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Discussion Starter #1
Manulife's low price lately has got me interested, with it's market value nearly equal to book. But I know relatively little about Financial corporations.
It looks like it's "rating" has been downgraded by Moody and S&P not too long ago, as well as the Bank of America last week. I'm a little unclear as to what effect these ratings have on a company, other than seemingly plunging their stock price immediately.
It's my understanding that when they get downgraded it means that their bond interest rate will have to go up to account for the greater risk, is this correct?
That would then mean that their earnings in the future will be lower due the higher interest they'll have to pay back to their customers when the bonds mature, right?
Do these ratings just act as a standard response to the current financials of a company, in which case a downgrade during a recession would be perfectly understandable, or are they a more influential precursor to the strengthening or weakening of a company?
 

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" ... It's my understanding that when they get downgraded it means that their bond interest rate will have to go up to account for the greater risk, is this correct?"

the ratings refer to existing bonds which co floated in the past & for which co was fully paid at the time of issue. Thereafter the bonds - as do stocks after issue from treasury - trade in secondary markets, so it's the investors in these markets that take the hit in a downgrade.

" ... That would then mean that their earnings in the future will be lower due the higher interest they'll have to pay back to their customers when the bonds mature, right?"

nearly all bonds have an interest rate that is fixed at the time of issue. So through good times & bad, co pays the exact same amount of interest to its bondholders. At maturity, same interest. Weak companies, however, may not be able to repay their bonds at maturity, ie they default on their bonds.

the chief blow to a company from a bond downgrading is the increased difficulty company will have borrowing funds from its bank or bankers. Later on, such a company will obtain poorer terms for any future bond or stock financing it may wish to do.

" ... Do these ratings just act as a standard response to the current financials of a company, in which case a downgrade during a recession would be perfectly understandable, or are they a more influential precursor to the strengthening or weakening of a company?"

it's usually difficult to unravel how much of a company's woes may be due to general recessionary conditions & how much may be due to poor corporate management. The bank of america is late to the manulife downgrading party. Do you recall their reason for a downgrade ?
 

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heh it was just a stock downgrade from merrill/bofa. Pot calls the kettle black.

stock upgrades, downgrades are a dime a baker's dozen any day of the week.
 

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Discussion Starter #4
Thanks HP. No wonder I couldn't find about it other than a simple announcement.

It looks like their large 2008 plunge was due to a lack of hedging their investments, which they have since remedied.

All the financials looks attractive right now as well, I thinking hard about this one.
 
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