Manulife Financial Corp. said it expects to book two charges worth C$2.9 billion due to the tax reform and changes to the company's asset mix in its legacy businesses.
The company will reduce the allocation to alternative long-duration assets over the next 12 to 18 months. The move is expected to result in a charge to net income attributable to shareholders of roughly C$1 billion after tax, or 50 Canadian cents per common share, in the fourth quarter and free up C$2 billion in capital over the next year or so. The decision will adversely affect core earnings in the short term by roughly C$50 million to C$60 million per year after tax until Manulife redeploys the net C$1 billion capital benefit.
With the U.S. tax legislation signed into law, the company estimates a charge of roughly C$1.9 billion after tax, or 96 cents per common share. It expects the lower corporate tax rate to benefit net income and core earnings by roughly C$250 million per year commencing in 2018. The company will include the charge in its fourth-quarter results. The estimated charge amount reflects the impact of U.S. tax reform on policyholder liabilities and deferred tax assets.
The combined change in portfolio and the tax reform impact are expected to positively affect common shareholders' return on equity, the company said.