By Tara Perkins
It appears to be a certainty that in 74 days, millions of dollars that have been hanging in limbo will quietly pass from former Manulife (MFC) CEO Dominic D’Alessandro back to the company’s shareholders.
When D’Alessandro retired in the spring of 2009, shortly after the financial crisis caused the company’s stock to plummet from more than $37 to $20, he told the insurer’s board of directors that he would forgo $10 million in restricted share units unless Manulife shares hit $36 by the end of 2011. They closed yesterday at $12.34.
D’Alessandro made the voluntary gesture after the board’s decision to grant him a $12.5 million (U.S.) pay package for his final 18 weeks of work stirred up controversy. Manulife was being hammered at the time by its outsized exposure to stock markets. The company had accumulated a massive portfolio of stocks to back its variable annuity business, and had chosen not to hedge the portfolio. In time, the issue caused the company to raise equity twice and slash its dividend in half in an effort to preserve capital. (It is now hedging most of its stock exposure).
“I’m doing this because the money is worth much less to me than the taste that’s being left in people’s mouths,” D’Alessandro said at the time, as regulators began to make the pay packages of financial executives one of their top issues (but before President Barrack Obama lashed out at "fat cat" bankers).
But, needless to say, when D’Alessandro made his pledge 30 months ago, he was confident the stock would rebound in short order. The massive market selloff that the Lehman Brothers bankruptcy triggered had passed, and things were starting to look better. True, D’Alessandro did give himself a little leeway – he said he would take only half the $10 million if Manulife’s shares only hit $30 by the end of 2011 – but he was undoubtedly bullish.
It’s one telling example of how the crisis blind-sided so many financial executives. What D’Alessandro (as well as the company’s shareholders and its current management) failed to see at that time was the massive decline in interest rates that is now weighing on Manulife’s shares. Just as Manulife began to make serious progress hedging its stock exposure, policymakers drove interest rates (which Manulife is also working to hedge against) to historic lows in an effort to stimulate economic growth.
The chances that Manulife’s shares will triple by the end of the year are slim to none. But that’s all the more reason D’Alessandro’s move was the right one