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Punished by investors, sector battling lag in growth
By Beth Healy, Globe Staff, 5/20/2003
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third straight year of plunging stock markets and a sluggish economy brought more pain upon the financial services industry in 2002.
All but two of Massachusetts' 12 largest financial companies saw their stock prices tumble as they battled a halt in revenue growth or an actual decline in year-to-year sales.
John Hancock Financial Services Inc. posted a 7.2 percent dip in revenues, amid a grueling environment for its asset management group and lean times for insurers with big bond portfolios.
Giant paychecks for the company's top brass -- in a year when its shares dropped 32 percent -- have drawn searing criticism.
Lanny Thorndike, a portfolio manager at Century Capital Management Inc. in Boston, said he's staying away from life insurers and banks for the foreseeable future. Of life insurers like Boston-based Hancock, he said, "There's a lack of growth there."
Property-casualty insurers are a different story, Thorndike said. Many of them, including Commerce Group Inc. of Webster, reaped gains in revenues after Sept. 11, 2001, when there was a surge in demand for insurance coverage. Their stocks rose last year, Thorndike said, but earnings lagged that euphoric run-up.
Commerce Group reported 9 percent revenue growth last year; its shares were nearly flat, down 0.5 percent in a year when the Standard & Poor's 500 Index slumped 23 percent.
"In 2002, the markets got ahead of themselves in some of these stocks," Thorndike said. While revenues surged 30 to 70 percent at many insurers, "the earnings were up very timidly."
That's turning around this year, he said, with companies in the sector posting average earnings growth of 20 percent.
Allmerica Financial Corp.'s revenues held virtually steady at $3.3 billion, but the Worcester insurance group's shares plummeted 77 percent last year, following revelations of a Securities and Exchange Commission probe into its sales of variable annuities and variable life insurance products.
Money managers weathered a trying year as investors took cover in more conservative investments -- even bank certificates of deposit. Eaton Vance Corp., a Boston mutual funds firm, posted a 0.5 percent slip in revenues, to $512.2 million, while its shares fell 20.5 percent. Affiliated Managers Group Inc., a holding company for investment firms where the lieutenant governor's husband, Sean Healey, works, managed an 18 percent revenue gain in 2002, yet its shares still slid 28.6 percent.
AMG recently trimmed its 2003 earnings outlook on expectations that stocks will end the year up 8 percent.
State Street Corp., too, posted a revenue gain but was punished by investors. The Boston-based giant in handling back-office accounting and administration for mutual funds and pension funds grew its revenues nearly 15 percent, a relatively weak showing at a company whose investors reveled in a breakneck pace of growth in the '90s bull market.
The only Massachusetts financial services company with a winning stock story last year was HPSC Inc., a niche firm in Boston that provides financing for medical practices. Its revenues rose 6.1 percent, to $66.8 million, and its shares climbed 19 percent.Beth Healy can be reached at bhealy@globe.com.
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