Buffett/Berkshire - general news

[sleepydragon]

21 hours ago, charlieruane said:

Trump approached Berkshire Hathaway in hopes of getting an appellate bond: 

 

I have nothing valuable to add. But if it's me, there's no upside doing this. If Trump win, his personality is he's going to declare bankruptcy before he's going to pay back those money. If he lost, he will definitely not going to pay. 

[LC]

36 minutes ago, Spooky said:

Thanks for sharing. I find it interesting that Buffett is buying back stock so heavily given his pessimistic statements about Berkshire's future prospects. Maybe one of the few companies capable of moving the needle is Berkshire itself.

10+ years ago the line was, "watch what WB does, not necessarily what he says"

[Spooky]

20 minutes ago, gfp said:

 

I wouldn't say this repurchase pace is "heavy."  It will be interesting to see the split between A-shares and B-shares repurchased in the 10-Q.  I think it is quite possible that Warren was offered a block of A-shares and he has shown a preference for retiring A-shares before he leaves the scene.

 

Fair enough but if you look at the total amount of Berkshire stock he repurchased in 2023, $9.2 billion, and then the approximately $2.2-$2.4 billion up to March 6th then the aggregate amount is pretty significant. It would exceed the value of Berkshire's Moody's holding as of the last 13-F and that is a top 8 public holding.

 

Just seems like his actions are somewhat inconsistent with the points raised in the annual letter. Maybe he is trying to talk down the share price so he can buy back more at a better price?

[longterminvestor]

5 hours ago, John Hjorth said:

@longterminvestor,

 

What is your souce for the letter from Chubb attached to your last post? -Thank you in advance.

Letter was forwarded to me, didn't question it because its on Chubb Letterhead, with personal Greenberg letterhead as Chairman and CEO, and signed by Greenberg.  Didnt occur to me to check signature against annual report.  I did just now and I'm no handwriting expert, but they match.  The letter has also been quoted by multiple news sources referencing passages contained here in.  Looked real to me, do you think its fake?  

 

If a reporter calls me, my source is Deep Throat.  ha.  

[bizaro86]

3 hours ago, John Hjorth said:

 

 

@bizaro86 & MIke [ @cubsfan ],

 

We need let politics out of it, and let it [politics] go in this topic.

 

 

I'm not an American and have no political affiliation in that country. I avoid their politics whenever anyone talks about them. 

But as a shareholder, my strong preference is that Berkshire not consider politics when writing insurance contracts, only premium and risk. I think that's reasonable and relevant to the conversation here. If you've been appointed moderator of the board without me being aware of it then I apologize. 

[gfp]

I think no firm was willing to assist with the bond because of its size, the fact that surety bonding is not very profitable at all, and the lack of suitable collateral by the defendant.  He had some brokerage collateral but pledged it to Chubb for the earlier bond.  I think Greenberg was very clear that he would be willing to write the bond and ignore politics if there was suitable collateral posted.  We know he wasn't just talking because he had just done it.  We know Buffett would want very good collateral - T-bills to maybe a 2 year note but I would be shocked if Buffett accepted anything less secure than that for a barely profitable surety bond for a customer who has a reputation for not paying.

[Maverick47]

I’m not an expert on surety bonds, but it can help to understand that these are probably quite different from a typical insurance risk transaction.  I believe the provider of the appeal bond has to guarantee payment of the cash amount of the bond plus any accrued interest in the event that the appeal is lost.  Generally  speaking, the insurer wants a source of liquid collateral from the client at least equal to the amount they might have to pay.  
 

They basically just provide guaranteed liquidity to a client.  It is the appellant who is supposed to pay the amount of any financial judgement, and an insurance company isn’t interested in providing coverage for the full amount of the award in exchange for a premium smaller than that.  This is different from catastrophe reinsurance where the insurer accepts a relatively small premium compared to the total payout required against the risk of a catastrophe and so has to have an opinion on the probability of the event.  As Greenberg’s letter noted, the surety bond provider does not actually assess the likelihood of the success of the appeal.

 

Unfortunately, commercial real estate, which may or may not be unencumbered, is not viewed by surety providers as a desirable source of collateral.  If an appeal fails, and the insurer has to pay the face value and accrued interest on the bond immediately, then they are stuck with having to collect on the collateral.  Foreclosure on real estate is not high on the list of things that insurance companies want to deal with. 
 

The Chubb bond by contrast was secured with readily liquidated brokerage investments.  
 

 

[longterminvestor]

More to mechanics of risk.  Surety acts like insurance but its not insurance.  Its much more of a financial transaction/credit facility than insurance.  Its a big dance of 3 parties saying "I trust you, but not really, so to earn my trust you gotta pay me so I trust you a little more than I want to".  Surety requirements take any situation from single A ball to the Major Leagues quickly.  Surety basics: 3 players and I'll name them in reference to this case.  Principal (Mr. Trump), Obligee (NY Court) and Surety (easiest one to understand as insurance company, and no market stepped up).  The financial incentive for a Surety to enter a transaction is extracting the most money possible from the Principal in form of premium AND to be sure the Principal is money good for collateral sum in event of payment demand from Obligee to Principal and enjoined Surety. The Principal's incentives are the inverse of Surety, wanting to pay the smallest premium and post the least amount of collateral. Principal may achieve reduction in collateral by explaining to Surety winning in appeal is fait accompli because ect ect.  The Surety Company eliminates the risk of non-pay to Obligee and ultimately the Plaintiff.  Important to note in Surety underwriting, there's an old saying called the 3 C's - Character, Capacity, and Capital - Principal has to embody all 3 to qualify as a good risk.  

 

So lets say we wanted to write this appeal bond or supersedeas bond.  We could charge lets say 2.5% of $450M ($11.25M due at inception from Principal) and also as part of agreement we require $300M in cash to be wired immediately to us, and lastly we might add something for a margin of safety like "if the principal wins appeal, we will return collateral 2 years after last court doc is finalized" - lengthening the use of collateral float.  We have use of $310M (gotta pay broker commission) for an undetermined period of time + 2 years if Principal "wins" or in event of Principal "losing" immediate payment at any point.  The bet is how long will the money stay on our side of the fence - will this take years or days?  Cause if its years, then maybe $310M is enough against $450M guarantee.  Or if its months, in an unfavorable judicial venue for Principal, we need more premium paid/collateral posted. 

 

This is more about amount and type of accepted collateral.  With the right amount of collateral and an understanding of the facts in the case - like serious legal understanding of ultimate outcome and when it will occur, there is a perfect price of risk on this deal for a surety company - similar to a discounted cash flow from judgement day backwards on the perfect price on a business, gauged against interest rates.  Both are unknown so that's why the game is fun.  

 

I believe the entire reason why the 30 carriers declined, 4 brokers engaged, got put in front of the judge was court room theater to show $450M bond is an unreasonable amount and plea to reduce the bond amount to $100M.  I personally believe the judge kinda knew the $450M amount was impossible to get from the beginning and the large size was done intentionally, more theater.

 

And with that, from the vault of Mr. Buffett's lessons on this type of topic directly/indirectly:

 

 

Edited March 20, 2024 by longterminvestor

[Gamecock-YT]

7 hours ago, cubsfan said:

You can easily read the last dozen or so posts here. The politics is relevant, much to the dismay of some.  All the speculating of why NO one would risk their bond capital backing a Presidential candidate that the State of NY is trying to eliminate by bankrupting him and stopping his campaign.

Some might call it "election interference"...
 

 

Some might call it "reputational risk"

 

Having sat on investment committees, it's a real thing. 

Edited March 20, 2024 by Gamecock-YT

[cubsfan]

^^^ With no comment of course, on the brazen corruption of the NY AG and Judge.

 

Now THAT is the real reputational risk NY state will have to live with as far as investors are concerned. Selective, malicious, and punitive prosecution when no victim is harmed - investors beware.

 

And thanks for your great comments @gfp, @Maverick47, @longterminvestor 

I stand corrected.

[KPO]

14 hours ago, longterminvestor said:

More to mechanics of risk.  Surety acts like insurance but its not insurance.  Its much more of a financial transaction/credit facility than insurance.  Its a big dance of 3 parties saying "I trust you, but not really, so to earn my trust you gotta pay me so I trust you a little more than I want to".  Surety requirements take any situation from single A ball to the Major Leagues quickly.  Surety basics: 3 players and I'll name them in reference to this case.  Principal (Mr. Trump), Obligee (NY Court) and Surety (easiest one to understand as insurance company, and no market stepped up).  The financial incentive for a Surety to enter a transaction is extracting the most money possible from the Principal in form of premium AND to be sure the Principal is money good for collateral sum in event of payment demand from Obligee to Principal and enjoined Surety. The Principal's incentives are the inverse of Surety, wanting to pay the smallest premium and post the least amount of collateral. Principal may achieve reduction in collateral by explaining to Surety winning in appeal is fait accompli because ect ect.  The Surety Company eliminates the risk of non-pay to Obligee and ultimately the Plaintiff.  Important to note in Surety underwriting, there's an old saying called the 3 C's - Character, Capacity, and Capital - Principal has to embody all 3 to qualify as a good risk.  

 

So lets say we wanted to write this appeal bond or supersedeas bond.  We could charge lets say 2.5% of $450M ($11.25M due at inception from Principal) and also as part of agreement we require $300M in cash to be wired immediately to us, and lastly we might add something for a margin of safety like "if the principal wins appeal, we will return collateral 2 years after last court doc is finalized" - lengthening the use of collateral float.  We have use of $310M (gotta pay broker commission) for an undetermined period of time + 2 years if Principal "wins" or in event of Principal "losing" immediate payment at any point.  The bet is how long will the money stay on our side of the fence - will this take years or days?  Cause if its years, then maybe $310M is enough against $450M guarantee.  Or if its months, in an unfavorable judicial venue for Principal, we need more premium paid/collateral posted. 

 

This is more about amount and type of accepted collateral.  With the right amount of collateral and an understanding of the facts in the case - like serious legal understanding of ultimate outcome and when it will occur, there is a perfect price of risk on this deal for a surety company - similar to a discounted cash flow from judgement day backwards on the perfect price on a business, gauged against interest rates.  Both are unknown so that's why the game is fun.  

 

I believe the entire reason why the 30 carriers declined, 4 brokers engaged, got put in front of the judge was court room theater to show $450M bond is an unreasonable amount and plea to reduce the bond amount to $100M.  I personally believe the judge kinda knew the $450M amount was impossible to get from the beginning and the large size was done intentionally, more theater.

 

And with that, from the vault of Mr. Buffett's lessons on this type of topic directly/indirectly:

 

 

This is a fantastic post. Thanks for explaining this so clearly. 

[Parsad]

On 3/19/2024 at 3:25 PM, Maverick47 said:

I’m not an expert on surety bonds, but it can help to understand that these are probably quite different from a typical insurance risk transaction.  I believe the provider of the appeal bond has to guarantee payment of the cash amount of the bond plus any accrued interest in the event that the appeal is lost.  Generally  speaking, the insurer wants a source of liquid collateral from the client at least equal to the amount they might have to pay.  
 

They basically just provide guaranteed liquidity to a client.  It is the appellant who is supposed to pay the amount of any financial judgement, and an insurance company isn’t interested in providing coverage for the full amount of the award in exchange for a premium smaller than that.  This is different from catastrophe reinsurance where the insurer accepts a relatively small premium compared to the total payout required against the risk of a catastrophe and so has to have an opinion on the probability of the event.  As Greenberg’s letter noted, the surety bond provider does not actually assess the likelihood of the success of the appeal.

 

Unfortunately, commercial real estate, which may or may not be unencumbered, is not viewed by surety providers as a desirable source of collateral.  If an appeal fails, and the insurer has to pay the face value and accrued interest on the bond immediately, then they are stuck with having to collect on the collateral.  Foreclosure on real estate is not high on the list of things that insurance companies want to deal with. 
 

The Chubb bond by contrast was secured with readily liquidated brokerage investments.  
 

 

 

+1!  We also don't know what the debt to equity on the pledged assets is.  There could be massive borrowings that would be first in line as well.  Cheers!

[Parsad]

11 hours ago, cubsfan said:

^^^ With no comment of course, on the brazen corruption of the NY AG and Judge.

 

Now THAT is the real reputational risk NY state will have to live with as far as investors are concerned. Selective, malicious, and punitive prosecution when no victim is harmed - investors beware.

 

And thanks for your great comments @gfp, @Maverick47, @longterminvestor 

I stand corrected.

 

Fraud is a crime...regardless of who or how many did or didn't get hurt.  That's why people are always so pissed off when white collar criminals get a pass.  BCSC has $500M in fines outstanding and has only collected on $11M.  The U.S. is much better at collecting!  Cheers!

[Eldad]

4 hours ago, Parsad said:

 

Fraud is a crime...regardless of who or how many did or didn't get hurt.  That's why people are always so pissed off when white collar criminals get a pass.  BCSC has $500M in fines outstanding and has only collected on $11M.  The U.S. is much better at collecting!  Cheers!

Legal concept of Standing disagrees with you. 
 

His lenders said they did not materially disagree with his personal financial statements and would make the loans again. The decision was horrible, whatever you think of Trump. 

[scorpioncapital]

anybody know on what date the mystery non 13-f disclosed investment(s) brk has made is coming out?

 

[Parsad]

16 hours ago, Eldad said:

Legal concept of Standing disagrees with you. 
 

His lenders said they did not materially disagree with his personal financial statements and would make the loans again. The decision was horrible, whatever you think of Trump. 

 

I'm sure the bankers for Enron also didn't have any issue with the statements provided by Arthur Anderson when they were lending money as well.  Legal concept of Standing disagreed there as well!  Cheers!

[Dynamic]

3 hours ago, scorpioncapital said:

anybody know on what date the mystery non 13-f disclosed investment(s) brk has made is coming out?

 

I'm pretty sure nobody knows. If they complete their activity in the confidential treatment they may have the full filing published at any time, possibly via a revised 13F-HR filing for each period or at least the most recent.

 

The other trigger might be reaching a reporting threshold such as 5% ownership or 10% ownership though I'm not certain if they can request that the Form 4 and 13D or 13G filings they submit to the SEC also remain confidential to them and aren't published until later. I expect @gfp would be our expert on this. I've only read some of the rules about confidential treatment.

 

Eventually, either they cease to apply for confidential treatment or it is denied, presumably because the public interest in disclosure is deemed to outweigh the commercial interest in confidentiality..

 

The 13F-HR must be filed within 45 days of a calendar quarter ending and Berkshire uses the full 45 days, so the 31st March filing will be out on 15th May. Every other quarter comes out on the 14th of a month, being August, November or February, so if it remains confidential we'll find out on May 15th

Edited March 21, 2024 by Dynamic

[Eldad]

1 hour ago, Parsad said:

 

I'm sure the bankers for Enron also didn't have any issue with the statements provided by Arthur Anderson when they were lending money as well.  Legal concept of Standing disagreed there as well!  Cheers!

Enron’s lenders and investors had no issue with AAs financial statements after the fact? 
 

Trump’s lenders have no issue presently. As in after the alleged fraud. The bankers basically say no fraud. The loans have already been paid off. They took his unaudited PFS and did their own DD as to the subjective values. Like all bankers should. They testified that they had no issue with his values in this trial and the state of NY still did what they did. 
 

Standing: a case cannot be brought by an unharmed party. 
 

Sorry but your point makes no sense and is in no way analogous. 

[Eldad]

3 hours ago, Parsad said:

 

I'm sure the bankers for Enron also didn't have any issue with the statements provided by Arthur Anderson when they were lending money as well.  Legal concept of Standing disagreed there as well!  Cheers!

https://apnews.com/article/trump-fraud-lawsuit-trial-new-york-53313f64d57b0aa99f756c2c791d29ab
 

The banker in question saying no fraud, no harm. 

[LC]

We need a "Trump financial news" thread. My two cents - after seeing this guy skirt the law and fleece anyone he could simply because he had power over them, for DECADES in NY...I do think it's hilarious that he is on the receiving end.

 

Do I with the law was transparent and principled and we all played by the same set of rules and the various systems of justice enforced it all equally? Of course. But sadly it isn't...as Trump himself fully knows. To me it looks like he played his hand too strong and it's biting him in the ass. 

 

But don't fret - I'm sure daddy Putin or whomever will come to his aid and let the courts play out this charade another few years  

[Eldad]

11 minutes ago, LC said:

We need a "Trump financial news" thread. My two cents - after seeing this guy skirt the law and fleece anyone he could simply because he had power over them, for DECADES in NY...I do think it's hilarious that he is on the receiving end.

 

Do I with the law was transparent and principled and we all played by the same set of rules and the various systems of justice enforced it all equally? Of course. But sadly it isn't...as Trump himself fully knows. To me it looks like he played his hand too strong and it's biting him in the ass. 

 

But don't fret - I'm sure daddy Putin or whomever will come to his aid and let the courts play out this charade another few years  

Exactly, this judgement is a bill of attainder for all of Trumps past sins and has nothing to do with the facts of the case. 
 

Plus an extremely excessive and unconstitutional fine. If NY starts seizing assets, I think Trump wins. And then its payback time and the “American tailwind” may be over for BRK holders. 

[LC]

And Capone went to jail for tax evasion. None of this is new. 

[Eldad]

9 minutes ago, LC said:

And Capone went to jail for tax evasion. None of this is new. 

Haha he is an ex-president of the US being actively hunted by the political opposition on every front. 
 

Not saying Trump hasn’t done his part, but all of this is definitely completely new for the US. 

[villainx]

1 hour ago, LC said:

I do think it's hilarious that he is on the receiving end.

 

As someone who cannot stand Trump, and identify as extremely liberal, I'll say what NY AG did was awful.   I'd go so far as say it's stomach turning disgusting.  

Edited March 22, 2024 by villainx

[Cigarbutt]

23 hours ago, Eldad said:

Legal concept of Standing disagrees with you. 
His lenders said they did not materially disagree with his personal financial statements and would make the loans again. The decision was horrible, whatever you think of Trump. 

Note: slippery slope for 'discussion' here but the angle is why BRK (this was likely a CEO decision) declined to 'participate' (for a potential profit) in the surety bond.

Above was mentioned that a surety bond of that nature is equivalent to a bond (lending agreement) where capital, capacity, collateral and character assessment play inter-dependent roles (one criteria could compensate for another but one criteria may be enough to decline). Character assessment is one of Mr. Buffett's strength but he's been recently disappointed (alluded to in last annual report) and likely increased the margin of safety required for that part. There are times when the risk-return profile is simply not adequate given the type of risk involved. As far as collateral, liquid assets are normally required for this kind of 'bond' and real estate does not fit the bill.

Now, as far as the outcome of the appeal, which is another consideration, a criminal offense of fraud does not require a victim. There is legal context for this and recognized criteria but common sense will tell you that, if you are caught crossing a red light with your car, a defense implying that there was no victim or harm may not be your best legal strategy to invalidate the infraction.

There is out there some discussion about the origin of the legal concept of Standing which involves a balance between community and individual autonomy as well as the efficient functioning of courts but the following is a balanced (opinion) view from a reasonable group (moderate-center, objective, high level of fact checking) which assesses the odds of success for appeal:

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4690963