Are Manulife, Sun Life and Great-West Lifeco Interested in AIG and Lehman's Assets?

The recent woes of U.S. financial firms may be an opportunity for Canada’s biggest players and a new report suggests Manulife Financial Corp. (MFC), Sun Life Financial Inc. (SLF) and Great-West Lifeco Inc. (GWOLF.PK) may be smelling blood and itching to make an acquisition.

Manulife is in a strong position to acquire American International Group Inc.’s (AIG) U.S. variably annuity business, if it chooses to sell, RBC Capital Markets analyst Andre-Philippe Hardy told clients. He noted that AIG was the largest writer of U.S. variable annuities in 2007 at 11.8% of the market, with Manulife second at 8.6%. Sun Life had an estimated 1.9% and Great-West had 1.1%.

In a research note, Mr. Hardy said:

Manulife is in a strong position to acquire these assets, in our view, given its existing expertise and scale in the market, and would likely be interested.

AIG, the largest U.S. insurer by assets, continued its freefall on Monday after asking the Federal Reserve for $40-billion in short-term financing. It received special approval from the governor of New York to access $20-billion of capital in its subsidiaries to free up liquidity, giving it more time to negotiate a loan with the Fed.

The analyst also suggested that Canadian lifecos would be interested in Lehman Brothers Holdings Inc.’s (LEH) asset management business, Neuberger Berman.

Great-West’s Putnam Investments and Sun Life’s Boston-based MFS Investment Management were cited firms that could benefit from the addition of these funds by leveraging their existing distribution capabilities.

Mr. Hardy said the bidding for Neuberger Berman would likely be more competitive than for AIG’s annuity business since there are many other potential suitors that may offer more synergies.

He continues to prefer Canadian lifecos to banks, rating Manulife “outperform” with a C$40 price target, Great-West “sector perform” with a target of C$34, and Sun Life at “outperform” with a C$47 per share target.