MANULIFE FINANCIAL REPORTEDLY SEEKING DISTRIBUTION PARTNERSHIP WITH DBS

Manulife Financial Corp. is reportedly in the running to buy into a distribution partnership with DBS, Singapore’s largest bank.

At an expected price tag of US$1.5 billion, Manulife has plenty of capital to fund all or most of the 15-year deal. Canaccord Genuity Group Inc. analyst Gabriel Dechaine estimates Manulife still has $2.8 billion of excess capital following its $4-billion acquisition of Standard Life PLC’s Canadian operations.

However, he noted that the Office of the Superintendent of Financial Institutions may require Manulife to pay for part of the transaction with new capital, such as debt or preferred shares, to preserve its common equity capital, particularly if the goodwill associated with a DBS deal is large.

Mr. Dechaine believes the initial returns from such a partnership would be low for Manulife in the near term (neutral to earnings per share), but he noted that investors concerned about its idle capital may be satisfied.

“Over the past few years, concerns related to lifeco capital have gone from one extreme (i.e., too little of it) to the other (i.e., too much of it),” the analyst told clients.

“Excess capital has become a burden on ROE in the sector. Having a deployment strategy in addition to dividend increases is important for investors.”

He added that any capital deployment in Asia would likely be viewed as having high growth potential.

Manulife also happens to be in the second tier of life insurers in Asia, as well as having a smaller relative presence in higher-growth Southeast Asia. Mr. Dechaine said a large distribution deal would boost its standing in the region, “at least from a branding perspective.”