A_Hamilton
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Posts posted by A_Hamilton
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13 hours ago, SafetyinNumbers said:
That's the last thing I would do. It's a sizable buyback where we have already paid the premium. Might as well wait, buy stock on the NCIB and enjoy the higher weighting in the index. I think the closet indexers will be the big driver for the stock over the next five years as they are way underweight and Fairfax is now 80bps of the index which is about what CSU was when they started chasing it in 2018.
There are a lot of similarities between Fairfax now and CSU in 2018 like market cap, share price, shares outstanding, price momentum i.e. stuff that matters to closet indexers. The big difference is CSU starting valuation looked optically expensive 5 years ago which is what active managers had to overcome to get back to market weight. Fairfax meanwhile, is exceptionally cheap on every measure so in theory it should be easier to convince PMs to go to market weight or even overweight but we also have more jaded PMs to overcome as many stayed overweight FFH long after the outperformance ended.
On the same note we likely have more willing sellers as Mark Leonard has achieved god status over the past 5 years while mostly everyone is waiting for Prem to make a mistake so are much more likely to take profits as price goes up even if valuation and technicals are screaming buy.
I'd close out, was a great trade at a silly price, less attractive now. The other thing is that TRS are priced at SOFR + a spread, so this isn't necessarily cheap capital.
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On 6/5/2023 at 11:57 AM, Xerxes said:
Forgive my ignorance:
how does one assess that FFH is indeed buying the dip on WestPac loan portfolio ?
My thinking would have been that the loan portfolio probably had a 6-7% rate pre-SVB distress. Now post-stress trades below face value, so north of +8% yield, therefore probably buying them on the cheap as long as the collateral is good etc. (I.e issue was with the lender and not the borrower)
however these are floating rate and not fixed. Therefore, PacWest should not have really been in a distressed position, as the funding cost would have been pass through.
is there something that I am missing
The issue for Pacwest wasn't the loan quality or the yield they were earning. The problem for PACW was that they were seeing deposit outflows and were having to fund these with wholesale funding / using up their FHLB/discount window etc lines. The rationale for selling is that you get rid of the risk that you need to fully fund the incremental $1.7 billion (on top of the $2.3 billion already outstanding) of borrowings as these projects get completed. Too, in the current environment there is some extension risk if the deal sponsor can't find another bank to take a traditional 1st or, more troublesome, was developing on spec and can't service the loan. The mark here so close to par and the low LTV's on completion cost suggest that across the book as long as thereisn't fraud and disbursements to builders are properly done based on completion milestones, these should be money good. In any case, the overall reason for PACW to sell was to bring more liquidity on its balance sheet and get rid of a contingent but known call on liquidity.
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On 1/11/2023 at 7:01 PM, glider3834 said:
TRV reported $459 million in pre-tax losses from Elliott versus $305 million in Uri quarter.
ALL $779 million in Cat losses ($478 due to Elliott) versus $590 million for Uri.
Hannover reported $190 million in losses versus $133 for Uri.
I don't know how retentions have grown/ Hannover certainly has more NE exposure, but it seems this was a pretty big hit for the primary guys.
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3 minutes ago, backtothebeach said:
That would be 1% of market cap, sounds like a lot. Any chance it is a data glitch?
No. I'd bet dollars to donuts that its is somehow tied to the counterparties involved in the total return swaps. The price moves are small and the volumes are huge suggesting that two parties have either long or short exposure and need to swap them out and both are afraid of moving price too much.
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Any thoughts on losses from the December deep freeze throughout the U.S. and then these California floods? Hard to know how much loss content there will be on the reinsurance side, but I imagine the primary side will feel it industry wide.
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16 minutes ago, StubbleJumper said:
Keep it simple. When there was 23m shares outstanding, Prem's combined voting weight from the multiple voting shares and the common shares was 41.8/100 (ie 41.8 per cent). Now if FFH repurchases 20% of the outstanding shares (ie, 4.6m shares) and the Watsa family never sells a share, what's Prem's voting weight? It's 41.8/80., which is a majority.
SJ
That isn't how it works.
The multiple voting shares cannot ever be more than 41.8% of the vote per the proxy.
The difference has to be made up with subordinate voting shares which have a minimum of 58.2% of the vote.
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23 hours ago, StubbleJumper said:
If current trends continue, the super voting rights might become pretty irrelevant in a couple of years. Irrespective of whether some of us liked that change, the rationale underlying it was that the Watsa family had 41.8% of the voting power based on there being a total of ~23m shares outstanding. Prem seemed to know that he wanted to issue additional shares and seemed to be concerned that his control of the company would be threatened. In actual fact, the company did end up with about 28 million shares outstanding at one point. Clearly, the Watsa family's voting power would have dropped considerably due to FFH having increased the share-count by ~20%, so Prem's concerns were well founded.
Fast-forward to today, and we are likely down to a little more than 23m shares outstanding due to the NCIB and SIB processes of the past few years (it was 23.4m shares on Sept 30). So we are approximately back down to the share-count that triggered Prem to have his multiple voting shares re-weighted. If we keep following this trend for another couple of years, perhaps FFH will be back down to 19m or 20m shares, which would provide the Watsa family with majority control *without* the benefit of the changes what were implemented in 2015. At that point, if Prem elects to walk away from his role as either CEO or Chairman, there would be no loss of family control.
As I have suggested in the past, the buybacks are quite likely to continue for a few more years for the exact reason of maintaining family control. Prem knows very well that if he passed away, shareholders would have Ben and Christine on a very short leash. If he can get that share-count down to 19m or 20m, the kids would have 50%+ of the voting power. The power of incentives/motivation.
SJ
I think you'd need share count to go well below that.
Based on my understanding, Prem gets 41.8% of the voting rights (max) via the multiple voting shares.
That leaves the subordinate voting shares with 58.2% of the vote. Prem controls 794,000 of these giving him 43.9% of the vote. In order to get 6.1% of the incremental vote at current levels Prem would need to own another 2.3 million shares at current levels. At current that is ~$1.35 billion of stock. Even if share count comes down by a few million shares, the price per share will appreciate and the cost to take true 50%+ control will be exorbitant.
This all says nothing of the board's fiduciary duties around allowing a true change in control which would be above and beyond this.
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22 hours ago, A_Hamilton said:
Definitely aware these won't be sold. There is reference in the proxy to Sixty Two having subsidiaries in which it only owns 75%, but that doesn't necessarily mean there is more than one owner of Sixty Two.
Relatedly, I'm curious if as FFH buys in more shares, and Prem's voting control gets closer to 50% whether there will be a change in control / premium issue that comes up. It is a very odd structure given that it will fall away 5 years after Prem exits the company / passes away (hopefully a long time from now).
Answering my own question here. Would be very difficult for Prem to get control via share repurchases as he would need to control like 15% of the subordinate voting shares on top of the multiple voting shares, and he is nowhere close.
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28 minutes ago, Parsad said:
Sixty-Two is majority controlled by Prem and his family. Originally it was comprised of some other outside investors, including Robbert Hartogg...who was one of the largest investors in Fairfax for many years alongside the Watsa Family, and a mentor/advisor to Prem. Not sure what happened after Robbert passed away, but even then Prem and his family controlled more than 60% of Sixty-Two. Cheers!
Thank you for this nugget, Sanjeev.
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Definitely aware these won't be sold. There is reference in the proxy to Sixty Two having subsidiaries in which it only owns 75%, but that doesn't necessarily mean there is more than one owner of Sixty Two.
Relatedly, I'm curious if as FFH buys in more shares, and Prem's voting control gets closer to 50% whether there will be a change in control / premium issue that comes up. It is a very odd structure given that it will fall away 5 years after Prem exits the company / passes away (hopefully a long time from now).
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Does anyone know if Prem is the only owner of Sixty Two, the vehicle in which he owns all of his multiple voting shares in FFH? Thanks.
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9 minutes ago, Munger_Disciple said:
I've really thought Sokol got a disproportionately raw deal in the Lubrizol scandal. However, the link above does not help to restore his reputation. Why would you get involved in this in any way shape or form? Just poor judgement on his part...again.
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On 7/30/2022 at 3:59 AM, Parsad said:
The other thing on the call was that book value losses for most insurers being announced are somewhere between 10% and 30% for 2022 so far...while Fairfax's book loss is around 5%. It would take a $300-400B catastrophe loss to wipe out 10% of book for global insurers. That means depending on bond and equity prices, the insurance hard market may continue for 2-3 years as insurers recoup their book losses and incur further losses as rates rise in the next quarter or so. Cheers!
I guess I disagree re: FFH's book loss. One has to include the deficiency in fair value from non-insurance associates. It is part of the investment book and real. FFH would be down ~12% with this included.
Nonetheless, I don't think it matters all that much given the growth rates here and strong combined ratios...
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1 hour ago, Viking said:
What to do with the proceeds from the sale to JAB will likely be the number one question from analysts during the Q2 call.
Yes, instead of buying back Fairfax stock we could see Fairfax grow ownership in something they already own. I would be surprised if it is Atlas. Yes Atlas is cheap at current prices. However, Fairfax already has a way overweight position and shipping might be moving into the mother of all bear markets that could last years. Atlas could turn into a value trap. If investors were not drinking the Altas Kool-Aid during the shipping bubble why would they start drinking during the bust? (I do not follow Atlas very closely these days…)
What about buying another chunk of Fairfax India? Cheaper than Atlas. More diversified. Better prospects. More control.
Given the sell off in all equities Fairfax has lots of other good internal choices. Recipe at C$12.40 looks super cheap to me. (I hope not… lower quality and very poor track record.)
—————-Having said all the above i hope they continue to buy back Fairfax shares, especially if they can buy under US$500. And anything under $450 back up the truck. Very accretive for shareholders.
Fairfax has something around 23.9 million shares outstanding. Down significantly from 27.8 outstanding in 2017. If Fairfax takes out another 1 million (US$500 million cost at todays prices) the share count will fall to under 23 million. This would take the share count back to 2015 levels and about 18% lower than the high reached in 2017. Pretty impressive reduction in a short period of time.
Can Fairfax come up with a spare $125 million per quarter for share buybacks? I think they can… chug, chug, chug…
I'd like to see them just keep it on hand to fund premium growth and or begin reducing equity investments to tangible capital. I don't know why they always insist on living on the edge as it relates to liquidity and investment portfolio. Thankfully Bradstreet has kept them so short in duration this time around.
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16 hours ago, Thrifty3000 said:
isnt there some risk of bonds being paid back at par while insurance claim costs increase with inflation?The idea of matching the duration of your policy tail is that all else equal the yield on offer at a point in time should equal the risk premium inclusive of inflation expectations, so your risk isn't all that great. Problem is at very low rates and narrow spreads you better be using some form of modified duration because you are taking so much rates risk.
It has been pretty incredible to watch Brian Bradstreet change his mind over time. 7 year duration post-GFC to Trump era and then down to basically nothing post Trump election. With 5 year treasury over 3.5%, I imagine you start seeing FFH move duration out another 6-12 months, perhaps buy some intermediate term high grade corporates. It is interesting, FFH mistakes on fixed side have been limited to the inflation floors being just too large of a bet and then the atrocious Greek Government Bond trade that they just never mention. On just pure rates trading, absolutely astoundingly good. If we could get just 1/2 as good on the equity side we'd be rolling.
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17 hours ago, Viking said:
Fairfax's equity holdings (that I track) finished Q1 down a little under 1% (about $110 million); given S&P500 is down 5.5% Fairfax delivered a solid quarter. Mark to market equity positions were essentially flat for the quarter. Of course, my spreadsheet does not capture a bunch of equity holdings (partnerships etc) so what Fairfax actually reports Q1 will be different.
Biggest Gainers?
1.) Eurobank + $195 million
2.) Stelco + $117
3.) FFH TRS + $103
Biggest Decliners?
1.) Blackberry - $192
2.) Quess - $123
3.) CIB - $109 (Egyptian pound was devalued)
Fairfax Equity Holdings March 31 2022.xlsx 235.05 kB · 12 downloads
Always good to have BB report on first day of a new quarter.
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FYI. Good overview of where ORH is writing premium and where it is avoiding. Sounds like a rough Q3 for the industry (and ORH to a lesser extent) and that there is still more to be learned on COVID losses in EMEA and South Africa.
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Sandridge
ExcoLong GGB's prior to Greek default
Eurobank (1st tranche)
Blackberry
RFP
Sale of JNJ, USB, WFC to fund some of these.
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14 minutes ago, Xerxes said:
Excerpt from Q4 2020 conference call. Anyone remember the Rude Gentleman making the comment below. Well guess what, he is going to be there on Q2 2021 conference call I think. The guy was completely off, but he was right about Blackberry.
"Unidentified Analyst
I believe that it is time that you step down from having primary investments, responsibilities. I know that Jamie manages some capital, Wade manages some capital. We all know that those are very small portions of the capital base. And I think you are always quoting your long-term track record, but I can -- I know when the man is out of tune with the markets and I also think that it was a huge mistake if you did not take the BlackBerry gift that was given to you by the market. And I also don't think that you're doing deep analysis on your holdings.
I suspect that you probably don't do a lot of diving into the financials, the statements. You probably don't understand the microeconomics of the businesses you're buying. You probably are not talking to customers, suppliers, competitors, former employees. The investment business is a very competitive business. It's not like it used to be. I am not saying that, you should go out and buy technology stocks, but a sense when the man is not competitive in the field and is not working hard. And I think it's time that you step down from primary investing and I'm sure many of your associates agree with you but because they're Canadian, and tend to be nicer than Americans they don't say anything. And the banks don't ask you any difficult questions, because there's so few good companies in Canada, and they get financing fees from you. So they ask cowardly questions. Thank you.
Prem Watsa
Good points. You're entitled to your opinion, and we will let time decide that, okay? So thank you very much for your comment."
Xeres, they literally could not sell their position in Blackberry when it spiked last time because all of the proceeds would have had to have been remitted to Blackberry. Short swing profits rule.
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13 hours ago, matthew2129 said:
Are you sure FFH is subject to BB's blackout period? I thought blackout periods were just voluntarily imposed by a company on its directors and employees to avoid insider trading violations (as opposed to being imposed by security law)? If FFH had MNPI they would obviously need to cleanse themselves before trading but I'm not sure that FFH is technically subject to BB's blanket blackout period otherwise.
Positive. Prem is on the board, so he is an insider, subject to blackout. Also, FFH owns ~20% of shares out via the converts. In the U.S. you are "deemed" an insider when you own over 10% of a company...so regardless of whether Prem is on the board or not FFH would be considered an insider.
From my perspective, best we can do is hope that BB halts its own stock news pending and preleases results today/after market close/over the weekend and then FFH can trade in two days...
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28 minutes ago, matthew2129 said:
Wow 300M shares of volume if Prem doesn't capitalize on this I'll never forgive him
28 minutes ago, matthew2129 said:Wow 300M shares of volume if Prem doesn't capitalize on this I'll never forgive him
More I think about this FFH is definitely blacked out. Going to need an earnings pre-release and wait for two days of trading to take advantage.
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5 minutes ago, KFS said:
BB just rocketed up again - now up 40% on the day to $16.
Ok, Prem, let's see those paper hands.
Quarter just ended for BB so they could be blacked out from trading.
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1 hour ago, Viking said:
Prem was pretty clear that they tried to find a way to monetize their BB position in Q1 but were blocked due to SEC rules tied to debenture reset. And that restriction was no longer in place.
If Blackberry continies to move higher (over US $15) - and remains there for any length of time - i will be very surprised if Fairfax does not find a way to monetize at least part of their position. They can use the $.
PS: does anyone remeber the price that the Fairfax insider sold BB shares at in Q1? My guess is that price might be informative.
Roger Lace was like $13 Canadian, Wade Burton waited a bit longer and got $24 canadian. So can drive a truck through the difference in price. Regardless seems likely some monetization to take place here / may have already this morning.
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On Feb 17, Fairfax repurchased 89,923 shares for cancellation at $526.40... Come on Prem, keep on going!!!!
The annual says on page 95 that they have repurchased for cancellation 137,923 shares and then 42,197 shares for treasury thru 3/4.
Fairfax 2024
in Fairfax Financial
Posted
I would argue that reputationally it is very poor form to fleece one's asset management clients by foisting material dilution on them because of a formula that was set ex-ante and with a stock that has traded very poorly. In the long term I think doing the right thing will lead them to much better opportunities here, heck maybe FIH trades at a premium to book one day and they can issue a bunch of stock and drive more fees to say nothing of all of the other relationships FFH has.