DBRS Confirms Manulife Bank of Canada at R-1 (middle) and AA (low)

DBRS has today confirmed the R-1 (middle) rating of the non-guaranteed short-term debt and the AA (low) rating of the issuer, long-term deposits and senior debt of Manulife Bank of Canada (Manulife Bank or the Bank). The trends are Stable. The long-term deposit notes issued prior to June 1, 2005, for Manulife Bank are fully guaranteed by Manufacturers Life Insurance Company (MLI or the Parent); these ratings are based on a separate rating of MLI. Please see separate press release.

Notwithstanding the absence of any formal guarantees on other debts, the stand-alone ratings and trends of Manulife Bank are a function of the strength of MLI, as the Bank’s business model is inseparable from the operations of its Parent. Under DBRS’s bank rating methodology, Manulife Bank’s Support Assessment is SA1; its long-term deposit and senior debt rating (not guaranteed) is notched one level lower than MLI’s ratings. The Bank and MLI share strategic alignment, branding and significant cross-relationships in management and systems. The Bank relies on MLI’s relationships with agents for asset gathering and some funding.

Manulife Bank has solid asset quality, a good earnings profile and a reasonable financial risk profile. DBRS expects earnings growth to remain strong in the near to medium term as Manulife Bank is expected to continue to generate high asset growth combined with the maintenance of its low expense ratio. Net income has steadily grown from $5.1 million in 2002 to over $50 million in 2006. The asset quality profile is conservative and DBRS anticipates it will remain so. Residential mortgages account for 66% of the loan portfolio, with the balance primarily in secured investment related lending.

Manulife Bank’s challenges include its reliance on spread income, which leaves the Bank potentially susceptible to spread compression, its reliance on a narrow range of key products and its dependence on independent insurance agents and financial advisors across Canada for both assets and funding.

Notes:
All figures are in Canadian dollars unless otherwise noted.
The Deposit Notes includes term deposit notes, amortizing notes and floating rate medium-term deposit notes.