Manulife drops in Hong Kong trading after short-seller Muddy Waters says trial could lead to ‘billions’ in losses

Company’s stock is in bear territory after falling by 20 per cent from January peak

PUBLISHED : Friday, 05 October, 2018, 10:22am
UPDATED : Friday, 05 October, 2018, 4:55pm

Shares in Canadian insurer Manulife Financial slid in Hong Kong trading on Friday after short-seller Muddy Waters Research said an impending trial verdict could lead to “billions of dollars of losses” at the company.

The stock fell by 2.4 per cent to HK$137 on Friday, contributing to an overall drop of 20 per cent from a peak in January, which means it is technically in bear trading territory. Toronto-based Manulife Financial has more than US$849 billion in assets under management, with about 35,000 employees and 73,000 agents. It is traded on the stock exchanges of Toronto, New York, Manila and Hong Kong.

Manulife MPF fee cuts to save its pension scheme members US$14m in next year

Carson Block, who runs Muddy Waters, said in a report he believed investors were not aware of the material risks to Manulife posed by the trial. The insurer was taken to court by hedge fund Mosten Investment, which claims it should be allowed to deposit unlimited amounts of capital with Manulife and earn at least 4 per cent in annual interest based on a 1997 universal life insurance policy it owns.

Block expects a verdict this year.

Manulife said in a statement the Muddy Waters report was a short-seller’s attempt to profit at the expense of the insurer’s shareholders, and disagreed with Block’s conclusions.

“We firmly believe the consumers purchasing universal life policies, and the insurers issuing these policies, never intended to have the policies function as deposit or securities contracts,” Manulife said.

“We expect we will prevail with respect to this matter and that it will not affect our business operations, or our ability to meet obligations to our customers, vendors and other key stakeholders.”

Manulife introduces online claims system in Hong Kong in push to cut costs through digital technology

On Thursday, Manulife finished 2.8 per cent lower in Toronto after Block’s comments, marking its biggest fall since May 28 on a closing basis. Its shares dropped by 3.4 per cent in the US, in its worst daily decline also since May.

Hong Kong’s broader market continued to fall for a fourth straight day because of mounting concerns about the US-China trade war and its affect on the economy. The Hang Seng Index eased 0.2 per cent, or 51.30 points, to 26,572.57 and the Hang Seng China Enterprises Index lost 0.2 per cent, or 17.32 points, to 10,530.32.