FFH delisting from NYSE

[shalab]

OTOH, I got declined for a SBA loan by USB for the same reason you did. Although I had the assets to buy out the business outright, I was refused the loan for lack of experience in that business. Wonder how WEB gets the loan although he doesnt know how to run the railroads.

 

cheers!

Shalab

 

[Crip1]

It is clear to me based on all the comments that most American investors typically do not buy shares listed on non-U.S. exchanges. It is a very different situation up here in Canada where buying NYSE or NASDAQ listed companies is common occurence. We know the tax implications, we know that they are marginable, we know how to obtain filings/information, etc. The government even removed the 30% limitation on foreign securities held in retirement accounts to encourage global diversification. We are something like 3% of global GDP or a tiny amount, so it is normal for us to reach outside.

 

Also, I would bet that less than 10% of the current American Fairfax shareholders on this board would have ever heard of Fairfax Financial had it not been listed on the NYSE. The fact that they are looking to continue holding the company on the TSX is a testament to the respect that they have acquired over time for Fairfax. Without a NYSE listing, I am convinced that very few new U.S. shareholders will get to know Fairfax.

 

Finally, regarding popularity vs intrinsic value, isn't the earlier that we desperately need at the moment? Fairfax share price vs IV really sucks if you ask me and it has been for a long long time. Why is that? Blaming the shorts does not cut it anymore.

 

Cardboard     

 

Cardboard, not sure of the exact percentage, but assuming that you are right I would be a member of the 10% club as my firsts shares were purchased late in the 90's at C$ 375 on the TSX. Thankfully I averaged down...WAAAY down!

 

I think that you are right in that US investors tend to purchase US stocks in a big way. The reasons are many including rampant US-centricity, the fact that the US is still the largest economy or that several US shares are, in effect, truly global firms (JNJ, KO, Etc.). And I will acknowledge that solely listing in Toronto may cause FFH to disappear from the radar screens of several US investors, but FFH will eventually trade at or close to IV down the road, irrespective of whether it is listed in the US.

 

-Crip

[ERICOPOLY]

OTOH, I got declined for a SBA loan by USB for the same reason you did. Although I had the assets to buy out the business outright, I was refused the loan for lack of experience in that business. Wonder how WEB gets the loan although he doesnt know how to run the railroads.

 

cheers!

Shalab

 

 

I read that WEB's credit score is 740 or something.  Mine is higher.

 

Got you wondering now eh, how much money does ERICOPOLY have?  Better credit than WEB????

[ERICOPOLY]

A friend of mine plays in the National Hockey League

 

Skates on thin ice... declined!

 

 

[twacowfca]

Txlaw,

 

The Canadian govt. withholds 15% of the div.  On the fed tax return, there is a foreign tax credit to recover this amt.  It didnt

cover the whole amt. but there was a carryover to next yr.

 

Gaf63. What do you mean that you didn't recover the

full amount?  If Canada withhehd 15% and the US tax

on dividends is 15%,  then it seems that you should

have gotten a credit of 15%.  What did you actually get?

[Uccmal]

What a thread...

 

Cardboard, Crip,

 

I agree that US investors wont hear about the company but I am not sure that's relevant any more.  Fairfax has been in the news in Canada at least once a week financing this or that or buying this or that. 

 

They are getting large enough to attract large institutional investors.  The recent rebalancing of the S&P/TSX is what raised the price above the IPO. 

 

I actually think they might benefit from being the biggest fish in a small pond.  If your mandate requires you to hold a P&C company, who's it going to be in Canada? 

 

The recent IPO also showed the thirst for high quality Canadian companies that haven't been hammered down.  Raising 1 billion in Canada is no easy feat, without underwriting, no less. 

 

I for one am looking forward to the 12 $ per share dividend this year. 

[Uccmal]

To add to the above. 

 

This past year, I have added FFh to all of my RSP accounts and my kids Education accounts.  These accounts are tax free which means that I cant take tax losses.  I would not have done this prior to the CDS bonanza.  I actually used to have NB in there because it was a safer company.  I no longer feel that way.

[Cardboard]

Discontinuing its NYSE listing is just one new thing about Fairfax that I don't like relative to attracting investors.

 

You see, I really don't care about institutional investors. They are the ones playing games like shorting, dumping the stock during periods of redemptions and performing window dressing at the end of quarters. It is true that Fairfax has attracted some very patient institutions, but they are also guilty of negotiating private prices with Fairfax relative to share issues as we have seen in the past.

 

I remember where I came from and at the beginning, an investment of $5,000 was something meaningful to me. I am very much in favour of giving a chance to all the players to participate in the success of a firm and in the process building their own future. That should be a great honor for any CEO to be entrusted the hard earned capital of a small shareholder where strong performance can me a real difference in their lives. That is why I really did not like Warren Buffett's attitude of not wanting to split its stock. If you were a small shareholder starting to invest in the 80's or 90's you were effectively locked out (there was no B shares). So you had to be born in the 40's or 50's to be allowed in?

 

Here are a few things that I think should be considered by Fairfax to become a Canadian "core" holding or a blue chip:

 

1- Split the stock. People are not all millionaires. If it helps them to be able to invest a portion of their pay cheque on a weekly basis then make the share price smaller. I really don't see the evil in splitting a stock.

 

2- Pay a quarterly dividend. Northbridge and Odyssey Re were doing such and IMO it helps people figure out what income they can get from their stocks. To pay a big lump sum once a year with no predictability on the amount is silly.

 

3- Put in place a dividend reinvestment plan. This is a great way for small investors to create wealth over time.

 

4- Eliminate the dual class shares. Many will not invest in a firm whenever they see that presence. Prem has enough shares that I really don't see why he would be worried at all to have the company stolen from him.

 

5- Start talking about operating earnings. With most non-controlling interest gone this becomes easier. Analysts have to be spoon fed, so give them a number that they can understand.

 

I believe that none of the things above will reduce intrinsic value. However, I believe that they will make Fairfax more mainstream. If so, then I think that it may increase intrinsic value over time because a higher share price means the possibility to issue shares at an attractive price to make smart acquisitions.

 

Fairfax is not the small, mystical fast grower of the late 80's and 90's, they have grown up. To get people interested again in the company, they will need to do things differently. If all they can attract are value investors then it is very likely that this company will never trade at or close to intrinsic value.

 

Cardboard

[Guest Broxburnboy]

Discontinuing its NYSE listing is just one new thing about Fairfax that I don't like relative to attracting investors.

 

You see, I really don't care about institutional investors. They are the ones playing games like shorting, dumping the stock during periods of redemptions and performing window dressing at the end of quarters. It is true that Fairfax has attracted some very patient institutions, but they are also guilty of negotiating private prices with Fairfax relative to share issues as we have seen in the past.

 

I remember where I came from and at the beginning, an investment of $5,000 was something meaningful to me. I am very much in favour of giving a chance to all the players to participate in the success of a firm and in the process building their own future. That should be a great honor for any CEO to be entrusted the hard earned capital of a small shareholder where strong performance can me a real difference in their lives. That is why I really did not like Warren Buffett's attitude of not wanting to split its stock. If you were a small shareholder starting to invest in the 80's or 90's you were effectively locked out (there was no B shares). So you had to be born in the 40's or 50's to be allowed in?

 

Here are a few things that I think should be considered by Fairfax to become a Canadian "core" holding or a blue chip:

 

1- Split the stock. People are not all millionaires. If it helps them to be able to invest a portion of their pay cheque on a weekly basis then make the share price smaller. I really don't see the evil in splitting a stock.

 

2- Pay a quarterly dividend. Northbridge and Odyssey Re were doing such and IMO it helps people figure out what income they can get from their stocks. To pay a big lump sum once a year with no predictability on the amount is silly.

 

3- Put in place a dividend reinvestment plan. This is a great way for small investors to create wealth over time.

 

4- Eliminate the dual class shares. Many will not invest in a firm whenever they see that presence. Prem has enough shares that I really don't see why he would be worried at all to have the company stolen from him.

 

5- Start talking about operating earnings. With most non-controlling interest gone this becomes easier. Analysts have to be spoon fed, so give them a number that they can understand.

 

I believe that none of the things above will reduce intrinsic value. However, I believe that they will make Fairfax more mainstream. If so, then I think that it may increase intrinsic value over time because a higher share price means the possibility to issue shares at an attractive price to make smart acquisitions.

 

Fairfax is not the small, mystical fast grower of the late 80's and 90's, they have grown up. To get people interested again in the company, they will need to do things differently. If all they can attract are value investors then it is very likely that this company will never trade at or close to intrinsic value.

 

Cardboard

 

Agreed... If FFH is looking for liquidity- split the stock and dual list it in Hong Kong.

 

Maybe Prem is simply beginning the process to  expand into growth (Asian?) markets, the listing on NYSE has served its purpose, allowing FFH to efficiently consolidate its American operations. The now current solo listing gives a more efficient means of consolidating, or making changes to corporate or share structure.

[ERICOPOLY]

I'm not going to be able to use my FFH as margin equity if I take delivery on the 2011 calls, now that it is going to be a "foreign" listed stock.

 

In order to preserve my margin borrowing capacity I'll need to take delivery of FFH and then move the shares to an account in Canada I assume?  Any tips on best/reasonable Canadian brokerage?

 

 

Get an account with Interactive Brokers.  They give 30% initial and maintenance margin on Toronto FFH.

 

http://www.interactivebrokers.com/en/p.php?f=margin

 

 

That looks like it's a viable alternative, thanks for the help. 

 

 

I opened an account with Interactive Brokers last night.  One thing I learned about their margin program is that they do not have margin calls... instead they just start selling your stuff immediately.

 

So, that's likely a big part of why they allow more liberal margin -- it is inherently less risky for them.

 

Now if delisting from the NYSE makes the FFH stock trade below book value less often, then that lower the risk of this ever being a problem in the first place. 

[ERICOPOLY]

I read somewhere yesterday when I opened my Interactive Brokers account that US investors are not allowed to (SEC restriction) trade options of stocks not listed on US markets.

 

Did I understand that correctly? 

 

If so, it's a big disappointment I can no longer use options to hedge FFH.  I rather like being able to just buy some puts as a means of diversification, rather than reducing my allocation size.

 

And, of course, it's nice to buy some at-the-money calls when it tanks rather than leveraging up via borrowing money (riskier).

 

[twacowfca]

The SEC restriction on not allowing options trading

on foreign stocks would seem to be well founded for

writing puts or calls because the basis risk of the value

of the underlying issue would be problematic.  Likewise

for buying puts or calls only if margin is allowed on

these values.

 

However, buying puts or calls on foreign exchanges

would seem to present no problem for cash accounts

in theory.  Is this allowed for those accounts that

are designated as sophisticated investors, in contrast to

ordinary investors who might be sold worthless foreign

securities by an unscrupulous broker.  Does anyone have

more info onthis? 

[bargainman]

Discontinuing its NYSE listing is just one new thing about Fairfax that I don't like relative to attracting investors.

 

You see, I really don't care about institutional investors. They are the ones playing games like shorting, dumping the stock during periods of redemptions and performing window dressing at the end of quarters. It is true that Fairfax has attracted some very patient institutions, but they are also guilty of negotiating private prices with Fairfax relative to share issues as we have seen in the past.

 

I remember where I came from and at the beginning, an investment of $5,000 was something meaningful to me. I am very much in favour of giving a chance to all the players to participate in the success of a firm and in the process building their own future. That should be a great honor for any CEO to be entrusted the hard earned capital of a small shareholder where strong performance can me a real difference in their lives. That is why I really did not like Warren Buffett's attitude of not wanting to split its stock. If you were a small shareholder starting to invest in the 80's or 90's you were effectively locked out (there was no B shares). So you had to be born in the 40's or 50's to be allowed in?

 

Here are a few things that I think should be considered by Fairfax to become a Canadian "core" holding or a blue chip:

 

1- Split the stock. People are not all millionaires. If it helps them to be able to invest a portion of their pay cheque on a weekly basis then make the share price smaller. I really don't see the evil in splitting a stock.

 

2- Pay a quarterly dividend. Northbridge and Odyssey Re were doing such and IMO it helps people figure out what income they can get from their stocks. To pay a big lump sum once a year with no predictability on the amount is silly.

 

3- Put in place a dividend reinvestment plan. This is a great way for small investors to create wealth over time.

 

4- Eliminate the dual class shares. Many will not invest in a firm whenever they see that presence. Prem has enough shares that I really don't see why he would be worried at all to have the company stolen from him.

 

5- Start talking about operating earnings. With most non-controlling interest gone this becomes easier. Analysts have to be spoon fed, so give them a number that they can understand.

 

I believe that none of the things above will reduce intrinsic value. However, I believe that they will make Fairfax more mainstream. If so, then I think that it may increase intrinsic value over time because a higher share price means the possibility to issue shares at an attractive price to make smart acquisitions.

 

Fairfax is not the small, mystical fast grower of the late 80's and 90's, they have grown up. To get people interested again in the company, they will need to do things differently. If all they can attract are value investors then it is very likely that this company will never trade at or close to intrinsic value.

 

Cardboard

 

I agree with pretty much everything you wrote Cardboard!

[gaf63]

Twacowfca,

 

the usual convoluted US fed tax form , in this case 1116, which with my itemized deductions and total income ,  came up with 5% of my total tax liability.  This amount was the foreign tax credit, and it was 58.4% of the Canadian withholding.  So a little over half was returned.  There is a line on form 1116 for carryover , but do not know if I will receive any with my income. 

GAF

[SharperDingaan]

 

We're with cardboard, but would add a few things.

 

As a retail investor we flatly will not do a trade that is not on the TSX. Simply because we do not have confidence that we will get fair treatment on the foreign exchange were something to go wrong. No BRK, because it doesn't trade on the TSX.

 

We generally expect our more senior holdings to pay a quarterly dividend. Simply because if the coy doesn't believe that it can pay quarterly, why should I believe in the coy's forecast. I expect to get well paid for exceptions, & I expect to see the cash deferral going into immediate business improvements.

 

FFH is a little different as the div is primarily for comp in lieu of inflated salary/stock options. Its more conservative & we're happy to make that exception.

 

SD

 

 

 

[20ppy]

The savings from FFH delisting as some have said could be a lot, but I just don't see it as being so much as to worth causing so much confusion and pain to our long term US investors. It just maybe that I didn't get all the numbers correct. Also, it would have been much better had there been some early warnings so people can prepare for the delisting. I remember that ORH was bought by cash, because buying ORH with stock would have made it more difficult to delist because ORH buyers would mostly be US investors. Anyway, we invest in FFH with a lot of money that we believe are taken good care of, but now, it stuck me as it was not true and it was false security. By God, what if I have to go thru taxable conversions, etc, etc. Aren't these big risks that we wouldn't take at all with big chucks of our money?

[Uccmal]

Agree. The dividend should be quarterly and should be raised to roughly 4% of the book value of the stock.  I think we will see the increase.  I wonder how many people buy this stock for the annual dividend.  I know I will be converting a batch of options to catch it.  This may partially explain the rising stock at year end.  That is why it should be made quarterly.  

 

Interesting comments Cardboard.  

 

RE: splitting the stock.  In this day and age you can always buy 1 share.  I have never been charged extra.  Its just that you need a huge gain on that share to make up your fees.  But that is a problem faced by investors with small amounts of money in general.  My cost per share has dropped down to pennies or less in many cases.  

[oldye]

Dividend should be Zero plus whatever Prem and co. need to fund their charitable and other interests which I'd prefer they did by selling a little stock and using share buybacks to maintain their holding.

 

 

Shareholders own the stock because we want the Davis double...We can effectively give ourselves a dividend whenever we want.  A dividend at 4% of book effectively forces all investors to divest 4% of their holdings at book value.  I have a retirement account where I can see myself not selling any shares for 40 years...why would I want a dividend?  

[ERICOPOLY]

We can effectively give ourselves a dividend whenever we want.  A dividend at 4% of book effectively forces all investors to divest 4% of their holdings at book value.

 

Selling stock at below IV -- not a great option.

 

Getting a cash dividend means realizing 100% intrinsic value -- best option.  People are always bitching that they can't sell FFH at intrinsic value, but taking cash out is getting your intrinsic value piece by piece. 

 

Of course, I live on my investments so my perspective is different.  When I had a job and didn't need more taxable income, I felt the same way you do.

 

Plus, the market is soft right now anyhow -- paying this dividend does not impact the size of the remaining insurance operations.  Instead, it increases float:equity leverage slightly so the equity left behind will compound a wee itty bitty amount faster.

[oldye]

Sorry Eric, your right especially when the stock is below book its a no deal.  I take back what I said second guessing Prem, I think the company will have an opportunistic dividend policy where it deploys capital where they think it will earn the highest return for shareholders.  Right now the insurance business sucks and if they want to deploy incremental capital to shareholders because it won't organically grow at 15% its fine. 

[Smazz]

Does anyone know of a benefit to having shares listed only on TSX vs both exchanges - from a regulatory pt of view - with regard to a complete privatization?

 

For some reason I believe this is where this is all going.

 

I think we may see some short lived downword pressure from a merely market price perspective when a % of US holders will not want to go through the migmarol of trying to find the best method to hold the CAD and just take profits in unsure times.

 

I look forward to this opportunity if it presents itself.

 

Smazz

[Parsad]

They took Northbridge private on the TSX and Odyssey private on the NYSE, and I don't think either transaction was any more laborious than the other.  There may be some ancillary benefits from one exchange compared to the other, but I doubt if there is anything terribly signficant.  Cheers!

[niels12think]

Sorry Eric, your right especially when the stock is below book its a no deal.  I take back what I said second guessing Prem, I think the company will have an opportunistic dividend policy where it deploys capital where they think it will earn the highest return for shareholders.  Right now the insurance business sucks and if they want to deploy incremental capital to shareholders because it won't organically grow at 15% its fine. 

 

hmm, I definitely don't like the tax consequenses of higher dividends, but then again the applicable tax rate is up to 43% in my country :(

This means that it's very easily a disadvantage to pay out dividends even if the stock is trading below book and it is not possible to get high returns on  retained money. When the tax to be paid is up to 43% of the dividends it's a not a very nice deal. 

 

cheers

 

[link01]

I was refused the loan for lack of experience in that business. Wonder how WEB gets the loan although he doesnt know how to run the railroads.

 

web got the loan because he's not running the railroad, the bni team is. and they have loads of experience. web also has 40 plus yrs of a highly successful- not to mention a very visible & PUBLIC- track record of investments in a broad range of industries. that track record has generated the kind of trust & goodwill others can only dream about.

[link01]

Finally, regarding popularity vs intrinsic value, isn't the earlier that we desperately need at the moment? Fairfax share price vs IV really sucks if you ask me and it has been for a long long time. Why is that? Blaming the shorts does not cut it anymore.

 

Cardboard     

 

hmmmm. i've always been ok with my favorite long term investments trading at a discount to intrinsic value. if you've held it long enough & it has grown & compounded at high rates of return (the ostensible reason why a stock becomes a fav LT holding), then the 20% discount or whatever to intrinsic value kind of diminishes in importance once you've got a 2 bagger or more in 5 yrs or so. and it affords you the ongoing opportunity to keep adding to the position over time.