Insurer Old Mutual PLC reported Wednesday a 30 percent drop in 2008 profits as its U.S. Life unit made a large loss, hurt by the collapse of financial institutions such as Lehman Brothers and
Freddie Mac and
Fannie Mae.
The company, which has operations in the U.S., Europe and South Africa, reported a post-tax operating profit of 641 million pounds ($901 million), down from 914 million pounds in 2007.
Old Mutual saw a net outflow of client cash of 1.2 billion pounds, compared to an inflow of 23.4 billion pounds in 2007.
U.S. Life lost 270 million pounds in 2008, compared to a profit of 260 million pounds the year before.
The unit's fixed income portfolio recorded impairments of $237 million in the fourth quarter, raising the full-year total to $768 million. That included losses of $78 million on the failure of Washington Mutual, $50 million on the collapse of Lehman brothers, $98 million on three foreign financial institutions which were not identified and $151 million on preferred stock in
Freddie Mac and
Fannie Mae.
Funds under management ended the year at $20.7 billion, down 14 percent from the opening position primarily due to a 21 percent decrease in the market value of the funds.
"The rapid deterioration combined with volatility in global financial markets, most notably in the fourth quarter, gave rise to an extremely difficult operating environment, while we faced a number of specific issues in our U.S. Life business," said Chief Executive Julian Roberts.
"Nevertheless, many parts of the group delivered strong performances, especially in the markets where we have scale and strong market positions.
"As a group we remain well capitalized with strong surpluses over required capital levels in each of our business units, but due to the very uncertain market conditions, we have decided to conserve capital and cash levels despite our ability to withstand significant further deterioration in market conditions."
Investors welcomed the earnings report, sending Old Mutual shares up 2.1 percent at 38.3 pence on the London Stock Exchange.
The company said its portfolio of businesses was too broad, operating in too many places and conducting too many lines of business.
"However in the current environment, major rationalization of our portfolio of businesses would be extremely difficult and, if achievable, would almost certainly destroy value for our shareholders," the report said.
"At this stage, we have therefore concluded that it will take some time to achieve our optimal business structure."
Old Mutual has agreed to sell its Australian business and it has withdrawn from Portugal. It plans to close its office in Hong Kong while general scaling back its aspirations in Asia.
