FFH delisting from NYSE

[watsa_is_a_randian_hero]

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

 

I don't think this is where it is going (I hope I'm not wrong).  Here is my rationale:

 

1. FFH is now one of the countries top 10 P&C insurers by assets.  Rating agencies/Regulatory bodies like to see insurers of this size with various forms of capital, such as public equity, as it makes it easier to more quickly tap those capital markets should the need arise (large loss).

2.  From the 2008 Proxy: Watsa owns or controls 1.8 - 1.9 million shares.  That is a little less than 10% of the company.  He does not have the money to take private himself.  He would need a private equity sponsor.  However, the "loyal" shareholders he has include mutual fund companies that cannot hold private equity.

3. If he brought in new private equity sponsors they would not like the multiple-voting share structure that give him so much voting control. 

[Zorrofan]

While there has been a lot of interesting discussion on this matter I'm going to toss in my $0.02. I have always said that IMHO Prem and the rest of the FFH management team operarate in a manner that is in the best long-term interests of the company (and its shareholders). They also seem to have a great deal of integrity, honesty and again IMHO have always tried to act in a manner that treats shareholders as partners. So why can't we trust that they had a good reason to delist from the NYSE? Maybe they did it to save the company money or maybe they had another reason. I highly doubt that Prem is going to try and take the company private at a price below fair-value and screw over the shareholders. The fact of the matter is I trust them so I am not going to worry about it.....

 

cheers

Zorro

[SharperDingaan]

 

There is no real privatization benefit. The NYSE listing makes it nominally easier to collect the shares from US residents, but that's about it.

 

Keep in mind

(1) That with just a TSX listing, FFH will now be a very clear foreign holding in the US institutional portfolio - & at a time where the foreign weighting in the portfolio is being increased. More demand & from a wider pool.

(2) They could simply replace the NYSE listing with an American Depository Receipt (ADR). Less cost, greater control, & particularly attractive to institutional investors in Singapore/Mumbai/Emirates. The NYSE's failure to regulate actually makes these more attractive, as its not possible to naked short, & it requires FFH to place a block of treasury shares on deposit - & safely increase the float (buy the ADR, sell the TSX, total new shares = ADR deposit). 

 

The reality is that FFH is growing up.

(3) The global value investors community is a small one, & there are very few companies that both practice what they preach (CDS/bond bets), & receive the widely available everyday scrutiny (via this board) that FFH does. Intrinsically valuable. 

(4) CDN based is a major asset. Currency, financial strength, reporting, humility, etc. Valuable diversification.

 

We're looking forward to seeing what happens

 

SD

 

 

 

 

[txlaw]

(2) They could simply replace the NYSE listing with an American Depository Receipt (ADR). Less cost, greater control, & particularly attractive to institutional investors in Singapore/Mumbai/Emirates. The NYSE's failure to regulate actually makes these more attractive, as its not possible to naked short, & it requires FFH to place a block of treasury shares on deposit - & safely increase the float (buy the ADR, sell the TSX, total new shares = ADR deposit). 

 

 

Sharper, the ADR idea is a good one.  That would solve the problem for many of us in the U.S. who wish to hold FFH in accounts that don't currently allow foreign securities.  FFH management should seriously consider having an ADR that trades over the counter. 

 

-----

 

With respect to the dividend, I'd prefer that FFH keep it as low as possible.  I'm fine with it existing for compensation reasons, but I'm not too thrilled about the tax issues associated with it, especially since I cannot recover the full amount withheld by the Canadian government.

 

 

 

[Guest misterstockwell]

Sharper, the ADR idea is a good one.  That would solve the problem for many of us in the U.S. who wish to hold FFH in accounts that don't currently allow foreign securities.  FFH management should seriously consider having an ADR that trades over the counter. 

 

Fairfax won't be doing an ADR. It is possible that some other entity will buy up a load of shares, hold them, and issue ADRs, but I doubt it. I do know there will be no ADRs coming from Fairfax themselves. I don't see why any US brokerage would have any problems holding your shares of FFH, especially with USD denominated shares available. I would think come Dec. 10th that your accounts will have FFH.U in them, and nothing will have changed.

[benhacker]

It is possible that some other entity will buy up a load of shares, hold them, and issue ADRs, but I doubt it.

 

I would bet a lot of money on it... there are 10 of thousands of un-sponsored ADRs available on the pinks and many trade with good liquidity.  The following and size of FFH would virtually guarantee that a market for such an ADR backed by BNY or JPM would have decent enough volume to employee a market maker and to harvest a small cut from the dividend.  The fact that the market for FFH shares is already primed should seal the deal for an ADR custodian to do this.

 

http://en.wikipedia.org/wiki/American_Depositary_Receipt#Unsponsored_shares

 

Now I don't know the mechanics of how FFH.U converts to this ADR, or if that is even possible, but I can pretty much guarantee an an ADR will show up soon after.

 

We'll see I guess.

 

Ben

[DCG]

I've read through this thread and am still a bit unclear on this. I own some FFH shares in the United States through Scottrade in both my equities account an an IRA. Are there any steps I need to take or will the shares automatically be converted to the Toronto Exchange?

 

Regarding dividends, do I now somehow have to report them to Canada?

[FFHWatcher]

I've read through this thread and am still a bit unclear on this. I own some FFH shares in the United States through Scottrade in both my equities account an an IRA. Are there any steps I need to take or will the shares automatically be converted to the Toronto Exchange?

 

Regarding dividends, do I now somehow have to report them to Canada?

 

Here is my opinion...

If you own a common share of FFH than you own a common share of FFH. Period.  There is no difference between the FFH shares purchased through the NYSE and or the TSX.  NYSE is in US $ and TSX are Cdn $.  Same shares, different currency.  In the future, if you want to sell the shares of your FFH in your US$ account, than you should be able to select the TSX to sell your shares and select the ffh.u if you don't want a currency exchange to occur.  Isn't it similar to buying a 2009 BMX M5?  It doesn't matter where you buy it, it is still the same car just a different dealer (aka exchange).

[benhacker]

FFHWatcher is right, but unfortunately there are some (many?) brokers who (at least claim) don't/can't execute trades on the TSX.

 

This may be the final straw for me as I have my RIA business through Options Express and they don't trade on the TSX... so I'll be moving my business to IBKR depending on their response... I've been noodling on it too long already...

 

Ben

[txlaw]

FFHWatcher is right, but unfortunately there are some (many?) brokers who (at least claim) don't/can't execute trades on the TSX.

 

Yes, exactly.  Look, I have no idea what FFH.U is.  It sounds like these are dollar denominated shares trading on the TSE.  If so, I don't think that suggestion helps.

 

The problem for me and for others, I'm sure, is that some discount brokerages do not execute trades on the TSE, at least in certain accounts.  I can buy FFH on the TSE in my regular brokerage account.  However, I cannot buy FFH on the TSE in my Roth IRA (according to Etrade).  I'm not sure what will happen if the FFH shares in my Roth IRA convert to FFH.U, if that's even possible.

 

I did not realize there was such a thing as unsponsored ADRs.  I guess that's the way to go unless I decide to switch to another broker.

[valuesource]

If you are a US investor with a discount broker account, there will be no "conversion" of your shares.  You'll be holding Fairfax shares like you always have.  Your issue is with the conduit facilitating your trade (exchange).  One of two scenerios will occur:  1) Your broker will facilitate trades on the TSX.  My guess is this will be the best market to execute your trades (whether USD or CAD).  2)  Most discount houses will have access to OTCBB and Pinks.  VFIN, NITE and Jefferies will be making markets.  It's the same piece of paper.  Trading it will be just as easy.

 

[benhacker]

2)  Most discount houses will have access to OTCBB and Pinks.  VFIN, NITE and Jefferies will be making markets.  It's the same piece of paper.  Trading it will be just as easy.

 

Valuesource, are you implying that NITE will facilitate a trade on a foreign stock directly on the pinks (i.e., without an ADR)?

 

If you can show me an example of them doing that, I'd like to see it, because I don't believe that is possible without (at a minimum) a Level I ADR...

 

I've love to be corrected, but what you are saying sounds like you are misunderstanding the process.  I 100% agree that any broker will HOLD a foreign stock for you, but the trading of it is a different ballgame, and I don't think NITE can help with that (again, without an ADR and some sort of a conversion).

 

Perhaps we may be best to wait for the actual reality to meet theory here I guess...

 

Ben

[oldye]

Sfk trades in the pinks as an unsponsored ADR and the way my broker explained they just go and get the best price whether its on the pinks or Toronto. 

[benhacker]

Sfk trades in the pinks as an unsponsored ADR and the way my broker explained they just go and get the best price whether its on the pinks or Toronto.

 

So your broker will actually perform the conversion themselves of sfk-un.to --> SFKUF (ADR)?  That makes perfect sense, and NITE may simply do that when an order is made... but my only confusion is on the shares that already may exist in the account that are now magically TSX shares, they can't be wrapped  in an ADR shell ex post... so how do I move them?  Maybe per your statement, the broker will just sell them through NITE and you will eat the spread...

 

Lots of things should be possible, but I'm never sure how all this works when the rubber hits the road.

 

Ok, I'm off to think about other things, I'll wait until this actually happens to judge the results. :)

[ericd1]

I thought I'd wait for awhile before calling Fidelity to see how the FFH delisting would affect my accounts.  Evidently they haven't figured everything out yet. I got the feeling they handle these things when they happen...not before they happen!

 

1) On a margin account at Fidelity the margin requirement was 70%, the worst case is it moves to 100% a requirement (non-marginable).

 

I find that interesting as most equities carry a 30% requirement and my financial preferreds (mostly banks) have a 50% requirement (not sure why again, but they are 50%). FFH with a 70% requirement was the highest in my account...anyone care to explain why???

 

2) The representative indicated it was not a problem to own a foreign traded stock in an IRA, or 401K account. That agrees with the IRS response to FAQs on their website..."Are there any restrictions on the things an IRA can be invested in?"  Answer - collectibles.

 

Also, IRA trustees are permitted to impose additional restrictions on investments. For example, because of administrative burdens, many IRA trustees do not permit IRA owners to invest IRA funds in real estate. IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.

 

http://www.irs.gov/retirement/article/0,,id=111413,00.html

 

So far it appears to be a non-event unless I'm missing something...

 

 

 

 

[valuesource]

sorry Ben, for the delay.  Let's wait and see what happens.  I called VFIN to ask if they would make a market.  90%+ of the Canadian stuff is traded OTC as well as on the TSX.  You're right about the juice.  These guys don't work for free -- however, the liquid stuff is well arb'd by a plethora of market markets.

 

I don't know about this ADR business.  Seems to me, if there was an ADR we wouldn't need VFIN, NITE or Jefferies.

 

 

[jasonw1]

Does anyone know what happens to FFH LEAPS after its delisting from NYSE? I called my broker Fidelity but they don't know for sure.

[Smazz]

I have an easier solution for you guys (and girls):

 

JUST BECOME CANADIAN!!!!;D

 

 

 

You can buy and sell both Canadian and US no problem and we could really use your tax $ up here.

Oh and we've got all the fresh water you can drink.....we would rather you drank the water and conserve the beer! :D

[valuecfa]

Smazz, I would have done it years ago if it wasn't freeze your nuts off cold up there.

[Smazz]

Smazz, I would have done it years ago if it wasn't freeze your nuts off cold up there.

Valuecfa,

Ive heard that from quite a few people I communicate with from the States but in alot of cases is not warranted because some of these people live in a more northern latitude than I in Southern On.

Also, (Sanjeev and those in the west would better explain) parts of BC are not cold at all, just alot of rain.

 

Perhaps this should be its own thread? - check out the general section ;D

 

[Uccmal]

valuecfa, I am guessing that you are not from Minnesota, Chicago, Buffalo, Rochester, Cleveland, Detroit, or a New England State......

 

We have beautiful summers up here... sometimes.  :-\

 

 

[Crip1]

For those US-based board members looking for a solution to this, I called Schwab shortly after this announcement and inquired about how this would affect my holdings. After talking to a couple of reps who were certainly eager to assist, though not sure of the answer, I was connected to an individual on the International Trading desk. He confidently indicated that, due to the manor with which Fairfax did this, the conversion and subsequent holding would be effectively invisable to me. Full disclosure is that I do not have any leaps, calls, etc, so cannot comment on whether Schwab would be an answer for those who margin.

 

-Crip

[ERICOPOLY]

I have my 2010 & 2011 FFH calls with Interactive Brokers now.  That went pretty smoothly -- I initiated a partial ACATS transfer on Monday and it was completed on Thursday, yesterday I exercised some of the 2010 calls.  I assume they will become FFH-U shares, given that they are currently USD shares on the NYSE.

 

The only open question I have is whether FFH-U will be marginable from the start, or whether there will be a lag before Interactive Brokers updates their list of marginable Canadian securities.  So that's why I'm waiting to exercise the rest of them.

 

Also, as for the off-topic discussion, it looks like the private lending department at Wells Fargo will give me a home loan based on my assets... as long as I transfer my brokerage assets to Wells Fargo.  Jeez...  I guess I have to smile and say "you guys are good". 

 

[watsa_is_a_randian_hero]

I have my 2010 & 2011 FFH calls with Interactive Brokers now.  That went pretty smoothly -- I initiated a partial ACATS transfer on Monday and it was completed on Thursday, yesterday I exercised some of the 2010 calls.  I assume they will become FFH-U shares, given that they are currently USD shares on the NYSE.

 

The only open question I have is whether FFH-U will be marginable from the start, or whether there will be a lag before Interactive Brokers updates their list of marginable Canadian securities.  So that's why I'm waiting to exercise the rest of them.

 

Also, as for the off-topic discussion, it looks like the private lending department at Wells Fargo will give me a home loan based on my assets... as long as I transfer my brokerage assets to Wells Fargo.  Jeez...  I guess I have to smile and say "you guys are good". 

 

 

I have IB, and had them complete a "northbound transfer."  All that does is makes the FFH shares I have show up as FFH.TO instead.  It cost $11 for them to do, but I know FFH.TO is marginable right now day 1.

[ERICOPOLY]

I have my 2010 & 2011 FFH calls with Interactive Brokers now.  That went pretty smoothly -- I initiated a partial ACATS transfer on Monday and it was completed on Thursday, yesterday I exercised some of the 2010 calls.  I assume they will become FFH-U shares, given that they are currently USD shares on the NYSE.

 

The only open question I have is whether FFH-U will be marginable from the start, or whether there will be a lag before Interactive Brokers updates their list of marginable Canadian securities.  So that's why I'm waiting to exercise the rest of them.

 

Also, as for the off-topic discussion, it looks like the private lending department at Wells Fargo will give me a home loan based on my assets... as long as I transfer my brokerage assets to Wells Fargo.  Jeez...  I guess I have to smile and say "you guys are good". 

 

 

I have IB, and had them complete a "northbound transfer."  All that does is makes the FFH shares I have show up as FFH.TO instead.  It cost $11 for them to do, but I know FFH.TO is marginable right now day 1.

 

Your advice is invaluable.  Thank you very much!