dartmonkey

So Fairfax controls 9.188m shares, 6.688m through shares and 2.5m through call options exercisable for another year and a half. They owned no shares in 2020 (at least, no mention of them in the annual report), and 3.7m shares according to the 2021 AR and then 4m according to the 2022 AR. I can't tell what price they bought them at, but the average price was about 13.5€ in 2021 and 15€ in 2022. Interestingly, they did own 7m shares in 2014 (5.9% of the company, a higher percentage of shares then that what they own now), but reduced that in 2017, and no mention of them from 2018 to 2021, so I guess they were probably sold. And that, despite what seemed like a long-term commitment iin 2013: "We welcome Fairfax to MYTILINEOS Group and we express our profound satisfaction for our future joint-course with a prominent long-term investor, headed by Prem Watsa, a global and most respected business leader, which is now the 3rd largest shareholder of MYTILINEOS Group. This development is evidence of Fairfax’s confidence in the MYTILINEOS Group’s potential and value, as well as in the capabilities and prospects of the Greek economy. " Anyway, if we guestimate that they bought the first 3.7m shares at 13.5€, 0.3m more at 15€, and knowing they bought the second block of 2.7m shares at 18.50€, and will buy a third block of 2m shares at 20€, that gives them a cost basis of 154m€and a current price of 256m€, for a nice 73% gain in about 2 years. But maybe they own this from much earlier? I don't know what happened between 2017 and 2021: perhaps they still owned shares but the position was too insignificant to report? Shares were sub-10 for most of this time. On the other hand, they reported a cost basis of 35.5m EU in 2016, which dropped to 15.7m in 2017, suggesting they had sold more than half, and then, no mention in annual reports until 2021, when it reappears with 3.7m shares. Anyone know what happened in the interim?

Yes, Fairfax owns only 10% of KW but they have billions invested via KW, so KW increasing their footprint by about 10% could be very good for Fairfax, particularly if Fairfax has invested alongside KW to provide liquidity for PacWest. On the other hand, no press release from Fairfax probably means that Fairfax does not have significant financing in this deal, so while this is probably a great deal for KW, it may have limited impact on Fairfax.

Owners of Eurobank and Grivalia, and fans of Greece in general, will be happy about the results of today’s elections there: https://www.wsj.com/articles/greece-holds-elections-amid-economic-recovery-and-political-scandal-f633ba7f

Any idea why Fairfax would be so reluctant to merge the 2 banks?

I hope some of the investment accounting experts here will answer, but in the meantime, I'll take a stab, and say yes. Here is the somewhat opaque text issued by FFH: The Company’s preliminary estimate of the effect of IFRS 17 on common shareholders’ equity is that it will increase common shareholders’ equity as at December 31, 2022 by approximately $2.2 billion (an increase in book value per share of approximately $94), primarily reflecting the introduction of discounting net claims reserves (approximately $4.7 billion, partially offset by a risk adjustment of approximately $1.7 billion for uncertainty related to the timing and amount of cash flows arising from non-financial risks), partially offset by the tax effect of the measurement changes and other of approximately $0.8 billion. In other words, the major change is an increase in book value of $4.7 billion because of the discounting of net claims reserves. I suppose that a large cat claim COULD fall under that category, if the distribution of claims was a long time in the future. So a supercat happening today that Fairfax anticipated having to pay out $1b but only 10 years later would not result in an immediate charge of $1b to book value, but rather, an amount that corresponds to the discounted cash flows expected over the next 10 years - that could easily reduce it by half, I would think. So if the claim is routine (life insurance, say), the effect of discounting would be small, but for a claim far in the future (asbestos liabilities, for instance), it might almost make the claim disappear. That would be tantamount to recognizing some value for float.

No, I know, I didn't mean to sound critical - I think most of us would be happy if Fairfax's equity investments more closely resembled Berkshire's!

Yes, so it seems. Nothing to do with FIH. While we're on the subject, it seems the federal and state governements would go from a combined 95% stake to 34%, which raises questions of whether they intend to maintain control. This article (https://www.vccircle.com/rbievaluates-fairfax-backed-bank-other-potential-bidders-for-idbi-bank) suggests that the answer is no, but can anyone translate into ordinary English what the last sentence means? : The RBI is also conducting a "fit and proper evaluation", including extensive background and financial checks on the potential buyers, a crucial step before an investor is allowed to pick up stake in a local bank, the people added. Potential investors have raised questions around the extent of government control in IDBI Bank after the divestment since it will retain a 15% stake and LIC, a government company, will have a 19% stake, two of the people said. "The government does not intend to have any management control," one of the people said. "The government will take a call if a written submission to that effect is needed."

It's interesting to see how many Berkshire picks end up in Watsa's portfolio. There was already some Occidental and Chevron, and now more Occidental, just like in Berkshire, and no additional Chevron, while Berkshire is selling Chevron. In banks, both companies used to own Wells Fargo, and now, both have big positions in Bank of America (although Fairfax also owns a bit of Citigroup and Bank of Nova Scotia). Just one car builder in both portfolios, and it's GM. Both had Taiwan Semiconductor, although Berkshire has sold its stake recently. Activision arbitrage - yes, in both cases, but both have been reduced this quarter. Great minds think alike? But it seems like a bit too much overlap for it to be coincidence.

On earnings outlook V.Watsa "For the first time at our 37-year history, I can say to you, we expect, of course, no guarantees, our operating income to be more than $3 billion annually for the next 3 years. Pretty amazing, for a company with a market cap of $17b (USD); in other words, the company is expected to earn half its market cap in the next 3 years, with no reason to think it will have less earnings thereafter. I increased my already indecent stake to almost 50%; I know of no other company with such a likely return of 100% or so in the next few years. But what is this V. Watsa business? Does anyone know what the V stands for? Fairfax was founded in 1985 by the present Chairman and Chief Executive Officer, V. Prem Watsa

Just thought I would point out that Fairfax is damned if it does and damned if it doesn't. Woodman mentioned that FIH shareholders may worry that Fairfax won't treat them fairly: "Often the rug gets pulled just before the real value accretes. Of course this time might be different." And others wonder, if it's such a good deal, why doesn't Fairfax just buy them out, or at least purchase more shares? As others have pointed out, Fairfax is buying some, but not all, directly and via FIH's own repurchases. But they set this thing up for outside shareholders to get involved, and to get some extra management fees, so it would be a bit rough to just buy them all out now. I guess they are trying to find a middle way, where they buy some but not all, which probably doesn't make anyone happy maybe but which seems to me like a reasonable compromise.

Insurance company boilerplate: "...industry forsakes underwriting discipline and overly focuses on topline growth even as rate decreases accelerate. This is where <insert insurance co. name here>'s culture of underwriting discipliune is most apparent, as we cut exposure and prepare for the return of Stage 1."

A buyback based on the company thesis of discount to intrinsic value forces a certain fixed outcome. A re-invested dividend, allows each shareholder executing on their specific view of intrinsic value and their desire for margin of safety to it. I think there is a certain mental view that a dividend is just money wasted whereas buyback below intrinsic value is not. That shouldn’t matter from a shareholder point of view (tax-free environment). In both cases, $1 billion leaves the company coffers never to be seen again. I think you can see it both ways. If it's a dividend, the dividend receiver is free to buy more shares, if she thinks they are cheap. If it's a buyback, the shareholder is free to sell some shares, if he thinks they are expensive. In both cases, some shareholders will be happy (because the company did the transaction they approve), and some will be forced to do their preferred transaction themselves. For my part,, I think the company should repurchase shares, because the company feels they are cheap, and shareholders that disagree should be selling their shares anyways.

Universalna Insurance Company (“Universalna”) was acquired by the Fairfax group in November 2019 and is one of the leading companies in the Ukrainian insurance market. Universalna has 32 licenses and offers more than 150 different types of insurance products. Universalna employs more than 300 employees and, in 2019, generated annual gross written premiums equal to UAH 950 million (approximately UAH 23.8075=US$1). I haven’t seen any discussion about how Fairfax might be affected by the Russian invasion of Ukraine. I guess there are two questions : first, the impact on Universalna’s operations per se. $40m in premiums is less than 0.2% of Fairfax’s $28b in gross premiums written last year, so this seems like it is unlikely to move the needle, but it’s hard for me to believe I would be bothering with insurance if I were living in Ukraine right now (although I could be wrong.) And second, whether any of the life and property destruction is covered by the company. Does anyone have any knowledge of this? Were these questions addressed at the general meeting? TIA

According to the 2021 annual report (p.11), FFH owned 43% of Exco, meaning it is treated as an associate, with equity accounting (which holds for non-controlling stakes where FFH owns between 20% and about 50%). That stake is held at a carrying value of $195m but had a market value of $267m, as of 2021-12-31.

yes, that’s right. So the Atlas stake is C$2.4b, an even bigger part of the C$17b market cap, ignoring the deferred tax. Thanks for the correction.

Wow. The Atlas position was already big, rivalling Eurobank for the biggest equity position, with 100m shares for a total value of $1.5b. Eurobank was at $1.4b; Stelco and BDT are at $540m, and Resolute, Quess, ShawKwei, Blackberry, CIB, Kennedy Wilson are all between $300 and $400m) Now with 25m more shares, and still with warrants for another 6m, Atlas will be over $1.9b. All of Fairfax has a market cap of $17b, so this is now over 10%. Not quite the size of Apple within Berkshire, but Atlas probably has more room to run...

I'm not following this logic. If I wanted to invest in FIH's holdings, wouldn't I be better off getting them through FIH at 60c on the dollar? A 40% discount pays for a lot of years of Fairfax management fees, and the discount is not likely to get even larger.

let's see if the investment Gods give FFH one more chance to dump this POS at $15+ in the coming days I think it's become abundantly clear that they will not do this. If you own share of Fairfax, and you don't like the BB holding, then you should short BB and stop worrying about it.

Kind of amazing that Fairfax's share price remains at about $10 higher than it was prior to this news, $547.73 at close today, up from about 538 on Friday. This is despite the fact that we just found out that Fairfax's stake in Digit may be worth $2.5 bn instead of $858 mn, a gain that represents about 10% of Fairfax's market cap, or about $65 per share. This compares to a gain of $80 per share since February 1st, as we keep getting good news about insurance operations and the investment portfolio. Using Viking's Feb 1 update (I should have used the June one, but I don't think there's been any substantial change in positions since then), I get $987 mn in gains for the positions worth more than $100 mn, or about $40 per share, before tax. We also had pretty strong first quarter insurance earnings announced in April, and a hard insurance market that seems to be ongoing. n All told, the market seems to be pricing in the assumption that much of these gains will prove to be ephemeral, and that Fairfax will find some way of blowing up the current happy environment. I guess 20 years of stagnant share price does tend to make you think that...

Sept 30/20: 50.4% owned with a FV of $43.8 million and a CV of $41.0 million I don't get it: after closing, "Farmers Edge will have 40,678,719 common shares outstanding or 41,781,669 common shares if the over-allotment option is fully exercised. Fairfax will own 25,023,193 common shares representing 61.5% of the outstanding shares (59.9% if over-allotment option is fully exercised)." So how does Fairfax go from owning 50.4% to owning 61.5% after the IPO?

Maybe Fairfax will get another shot at locking in some Blackberry gains? Gamestop is up by over 100% today, and has almost doubled again after hours, to about $170. Looking at the other usual suspects, Koss is up about 200%, AMC is only up about 30%. BB is tamer: up about $1 today and another $1 after hours, to $12.40. Fairfax owns 1.833 BB shares for every share of Fairfax (46.7 million BB shares, for 25.5 million FFH shares), so if you own 1000 FFH shares, you're along for the ride with you 1833 BB shares, up by $2/share today. If you don't like Watsa hanging onto them, you could short them out in your own account, but that would be swapping one form of excitement for another... I believe they also have $330 million worth of debentures that are convertible into BB shares at $6, so in other words they own the upside on another 55 million shares stake is actually double the above. Someone correct me if I'm wrong.

RichardGibbons' calculation makes sense: FIH's net asset value (essentially, book value) growth will inevitably be slowed by the 1.5% management fee that is charged, son an investment gain of 8% will not mean that book value goes up by 8%. The exact calculation depends on the timing of that charge. If, for instance, the 1.5% is levied against asset value at the beginning of the year, then instead of 8% growth, we will have 6.5% growth, plus a performance fee which would be 20% of the 1.5% in excess of 5%, giving an additional 0.3%, so that the total return would be 8%-1.5%-0.3%= 6.2%. If the management fee is charged at the end of a year with 8% growth, then it would be 1.5% of 108%, or 1.62%, leaving 6.36% net asset value growth, minus 20%*1.36%=0.272% as the performance fee, and the investor would keep 8%-1.62%-0.272%=6.108%. In any case, the important point that both of us were trying to make, is that the performance fee is 20% of whatever return there is in excess of 5% per annum, and not on the whole return. In fact, it is even slightly more complicated, since there is a highwater mark that also needs to be considered. The last asset value calculation for the sake of determining the performance fee was done for Dec 31, 2017 (it is done every 3 years), and book value was $14.46 at that time. It has dropped since then, and at last count it was $13.61 on March 31st. So book value would have to exceed $16.74 ($14.46*1.05^3) on Dec 31, 2020, for there to be any performance fee at all, and then FFH would get to keep 20% of the excess beyond that $16.74. That means that for you the new FIH shareholder, the first $0.85 in book value gain is on us, the previous shareholders that have already paid the performance fee up to $14.46. After that, there's $2.28 in book value gain that is beneath the 5% p.a. threshold. Only after those 23% in gains (from $13.61) is there any performance fee to be paid to Fairfax. There's still the 1.5% annual management fee, though. dtb

You do not have the correct performance fee terms: FFH takes 20% of the return beyond 5%, not 20% of the total return. In your example of an 8% return, that would be 20% of 3%, plus the 1.5% management fee, so client teturns would be 5.9%, not 4.9%.

I think Nutrien may be quite a good investment, but I don’t believe it has anything to do with gas prices, and I don’t believe there is any causal connection between the gas price drop 5-6 years ago and the decrease in potash prices.

Natural gas prices should have no influence on potash prices. Fertilizers basically supply one of 3 needs: nitrogen (N), phosphates (P) and potassium (K). Nitrogen is freely available (air is 80% nitrogen) but you need energy (natural gas) to fix the nitrogen in a form that plants can use, so the cost of N fertilizers is directly related to energy costs. Potash of course is the raw material for K fertilizers, but energy costs are only a small component of its cost of production. But you can’t substitute N for K just because it’s cheaper, so falling energy prices should not affect the demand for potash.