RE: RE: RE: MFCI have to disagree with your assessment of the situation
First of all the dividend wasn't always safe and was cut for a reason. MFC raised all kinds of capital, issuing bonds, preferred shares and two issues of common stocks. The issue of preferred shares and common stocks would've increased the dividend liability even more if it wasn't cut. Theyre's no denying they needed to preserve capital and all those capital raise proves it. Increasing their dividend now will not get the price higher before all the uncertainties surrounding the company are dealt accordingly. GE has increased their dividend twice after they cut it in 2008-09 and the share price has not done much trading at 15$ from a high of $42 in 2007. And GE like our canadian banks does not have the same problems as MFC.
The profit (or provision) that was being put aside is required by the regulations that governs the insurance industry. MFC has a lot of financial responsibility to a lot of customers that depends on them for life insurance, annuities, long term care insurance, and a whole lot of other services. If no regulations would be in place, theyre would be no control and no guarantee that MFC would have capital to meet its liabilities to its customers. Just like the banks must also meet minimum requirement in order to remain solvent in good or bad times.
Although the provision can be reversed once the market and interest rates start going up, right now it's going down and no one knows whether it will be going up or down in 3, 6, 12 months or 10 years from now. MFC, just like the banks have to keep minimum requirements and if they get too close to the minimum, the regulators as well as the market will force them to raise capital before its too late. MFC doesn't have the choice to say market will improve so I won't adjust the market value of my investments or liablilities. Nobody knows when the interest rates or market will go back up, it could be decades like in Japan and that's why their assets and liabilities must reflect the current environment and are regulated to do so.
You say the previous management never made a big deal and only emphasize on core earnings, again you are wrong. First of all no big deal was made because interest rates and market where going mostly higher. Previous management didn't only emphasize on core earnings, they did the opposite. Their earnings before 2008 included core earning plus gains from stock market increase and interest rate increase. Those earnings where higher as MFC was highly leveraged to the market and interest rates which was good in good time, but terrible in bad times. (Just like investing with a margin account). Only in the last few years has MFC started to emphasize more on its core earnings. And although they are a very profitable company when you look at these earnings, the liabilities from their pass keeps haunting them.
Although a good part of the write offs will be done after Q3, it all depends how close to their minimum requirements that it will leave them. Remember when they where doing testing for the banks to see if they could go through different scenarios. Well MFC must be doing some of those testing also for different scenarios that could happen even though it would be a long shot. (Ex. how strong is their MCCSR if the market goes down another 40% and the interest rates goes down another 60 points). The closer they get to their minimum requirement, the more the market will want them to take action (raise capital), even though as you put it that things will turn around it time.
The best thing that can happen right now is for the interest rate and market to stop going down. If that happens MFC should be alright. If market or interest rates continue on a downtrend, MFC might have to raise more capital, not because they want to, but because market and regulators will force them. The CEO said he wanted fortress capital to meet any future scenario (like the historical low interest rate we are witnessing right now). I believe he was close to where he wanted to be and Q3 results will be very interesting. Once investors are confident MFC can go through rough patch without losing billions and their MCCSR is at a confortable level, its share price will appreciate.
My opinion is that if capital needs to be raised MFC has other options besides issuing more common stocks at these prices. I am also positive on the market long term and MFC will be a good hold long term but it has to get through the short term without any more damage. I also believe that management has made all the right decisions since the crash and despite that, lower market and lower interest rates are still causing MFC trouble. I remember in 2009 when MFC was hedging their sensibility to the market when it was going up, investors where upset they wouldn't be getting all the upside. If the hedging wouldn't had been done then, MFC would be even more closer to raising more capital.