Monday, June 17, 2013

(No.238) Manulife & Turkey: interesting numbers


"Manulife and Turkey: some interesting numbers"

by Alastair Rickard

I have written several columns in recent years for RickardsRead.com about the near disaster which threatened to take down Manulife, the Toronto-headquartered Canadian life insurance company, the senior management of which for years chased hundreds and hundreds of millions of dollars of new variable insurance contracts the from which it guaranteed [sic].

In order to increase company profits and senior management compensation to even higher levels Manulife in 2004 stopped hedging the unwise risk it was assuming (Sun Life did not stop its hedging). Remember: the core financial challenge was not in issuing variable policies; it was the fatuous assumption that the company could get away over the longer term (30+ years) with guaranteeing unrealistic rates of return on contracts designed and priced for a variable return.

What happened to Manulife when the Wall Street-generated meltdown occurred in 2007-8 was inevitable. As Manulife's net exposure to guaranteed variable policies hit $72 billion [sic] by Sept. 2008, the company proceeded toward the financial ditch.

At the very least the majority of Manulife's board of directors must have been asleep both before and even as the Manulife financial bus, at the wheel of which was the company CEO Dominic D'Alessandro, headed toward the ditch. How else to explain the multi-million dollar farewell 'bonus' the board subsequently decided to award to him, apparently in order to reward -- what? His driving skills?

The Canadian journalist who has written most often and informatively about the Manu episode, indeed better than any other, is Theresa Tedesco, the chief business correspondent for the Financial Post (Toronto).

It was she virtually alone in the financial media who recently did real reporting (Financial Post, June 4, 2012) about the court hearing scheduled for early June in Ontario Superior Court involving a class action against Manulife seeking the required court certification (stay tuned).

Shareholders of Manulife launched a lawsuit in 2009 claiming $500 million from Manulife, D'Alessandro and its former CFO Peter Rubenovitch over the company's risk management policies and practices.

Meanwhile the 'groupie' treatment that Manulife and D'Alessandro received for years from the financial services paparazzi may once again be on the rise.

For example: Globe and Mail Report on Business columnist Martin Mittelstaedt wrote a piece (ROB, May 13, 2013) in which he outlined how "Manulife's prospects are clearly on the mend and invstors should take notice...." In support of this cheerleading for Manulife he called upon the views of "analysts who follow the company, 12 of them rate it as a 'buy' while only one has a 'sell' ,,,,"

I would have found this sort of warm and fuzzy attitude to Manulife's past, present and future rather more convincing if the Globe columnist had, for example, been able to point to even one of the 12 firms involved having employed an analyst in 2004 who had waved just a small red flag for investors when Manulife stopped hedging the billions it was risking as it rolled the dice on the guaranteeing of variable return policies.

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In the last few weeks the mainstream news media have been filled with stories about Turkey and the popular demonstrations for and against its increasingly authoritarian and openly Islamist prime minister Recep Tayyip Erdogan and his AKP Party.

Coverage has tended to focus on the pro-secularist stance of the prime minister's popular opposition contrasted with his own and his supporters' leaning to religious values.

Here are a few numbers I have not noticed in the current media scrum involving the unrest in this important nation of 80 million, the territory of which is in both Europe and Asia and a country whose application for full admission to the European Union is of very long standing:

--- 5 of the current 27 member states of the European Union were part of the Ottoman Empire from the remains of which modern Turkey led by Kemal Attaturk arose in 1923.

--- 97% of Turkey's land mass is south and east of the Bosphorus

--- Turkey is 99% Moslem (mostly Sunni) but it recognized Israel as a state the year after it was created.

As a country Turkey looks toward Europe:

--- 1 in 6 of its population live in Istanbul, the vital sections of which are physically located in Europe

--- 9 million Turks live in European countries, particularly Germany and France

--- 16 million Turks are of European origin (mostly Balkan)

--- only 11-15% of Turkish women wear a hijab or head covering

Further reading:  Andrew Finkel's recent book published by the Oxford University Press: "Turkey: What Everyone Needs To know".

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email: Alastair.Rickard@sympatico.ca

blog: www.RickardsRead.com

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