Analysts: Manulife Appears to Have Avoided Any Credit Headaches

Manulife Financial Corp. (MFC) appears to have avoided the headaches associated with the ongoing credit crisis that has gripped the financials sector over the past few months, Dundee Capital analyst Susan Cohen said.

She recently reviewed Manulife's credit quality and said in a note to clients that the company's exposure to subprime mortgages – estimated somewhere around C$860-million – is benign and material losses are not expected. Meanwhile, she said the company has no exposure to collateralized debt obligations (CDOs) or structured investment vehicles (SIVs).

As for the company's bond portfolio which totals C$97-billion, Ms. Cohen noted that Manulife looks at the quality of the underlying bond and does not invest on the strength of the financial guarantor.

"Therefore the strength of the financial guarantor (i.e. the fact that S&P downgraded several) is not a factor and will not result in losses." she said.

She did acknowledge, however, that should 2008 usher in recessionary conditions and the unfolding of a normal credit cycle, it is likely that some deterioration in the company's credit quality will occur.

That said, she told clients it is premature to revise 2008 earnings estimates at this time, and left her "market perform" rating and C$45.75 price target unchanged.

She said:

We maintain that credit quality at Manulife is superior to that of most Canadian banks and many U.S. lifecos and thus remains a relatively defensive investment.