Muddy Waters' Carson Block Shorts Canadian Insurer Manulife

(Bloomberg) -- 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 insurer Thursday, and said the company’s life insurance subsidiary just concluded a trial with a hedge fund that could lead to billions in losses. A verdict is expected this year, Block said.

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 percent in annual interest based on a 1997 insurance contract it owns.

“This really looks to be more an issue of incompetence from the 1990s,” Block, the chief investment officer of Muddy Waters, 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 primarily as John Hancock in the U.S. The company didn’t immediately return a call and email seeking comment.

Manulife dropped as much as 4 percent after Block’s comments to the lowest since 2016. The shares rebounded and were down 1.6 percent at 10:31 a.m. in New York.

Insurers have been facing pressure from products such as universal life insurance and long-term care policies that they sold decades ago when interest rates were higher. As those rates fell after the financial crisis, some companies including Aegon NV’s Transamerica boosted the cost of those products to offset the pressure.

Block’s firm has previously built short positions in companies ranging from French retailer Casino Guichard-Perrachon SA to Chinese tutoring firm TAL Education Group.

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