Muddy Waters has found its latest target: Canadian insurer Manulife Financial Corp.
Short seller Carson Block, who runs Muddy Waters, announced a short position in the firm Thursday, and said its life-insurance subsidiary just concluded a trial with a hedge fund that could lead to billions in losses. Block expects a verdict this year. Manulife said in a statement that it disagrees with Block’s conclusions.
In a report, Muddy Waters said it believes investors aren’t aware of the material risks to Manulife posed by the trial. The insurer was taken to court by hedge fund Mosten Investment LP, which claims it should be allowed to deposit unlimited amounts of capital with Manulife and earn at least 4% in annual interest based on a 1997 universal life insurance policy it owns.
“This really looks to be more an issue of incompetence from the 1990s,” Block, Muddy Waters’ chief investment officer, said in an interview on Bloomberg Television. “This could effectively make this hedge fund, if it wins, the highest yielding money-market type product in the developed world.”
Toronto-based Manulife is one of the biggest life insurers in the world and operates in the U.S. as John Hancock. The lawsuit also involves a Bank of Montreal operation and iA Financial Group. Bank of Montreal declined to comment while a spokesman for iA Financial Group said it wouldn’t comment while the matter was still in litigation. Ronald Miller, a lawyer at McDougall Gauley who represents Mosten, declined to comment.
Manulife said it believes that Mosten’s position is “legally unfounded.”
“We firmly believe that 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 in the statement. “We have a sound, highly rated global franchise. 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 dropped as much as 4.1% after Block’s comments to the lowest since 2016. The shares were down 2.9% at 1:18 p.m. in Toronto.