Power Financial Reports Lower Q4 Earnings

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Power Financial posted operating earnings of CAD 406 million (or $0.57 per share) for the fourth quarter, compared with CAD 422 million (or $0.60 per share) in the corresponding period in 2011. For the full year of 2012, operating earnings were CAD 1,686 million (or $2.38 per share), compared with CAD 1,729 million (or $2.44 per share) in 2011. The earnings shortfall was due to lower contributions from the operating subsidiaries.

Great-West Lifeco’s earnings were essentially flat for the full year. The company reported operating earnings of CAD 1,955 million, compared with CAD 1,898 million a year ago. Sales growth in the U.S. was primarily driven by strong demand in the company’s individual retirement accounts. Wealth product sales in Canada went up 18% year over year. Segregated fund (i.e. annuity) sales were particularly strong, reflecting the company’s success in tapping the high net worth market. Despite strong institutional sales and record AUM at $128 billion, Putnam’s losses widened due to a larger-than-expected charge related to fair value adjustments on stock-based compensation. The company reported an annualized ROE of 15.9% on operating earnings, which is one of the best in the industry.

IGM’s operating earnings for the full year dropped 10% to CAD 750 million due to accelerated redemptions and lower mutual fund sales at the Investor Group, despite the broad market rally in the second half of the year. Full year mutual fund sales were CAD 5.8 billion, down 4% from 2011. However, mutual fund net redemptions ballooned to CAD 723 million compared to net sales of CAD 39 million a year ago. The MacKenzie Group also experienced similar downward trends in terms of sales and asset redemptions.

IGM Financial is a moaty company because of its full control over distribution, it is clear that the company’s performance is highly sensitive to the market. On the other hand, Great-West is viewed as a solid performer, owing to its conservative approach to underwriting. Power Financial could still benefit from the diversification effect for having majority interests in the two companies.

 

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