nwoodman

Eurobank Q3 transcript and MS analyst note attached. All very positive especially the likely move to 50% payout. The mix of divs /buyback to be finalised early next year. Some good color on the expected synergies with Hellenic. This has to be worth more than tangible book (€2.27)! Summary Macroeconomic Context and Bank Growth • CEO Fokion Karavias opened by noting strong regional economic performance in Cyprus (3.3% GDP growth), Greece (2.3%), and Bulgaria (2.1%). He remarked on Greece’s fiscal discipline, tourism’s boost to the economy, and an uptick in investment contributing to credit growth of 6.6% in 2024. • Eurobank’s loan growth almost reached its annual target of €2.1 billion, with potential to hit €3.5 billion by year-end, driven by organic growth and the Hellenic Bank acquisition. Hellenic Bank Acquisition and Synergies • The acquisition of Hellenic Bank has expanded Eurobank’s assets, and the bank plans to leverage synergies amounting to €120 million, expected over three years (2025-2027), with a third realized in 2025. • “The envelope of synergies of €120 million… will be fully deployed over a period of roughly three years.” - Fokion Karavias Financial Performance • Eurobank achieved €1.14 billion in net profit, with a return on tangible book value (RoTE) of 19% for the nine-month period. • Karavias stated, “We may consider increasing the payout ratio from 40% previously up to 50% payable in 2025 of the 2024 profits,” with potential for both dividends and buybacks. Strategic Plans and Challenges • CFO Kokologiannis explained their approach to managing Deferred Tax Credits (DTC) by accelerating amortization, which would reduce DTC by 2033. • They announced the intention to merge Eurobank Holdings and Eurobank S.A. to reduce administrative costs, a decision unrelated to DTC discussions with regulators. Future Outlook and Loan Growth • Karavias emphasized that, despite a projected slowdown in transactions in 2025, the bank expects solid loan demand due to a lower interest rate environment and ongoing Recovery and Resilience Facility (RRF) project disbursements, forecasting 7% growth in 2025. Key Quotes 1. Macroeconomic Growth: “The positive economic sentiment is supported by a number of factors, including tourism, which had another strong year… and residential real estate prices remaining strong at 9.2% year-on-year growth.” - Fokion Karavias 2. Hellenic Bank Synergies: “We see an envelope of synergies of about €120 million… we should be able to realize at least one-third of this envelope [in 2025].” - Fokion Karavias 3. Dividend and Buyback Strategy: “We may consider increasing the payout ratio from 40% previously up to 50% payable in 2025 of the 2024 profits.” - Fokion Karavias 4. Deferred Tax Credits: “As of 2025, we will accelerate prudential amortization… DTC amortization is expected to accelerate materially and be eliminated circa eight years earlier than the current trajectory.” - Harris Kokologiannis 5. 2025 Loan Growth: “In 2024, we may achieve a credit growth of around 9%… in 2025, let’s say in the area of 7%, which is still a very solid number.” - Fokion Karavias Demetra Specifically 1. Current Stake in Demetra: Eurobank recently acquired an 8.5% stake in Demetra, a holding company whose assets are predominantly in Hellenic Bank shares. This acquisition was part of a package deal with the Union of Bank Employees in Cyprus. “Eurobank acquired the 8.5% of Demetra, that was a package deal with the Union of Bank employees in Cyprus.” - Fokion Karavias 2. Indirect Ownership in Hellenic Bank: This stake in Demetra gives Eurobank an additional indirect economic interest in Hellenic Bank. When calculated, it roughly adds 2% to Eurobank’s ownership in Hellenic Bank, supplementing its direct ownership, which will soon total 69% (56% current stake plus 13% additional shares subject to regulatory approval). “The ticket for Demetra was around €32 million consideration… almost 2% on top of the 69% that we own directly.” - Fokion Karavias 3. Consideration for Further Stake: While Eurobank has not committed to further increasing its holdings in Demetra, the company noted that Demetra is an illiquid stock on the Cyprus Stock Exchange, which poses challenges for acquiring a significant additional stake in the open market. “Whether we increase further our stake to Demetra or not, this is something that has not been considered yet. Take into account that Demetra is a very illiquid stock in the Cyprus Stock Exchange and through the market someone cannot really buy any material amount.” - Fokion Karavias 4. Strategic Value: Eurobank considers Demetra to act as a derivative of Hellenic Bank shares due to its significant holdings in Hellenic, thus enhancing Eurobank’s overall economic interest and control in Hellenic Bank. “Demetra could be viewed as a derivative of Hellenic Bank shares.” - Fokion Karavias EUROBANK_20241107_1846.pdf Eurobank Ergasias Services and Holdings S.A. (EGFEY) Q3 2024 Earnings….pdf

Tidy set of results for Eurobank and importantly some partial resolution to the outstanding shares in Hellenic Eurobank announces that it has entered into an agreement to acquire 12.848% in Hellenic Bank and 8.58% in Demetra Holdings www.eurobankholdings.gr/-/media/holding/omilos/grafeio-tupou/etairikes-anakoinoseis/2024/3q2024/3q2024-results-presentation.pdf

Very eloquent and enjoyable. The value inside value cannot be repeated enough. A Russian Doll of value investing

1. Market valuation 2. A life insurance policy that only Berkshire can write….buybacks?

Just got thru the CC 1. I know we all hate analysts but I really appreciated the quantity and quality of follow questions. Hopefully some reputations are being cemented. 2. Listening rather than reading does provide a little extra. No doubt I am repeating myself but the senior team is just so polished or rather thoughtful and rational. I am echoing sentiments already conveyed on this board but Fairfax seems to be so advanced in succession planning. A credit to Prem. 3. If I had to nominate one section of the Q&A that supports a multi-year investment thesis it was this reply by Peter Clark reiterating what they have previously said: “Sure. The duration on our bond liabilities on around 3.5 years. So it's a little longer than it was last quarter. And if you look at our liabilities, it's relatively close. We don't match on purpose, but where we sit today, liability duration is close to our asset duration. And you can sort of see that in the IFRS 17 numbers, that we had a big loss on discounting, about $750 million, $760 million. That was offset almost very closely with the $800-plus million of gains on our bond portfolio. So we're pretty much matched where we are today. As far as going forward, I think all that we could say on that is we're very happy that the fixed income portfolio is very liquid. And with the duration of 3.5 years, it gives us lots of flexibility for opportunities in the future. We don't have any significant exposure on the corporate side. Our corporate bonds are 1 to 2 years, very short dated. So that is an opportunity if credit spreads should widen in the future.” l won’t be alone, but last night saw the biggest daily change in my net worth. A humble thanks to everyone who has contributed via this board to aid my understanding of this company and investing in general.

Interesting data point. I realise Fairfax has a history of donating to Disaster relief, so I am not reading anything in to their $1m donation either. We will find out soon enough. I expect Berkshire to have a bit of a hit based on the comments at the AGM.

This is my conclusion as well. Presently I am hard pressed to find any other idea that comes close even after the gains of the last couple of years. I just make sure I don’t look at the share price chart (most uninstructive) and try to think in terms of multi year returns. There is a price and set of circumstances I would exit but we are some way from that. As I have said previously I hope the share price appreciation, multiple expansion actually slows. I would be much happier to have a low double digit return that I know and understand that I can hold for a decade or more than a quick 30-50% gain and a serious tax bill.

I will take continued compounding of book and EPS if it’s all the same to you sir

@Viking good list as always, you have covered it nicely. I am looking forward to: 1. Any color on fixed income. I can’t help but feel Bradstreet is going to look like the superior allocator he is….again. 2. Underwriting margins (as always) and claims inflation. 3. Any moves to repurchase Omer’s positions in subs 4. I hope they stick with the format from last qtrs CC, it worked well. Would love to hear Wades’s thoughts on Ensign as well as their other commodity (gold ) positions. Perhaps it would be accretive to point 1 above. Conversation may be muted given the coming election To be honest, as time goes on I am far less on the edge of my seat for the quarterly reports than a couple of years ago. The position is now a much larger % of the portfolio, but the handwringing is less not more.

That is too funny. Might be time to go to cash

Ah those whacky analysts that we love to disparage. Don’t disagree there is always room for further multiple expansion. Also agree that the graphs getting published and hand wringing means this ain’t the top. IMHO not the strongest an investment thesis, even American exceptionalism has its limits. Especially if that exceptionalism may be underfunded in order to stay exceptional.

Some intriguing graphs in Bloomberg today. Hardly an inspiring outlook for the major US indexes, especially if there is a corporate tax hike in the offing. Cap gains tax increase would be a double whammy.

A couple of episodes into Disclaimer on Apple TV+. A good cast and intriguing story so far. A cut above the usual dross.

Hopefully in philosophical terms too. That lifeboat’s size and destination holds no appeal.

Bad, but could have been a lot worse. Devil will be in the detail. Just glad that this particular enviro bomb got diffused to Cat 3 at landfall and trajectory and wind direction made for offshore where it mattered. A bit further north….

A couple of thoughts: (1) Brian Bradstreet you absolute legend. (2) Did any of their competitors reach for yield? This may be the underpinning of a continuation of the hard market regardless of the cats. Taken together it must be a very high probability, even for the worst possible reasons.

Good, all things being equal they should be chipping away this month too. Stupid on my part, but it’s like some arcade game, can they get the share count to 20m at low multiples before they make the TSX60. This period reminds me of buying Berkshire at book in 2011 when you had a high probability IV was growing by at least 1% per month, that return was locked you just didn’t know if your return was going to be higher.

. True, I am sure if we put in the work there we could demonstrate a negative correlation between “gas bagging” and performance. Thank goodness Prem has been not been doing the rounds like he was a few years back. Coming back to the book, that is what struck me about the early years of Fairfax, “let the results do the talking”.

It's never just one thing, but Allied World may have been one of those "sliding door" moments for both companies.

Lot of scalps in the low 30b’s to take out. It’s probably inconsequential, for the moment, but fun to watch. https://companiesmarketcap.com/canada/largest-companies-in-canada-by-market-cap/

Agree. A feeding frenzy of “advice” does spring to mind

I was probably channeling your article in my comments above. Given so much good writing by others it is rare to have a unique view on Fairfax, well done again.

DeVocht now claims that the advice he received, geared mainly toward minimizing taxes, was negligent and failed to take into account his level of financial sophistication. His Tesla investment strategy involved loans from a Royal Bank margin account. Not sure about Canada but but by Australian standards he would have crossed over into “Sophisticatd Investor” status at around around $2.5m mark. To qualify for margin and play the game at the level he was to get to $460m he would have had to be qualified as an SI. I doubt RBC will be losing much sleep unless there was there was some shenanigans with the IHC angle or the ” charitable donation”. An asset test for investment sophistication is a useless proxy that is self evident.

Not a bad attempt, even if it is by an Australian https://www.firstlinks.com.au/warren-buffett-lost-edge-20-years-ago

I think it is a sweet spot for proficient float based allocators. It would be interesting to inflation adjust Berkshire and see what they managed to compound in the $US25->100bn range. Different times of course but lots of deals in the $1-5bn space for the prepared mind and that is without taking EM into account.