was contemplating an initial public offering or other spinoff. The report cited sources familiar with the plans.
Such a move would dramatically reshape the insurer. The U.S. division accounted for a little more than one-third of profits at Manulife last year, and 56 per cent of its assets under management and administration. Such a deal could allow incoming chief executive officer Roy Gori to zero in on the company's operations in Asia, which have been identified as an important profit engine for Manulife in the coming years. Mr. Gori formerly served as head of the Asian division.
Back in 2003, when Manulife first said it would buy John Hancock for a whopping $15-billion, it was a transformational arrangement that about doubled the size of the insurer. Having lost out on the acquisition of Canada Life Financial Corp. to competitor Great-West Lifeco Inc., the company's growth-focused CEO Dominic D'Alessandro said adding John Hancock helped vault Manulife back to "the top of the pack in our home market." Manulife touted it as the largest cross-border transaction ever done in Canada at that time.
But in the years since the deal, analysts and investors have batted around the idea of selling or divesting John Hancock several times, particularly as the company's stock languished in the wake of the Great Recession.
Manulife was hit hard by the financial crisis and had to raise billions of dollars to boost its balance sheet. The company halved its dividend to protect its capital base and took steps to hedge its stock market exposure. Ideas to shore up capital included selling John Hancock and Manulife's Canadian bank. A decade later, Manulife still owns both.
Manulife's outgoing CEO Donald Guloien, a 36-year company veteran, has defended the purchase of John Hancock before. And in 2011, when questions over whether Manulife would consider spinning off John Hancock bubbled up, Mr. Guloien countered that, while the company would always look to unlock value for shareholders, management was proud of how the business was performing. Manulife built up its wealth and asset-management businesses in the United States in recent years.
Lately, the U.S. business had drawn less praise and Manulife has put some focus on selling off legacy businesses that are hindering the company's growth. At a recent investor day in Hong Kong, Manulife's management said interest in its U.S. variable annuity business was improving, but current bids were not coming in at prices that would create value. The company also said early signs of interest were emerging in its volatile long-term care businesses, but no deals were imminent.
Mr. Guloien said in a recent interview that Asia had become a top priority. The region now represents about 70 per cent of Manulife's worldwide insurance sales, with Canada and the U.S. adding about 15 per cent each.
"The U.S. is still the largest wealth market in the world, and we're growing quite nicely in the United States. But the growth in Asia is much faster," said Mr. Guloien. "You start with GDP growth of, say, 7 per cent, and that means the middle class is probably growing at 15 per cent. And the wealth of the middle class is growing faster than that. So that's that's quite tremendous, and that is not happening in North America. That's not happening in Western Europe or Latin America."