Manulife Financial Corp. said Tuesday it will lose $1.5 billion in the final three months of the year because of plunging equity markets.

Toronto-based Manulife Financial said stock markets in Asia, the United States and Canada have fallen by an average of almost 40 per cent for the first 11 months of the year. This dismal equity performance has harpooned Manulife's financial prospects for the fourth quarter and into 2009.

If Manulife's prediction comes true, the loss in the last three months of the year would represent the first quarterly loss since the company went public in 1999.

"We are disappointed with this poor performance .… However, our business fundamentals continue to be very solid, as evidenced by our strong insurance sales and new business embedded value growth," said Manulife's chief executive officer Dominic D'Alessandro.

For the first three quarters of the year, Manulife had posted a profit of almost $2.4 billion. Thus, the company is now projecting earnings in the range of $900 million for all of 2008.

Manulife's profit picture has slipped as the year progressed. In the third quarter, the firm made slightly more than $500 million, a bit less than 50 per cent of what it earned in the previous three months and its net income for the third quarter of 2007.

New cash needs

Insurance companies, along with banks and other lending institutions, have been particularly hard-hit by the ongoing global financial crisis since much of their income comes from equity investments.

While Manulife has not been hammered to the same degree as other insurance companies such as American International Group, the Canadian company has been forced to bolster its balance sheet in order to maintain sufficient financial reserves.

In fact, Manulife also said on Tuesday it plans to issue $2.125 billion in new shares through a private placement and a bought deal, specialized arrangements between the company and a number of investments houses.

"These transactions provide us with the flexibility to absorb the accounting impact of future volatility in financial markets and, as importantly, will allow us to take advantage of acquisition opportunities that are emerging out of the current industry environment," D'Alessandro said.

3-month stock chart of Manulife Financial Corp.

Manulife is reputed to be on the acquisition trail as other companies with fewer financial reserves have dropped in value in recent months.

Manulife, however, also appears to be getting sufficient cash on hand to reassure nervous investors that the company can survive any potential financial problems.

In October, Manulife established a borrowing facility of $2 billion with a syndicate of lenders. The move was designed partially to show investors that the company had a well-established cash lifeline in case of any sort of credit squeeze.

Manulife stock closed down 57 cents at $19.89.