Fairfax stock positions

[nwoodman]

@Viking like Fairfax, Eurobank still seems incredibly cheap even after a decent revaluation.  The best way to own it is via insurance leverage.  However,  I must confess I broke my own rule of not owning Fairfax positions and picked up some EGFEY last week as a bit of a cashflow non-USD play.  Personally think it should be valued closer to €3. Fokion Karavias is a fascinating guy and a top operator. There is something about these chemical engineers that end up in banking/insurance, need to add that to the investment pattern recognition algo 

 

Education:

• National Technical University of Athens: Earned a degree in Chemical Engineering.

• University of Pennsylvania, Philadelphia, USA: Obtained both a Master’s and a Ph.D. in Chemical Engineering.

 

Professional Career:

• JPMorgan, New York (1991): Began his banking career in the Market Risk Management Division.

• Citibank, Athens (1994): Served as Head of Fixed Income Products and Derivatives in Greece.

• Telesis Investment Bank (2000): Held the position of Treasurer.

• Eurobank Group (1997–Present):

• Joined as Head of Fixed Income and Derivatives Trading.

• Progressed through roles including Deputy General Manager and Treasurer (2002–2005), General Manager and Executive Committee Member (2005–2013), and Senior General Manager overseeing Corporate & Investment Banking, Capital Markets & Wealth Management (2014–2015).

• Appointed CEO of Eurobank SA and Eurobank Holdings in 2015.

 

Board Memberships and Affiliations:

• Hellenic Bank Association (HBA): Vice Chairman of the Board of Directors.

• Hellenic Federation of Enterprises (SEV): Member of the General Council.

• Greek Tourism Confederation (SETE): Honorary Member of the Board.

• Eurobank Private Bank Luxembourg SA: Former Board Member (2012–2022).

[Viking]

1 hour ago, Redskin212 said:

Viking loved the analysis on Eurobank. Reminiscent of the Bank of Ireland investment but bigger and bolder.

 

What percentage of Eurobank does Fairfax own?  I think I missed it.

@Redskin212 , I think the success they had with Bank of Ireland is what led them to invest in Eurobank. The difference is Ireland rebounded from their property crisis relatively quickly. So Fairfax’s investment in Bank of Ireland also popped higher pretty quick.
 

Eurobank has played out very differently. Greece did not quickly rebound from its depression (after Fairfax made their initial investment). And Fairfax’s initial investment in Eurobank got completely wiped out by the ECB. But that has all changed over the past 4 years. I wonder if Eurobank is now Fairfax’s best stock investment ever (in terms of total gain). Even after the big gain, it’s interesting/informative that Fairfax  has not sold down its Eurobank position. Fairfax likely views the stock as still being significantly undervalued (especially given the current set-up with Hellenic Bank acquisition).

[Viking]

2 hours ago, nwoodman said:

@Viking like Fairfax, Eurobank still seems incredibly cheap even after a decent revaluation.  The best way to own it is via insurance leverage.  However,  I must confess I broke my own rule of not owning Fairfax positions and picked up some EGFEY last week as a bit of a cashflow non-USD play.  Personally think it should be valued closer to €3. Fokion Karavias is a fascinating guy and a top operator. There is something about these chemical engineers that end up in banking/insurance, need to add that to the investment pattern recognition algo 

 

 

Education:

• National Technical University of Athens: Earned a degree in Chemical Engineering.

• University of Pennsylvania, Philadelphia, USA: Obtained both a Master’s and a Ph.D. in Chemical Engineering.

 

Professional Career:

• JPMorgan, New York (1991): Began his banking career in the Market Risk Management Division.

• Citibank, Athens (1994): Served as Head of Fixed Income Products and Derivatives in Greece.

• Telesis Investment Bank (2000): Held the position of Treasurer.

• Eurobank Group (1997–Present):

• Joined as Head of Fixed Income and Derivatives Trading.

• Progressed through roles including Deputy General Manager and Treasurer (2002–2005), General Manager and Executive Committee Member (2005–2013), and Senior General Manager overseeing Corporate & Investment Banking, Capital Markets & Wealth Management (2014–2015).

• Appointed CEO of Eurobank SA and Eurobank Holdings in 2015.

 

Board Memberships and Affiliations:

• Hellenic Bank Association (HBA): Vice Chairman of the Board of Directors.

• Hellenic Federation of Enterprises (SEV): Member of the General Council.

• Greek Tourism Confederation (SETE): Honorary Member of the Board.

• Eurobank Private Bank Luxembourg SA: Former Board Member (2012–2022).

@nwoodman , I agree, Eurobank does look cheap today. I think the banks in the region are selling off due to concerns about falling NIM. Having said that, Eurobank’s stock price has held up well (better than peers). My post earlier was focussed on Hellenic Bank and developments in Cyprus. There are many other interesting angles to Eurobank:
 

1.) What do you think Eurobank now does with capital return?
 

Do they continue with the 50% payout that they discussed previously?

- Because of the significant cash outlay involved in taking Hellenic Bank private, perhaps they do something similar to last year = 30% payout?

 

What do you think the split will be between dividend and share repurchases?

- My guess is they will try and do a dividend payout amount similar to what they did this year. Start to build a reputation as a stable, consistent dividend payer.

 

2.) Hellenic Bank stopped paying a dividend due to Eurobank’s take-over. They are way over capitalized. After Eurobank gets complete control, I wonder if Hellenic Bank doesn’t pay a big dividend to Eurobank - that kind of pays part of the take-out price. 
 

Hellenic Bank has been hugely profitable the past 2 years and it was largely just building on their balance sheet (yes, they did purchase CNP Cyprus).
 

The negotiations between Eurobank, Demetra amd Logicom must have been intense.
 

The other big stake was purchased from the Cyprus Union of Bank Employees (ETYK), the Cyprus Bank Employees Welfare Fund, the Cyprus Bank Employees Health Fund and the Financial Sector Provident Fund. This negotiation was likely equally intense. But once it was done, it seemed to be the catalyst to get the agreement with Demetra and Logicom done.
 

Impressive that Eurobank was able to get this deal done. It will be interesting to see how quickly they move to rightsize the three companies (Eurobank Cyprus, Hellenic Bank and CNP Cypus). They will likely be very thoughtful in what they do. My guess is they see enormous potential in what they have in Cyprus.

 

3.) Expansion of wealth management at Eurobank.
 

This will be something to watch. Perhaps this is where we see future acquisitions. Combined with a slow and steady build-out - like they have been doing this year.

 

4.) The partnership between Eurobank and Fairfax certainly looks like it is working for both companies. 
 

It allows the Eurobank team to think long term when making decisions. It also allows them to take calculated risks to grow their business. Very unusual for a publicly traded company - and especially a bank - in that region. 
 

I hope it continues to cement at Fairfax (and Hamblin Watsa) the importance of management when they make new equity investments. I think Fairfax ‘gets it’ more today than they ever have.

Edited November 28, 2024 by Viking

[Haryana]

2 hours ago, nwoodman said:

There is something about these chemical engineers that end up in banking/insurance, need to add that to the investment pattern recognition algo 

I see what you mean. 

Prem Watsa did Bachelor of Technology in Chemical engineering from Indian Institute of Technology. 

Apparently they apply alchemy to financial engineering. 

[nwoodman]

In terms of Eurobank buybacks, Fairfax currently sits at 32.93% from YE 23 annual report.  As far as I can tell, 33% is a key threshold (Article 24 of Greek Banking Law 4261/2014, aligned with CRD IV and enforced by the Bank of Greece). 

 

"Crossing the 33% threshold means Fairfax would have “significant influence” over Eurobank under regulatory definitions. This can result in additional scrutiny and obligations, including:

• Regulatory Approval:

• Fairfax would need to apply to the Bank of Greece to increase its stake beyond 33%.

• The approval process would involve assessing Fairfax’s financial health, governance practices, and the impact of its increased influence on Eurobank’s operations.

• Suitability Review:

• Fairfax’s ability to contribute to the stability of Eurobank would be evaluated.

• Regulators might scrutinize Fairfax’s other investments, its financial strength, and its strategic intentions for Eurobank.

• Increased Oversight:

• Greater regulatory oversight may apply to Fairfax, especially if it is perceived as the controlling shareholder. This could involve regular disclosures and accountability for Eurobank’s governance and strategic decisions."

 

1. Fairfax could always sell into the buyback, but would they want to?

2. They could always seek approval to cross over the threshold, but if they felt that way, I think they would have pushed for it when this was a true 25c dollar.  This may change

 

Some notes attached.  It's still a good story for Fairfax, even if proves to be a stream of divs

 

Edit: It looks like they are already at 33.29% as of Q3 24

https://www.eurobankholdings.gr/en/investor-relations/shareholders/shareholding-structure#:~:text=The percentages of Eurobank Holdings' voting rights,Group Companies (CGC)*** * Helikon Investments Limited****

Threshold notes.pdf

Edited November 28, 2024 by nwoodman

[gfp]

Fairfax went over 33% of Eurobank back when EUROB merged with Grivalia Properties, which Fairfax had a large investment in. (I should say large ownership stake, not large investment - FFH owned 51% of Grivalia, which itself had been spun out of Eurobank years earlier)  The government would have had to approve the ownership level at that time.  Prem has met with each Prime Minister since, so I'm sure he is on top of government relations.  The dividends have just started to flow and I don't think Fairfax will sell any shares any time soon.

Edited November 28, 2024 by gfp

[nwoodman]

On 11/28/2024 at 5:00 PM, gfp said:

Fairfax went over 33% of Eurobank back when EUROB merged with Grivalia Properties, which Fairfax had a large investment in. (I should say large ownership stake, not large investment - FFH owned 51% of Grivalia, which itself had been spun out of Eurobank years earlier)  The government would have had to approve the ownership level at that time.  Prem has met with each Prime Minister since, so I'm sure he is on top of government relations.  The dividends have just started to flow and I don't think Fairfax will sell any shares any time soon.

Very happy to be wrong as I think Eurobank would be wise to repurchase shares here.  Not to mention the conflict of capital return decisions that may be at odds with the other 67% of shareholders

 

Edit: fixed typo

Edited November 29, 2024 by nwoodman

[73 Reds]

14 hours ago, intothebreach said:

Viking, I just want to say thanks for your continued analysis and sharing to the board; I learn something new every time. Much, much appreciated!

+1.   @Viking, if you ever wanted a job with your favorite company just send Prem a copy of your last few years' worth of analysis.  He'd be crazy not to hire you.

Edited November 28, 2024 by 73 Reds
punctuation

[Xerxes]

2 hours ago, nwoodman said:

Very happy to be wrong as I think Eurobank would be wise to repurchase shares here.  Not to mention the conflict of capital return decisions that may be at odds with the other 77% of shareholders

It is hard to imagine a financial institution buying back for the sake of increasing the % ownership of its largest investor which happens to be foreign at that. 
 

stock buyback does tend to benefit institutional investor than retail, even though the economics are identical. 
 

what does an old retire tells his wife when he needs to spin a story as to how his “ownership” increase is a good thing as oppose to actual cash dividend. 
 

it is possible that some years down the road Eurobank may do large buyback as a private placement between it and Fairfax. 

[Viking]

The depression in Greece has resulted in a massive consolidation in banking. As a result, Greece has 4 large banks today, each with a little over 20% market share on average. With the merger of Eurobank Cyprus and Hellenic Bank, Cyprus has 2 large banks. 
 

Oligopolies that play nicely typically earn outsized profits. (Canada has an oligopoly in banking and it has been the best performing asset class in our stock market over the past 30 years). I think that is what we are likely going to see in Greece and Cyprus moving forward. 
 

Eurobank is over capitalized (Hellenic Bank is really over capitalized). And they are poised to earn a lot of money in the coming years.

 

This means capital allocation is super important. This means the management team is super important. Based on the past 5 or 6 years, I think it is safe to say that when it comes to capital allocation, the management team at Eurobank is best in class. 
 

A best in class management team combined with lots of excess capital is a wonderful thing for a long term investor. Especially if this dynamic lasts for years (high profitability). 
 

My guess is the management team at Eurobank will be very rational with how it allocates capital moving forward. They were very rational in the past… so it makes sense this will continue.

 

In recent years, once their balance sheet got fixed and their new earnings trajectory got established, the management team has prioritized returning capital to investors. first they bought back stock. And then this year they re-introduced a dividend. 
 

I expect they will continue to pay a dividend. If you want a quality shareholder base you need to pay a reliable dividend. 
 

The share buybacks will likely be opportunistic. And with their shares trading below TBV, it is a no brainer to buy back stock - and like Fairfax with their buybacks, to be very piggish about it (buy back as much as you can).
 

I would love to see Eurobank pull a Stelco and vacuum up a massive amount of stock while their stock is trading at such a cheap valuation. This would materially increase Fairfax’s ownership position which would be amazing. 
 

Eurobank also wants to grow. Looking at their past decisions, they will be very strategic and opportunistic with acquisitions. 
 

Eurobank really is a wonderful set up for an investor. A best in class management team. And an overcapitalized and very profitable bank. With lots of good options. All an investor has to do is get a drink… go to the porch and sit in their rocker… relax…  and enjoy the view. And let time and compounding works its magic.

Edited November 28, 2024 by Viking

[nwoodman]

Atlas has reported

 

https://www.sec.gov/edgar/browse/?CIK=0001794846

 

Quick Summary

 

Financial Performance: Revenue

• Q3 2024: $601.4M (up 34.7% from Q3 2023)
• Year-to-date: $1,676.5M (up 35.4% from 2023)
• Growth primarily driven by delivery of 41 newbuild vessels since September 2023

Operating Results

• Operating earnings: $334.6M in Q3 2024 (up from $218.5M)
• Net earnings: $130.6M in Q3 2024 (down from $142.9M)
• Operating expenses increased to $107.6M (up 15.9%)
• Vessel utilization improved to 98.6%

Cash Flow & Liquidity

• Operating cash flow: $400.1M in Q3 (up from $189.5M)
• Total liquidity: $1.25B
  • Cash: $549.4M
  • Undrawn credit: $700.0M
• Total borrowings: $10.39B
• Weighted average interest rate: 6.66%

Fleet Operations: Current Fleet

• 182 operating vessels
• Total capacity: 1,873,880 TEU
• Average vessel age: 7 years
• Fleet utilization: 98.6%

Vessel Development

• 36 vessels under construction
• 6 newbuilds delivered in Q3
• 3 additional deliveries in October/November
• New orders for six 13,000 TEU and six 13,600 TEU vessels

Strategic Developments:

• Formed ONESEA Solutions joint venture with ONE
• Entered sale-leaseback financing for multiple vessels
• Significant vessel order activity with both owned and novated contracts

Dividends:

• Q3 dividends: $52.0M (down from $208.0M in Q3 2023)
• Year-to-date dividends: $156.0M (down from $274.0M)

Balance Sheet Position:

• Total assets: $15.69B (up from $13.07B end of 2023)
• Shareholders' equity: $4.56B
• Total borrowings-to-asset ratio: 66.2%

Future Outlook:

• Strong contracted revenue stream with $23.5B in gross contracted cash flows
• Continued fleet expansion through newbuild program
• Focus on maintaining high utilization rates and operational efficiency
• Strategic emphasis on long-term contracted cash flows and fleet modernization
• Ongoing capital investment in fleet maintenance and expansion

Edited November 28, 2024 by nwoodman

[dartmonkey]

5 hours ago, Viking said:

I would love to see Eurobank pull a Stelco and vacuum up a massive amount of stock while their stock is trading at such a cheap valuation. This would materially increase Fairfax’s ownership position which would be amazing. 

Is Fairfax restricted from buying more? The price has gone up nicely, but not spectacularly; €2 now, and they were in a range between €0.50-1.00 seven or eight years ago, when they looked like they might not survive.  between ). With earnings steady at about €0.36, they are at about 6 times earnings. Fairfax only owns 32.9%, couldn't they go a little higher, or do they have a standstill agreement with Eurobank or with the Greek regulators?

[nwoodman]

This filing from 2021 (which may well be out of date) shows the reconciliation.  It differentiates Fairfax Finacial’s position in Eurobank when including the Hellenic Financial Stability Fund (33%) and excluding HFSF (34.7%).

 

https://www.eurobankholdings.gr/en/grafeio-tupou/etairiki-anakoinosi-20-07-21?utm_source=chatgpt.com

 

“The HFSF holds shares in Greek banks as part of its mandate to stabilize the financial sector following the Greek financial crisis. However, it does not operate as a typical shareholder:

 

• Voting Rights: The HFSF often holds restricted or limited voting rights. In some cases, it abstains from regular shareholder votes unless explicitly required to act in its supervisory role.

 

• Non-Commercial Ownership: Unlike private shareholders (e.g., Fairfax), the HFSF’s primary goal is to ensure financial stability rather than profit or exert influence for strategic or operational decisions.”

Edited November 29, 2024 by nwoodman

[nwoodman]

1 hour ago, Haryana said:

With apologies for nitpicking,

I think you likely meant  67%. 

Indeed I did, thanks

Edited November 29, 2024 by nwoodman

[nwoodman]

Estimating Seaspan’s % of the global fleet.  For the want of a better number I always figured 10% might be a material threshold
 

CURRENT POSITION (Q3 2024):
- Seaspan: 1,874,000 TEU
- Global Fleet: 27.5M TEU
- Current Market Share: 6.81%

FUTURE POSITION (Est. 2026-2027):
Seaspan Growth:
- Current: 1,874,000 TEU
- Newbuilds (36 vessels): ~450,000 TEU
- Future Seaspan Total: ~2,324,000 TEU

Global Fleet Growth Projection:
- Current: 27.5M TEU
- Industry orderbook: ~7.2M TEU (through 2026)
- Estimated scrapping: ~1.5M TEU
- Projected 2026 Global Fleet: ~33.2M TEU

Future Market Share Calculation:
2,324,000 TEU / 33,200,000 TEU = 7.0%

Key Context:
- Seaspan's growth is secured through firm orders
- Global fleet growth includes confirmed orderbook
- Position as largest independent owner will be maintained
- Share calculation considers both newbuild deliveries and vessel retirements
- Excludes any potential M&A activity or additional orders

 

Key Benefits at 10%:

Shipyard Pricing: Better newbuild pricing and priority slots

Financing: Improved terms and broader funding options

Operating Costs: Enhanced economies of scale

Charter Markets: Greater influence on charter rates

Industry Influence: Stronger voice in regulatory and industry matters

 

[nwoodman]

A Tradewinds article (attached), reporting on Q3, indicates that the five vessels sold to ONE were then leased directly to OOCL, difficult to determine if this falls within the ONESEA JV. It makes you wonder whether Atlas has maxed the balance sheet, especially with the other novations.  Time will tell.

 

“Key Financial Metrics:

• Revenue: Up 34.7% to $601.4M ("Revenue was up at $601.4m, versus $446.6m")
• Net Profit: Down to $130.6M ("net profit in the third quarter was $130.6m, down from $142.9m")
• Interest Costs: Up 86.5% ("financial costs rose, notably interest to $174.6m from $93.6m")

Strategic Moves:

1. August Vessel Transaction

• Ordered 6 x 13,000 TEU vessels
• "Five of these contracts were novated to ONE in September 2024"
• Subsequently chartered by ONE to OOCL on 15-year terms

2. June Newbuild Program

• "Four of these contracts were immediately novated to a customer"
• "13 of these contracts were thereafter novated to certain nominees and upon delivery, these 13 newbuilds will be chartered by the Company from such nominees under bareboat charters"

Operational Execution:

• "During the first nine months of the year, it took delivery of 23 newbuildings at a cost of $2.4bn"
• "As at 30 September, Seaspan had 36 vessels under construction, down from 40 at the end of 2023"

Strategic Implications:

1. Moving from pure ownership model to mixed approach
2. Financial pressure driving innovative structures
3. Maintaining operational presence while reducing capital intensity
4. Strategic relationship with ONE evolving (27.8% ownership)
5. ONESEA JV represents new direction in service provision

Conclusion: Seaspan are adapting to financial constraints while trying to maintain their market position, but the loss of the OOCL charter opportunity (through ONE) suggests they would prefer direct ownership when possible. This looks more like strategic adaptation to circumstances than a deliberate shift away from the ownership model.”

Seaspan sells five boxship newbuilding contracts to ONE as profit falls TradeWinds.pdf

Edited November 29, 2024 by nwoodman

[petec]

On 11/29/2024 at 10:57 PM, nwoodman said:

suggests they would prefer direct ownership when possible

 

It's a while since I looked closely at Atlas, but I used to own it and followed it closely, and the sense I had was that they always optimised for IRR and meeting customer needs rather than type of ownership. So it may well be that they just got a good IRR from this deal. 

 

I was always slightly sceptical about this because IRR is only relevant if you can immediately redeploy the capital.

[nwoodman]

2 hours ago, petec said:

 

It's a while since I looked closely at Atlas, but I used to own it and followed it closely, and the sense I had was that they always optimised for IRR and meeting customer needs rather than type of ownership. So it may well be that they just got a good IRR from this deal. 

 

I was always slightly sceptical about this because IRR is only relevant if you can immediately redeploy the capital.

Quite possibly, these guys have more under utilised IQ points than I have in aggregate. Some thoughts nonetheless:

 

1. 2x's interest coverage may be the lower bound for covenants. 3x's give them a shot at IG. I think they don't have a choice at the moment given higher for longer

2. This play is a small but important part the overall Fairfax portfolio. If rates rise then Atlas sucks but Fairfax rolls at higher yield. Rates fall then Atlas becomes very profitable.
3. Good chance that there will be an embedded buyout clause in the novations.

4. These guys are clever, hopefully Brian Bradstreet is in someway involved on the debt side and advising as part of the broader portfolio
5. The only head scratcher is why are paying divs at this stage in their growth

A rough cut on sensitivity:

 

CURRENT POSITION (Q3 2024):

• Interest Expense: $174.6M quarterly ($698.4M annualized)
• Operating Earnings: $334.6M quarterly ($1,338.4M annualized)
• Current Interest Coverage: 2.3x
• Total Borrowings: $10.39B
• Average Interest Rate: 6.66%

RATE SENSITIVITY:

Interest Rate Changes (Annual Impact): +100bps:

• Additional Interest: +$103.9M
• New Interest Coverage: 1.96x
• Coverage Decline: -14.8%

+50bps:

• Additional Interest: +$52M
• New Interest Coverage: 2.12x
• Coverage Decline: -7.8%

-50bps:

• Interest Savings: -$52M
• New Interest Coverage: 2.48x
• Coverage Improvement: +7.8%

-100bps:

• Interest Savings: -$103.9M
• New Interest Coverage: 2.69x
• Coverage Improvement: +17%

FAIRFAX PERSPECTIVE: At higher rates:

• Atlas interest burden increases
• Fairfax investment portfolio yields improve
• Net positive for Fairfax despite Atlas stress

At lower rates:

• Atlas profitability improves significantly
• Each 100bps = ~$104M annual impact
• Could accelerate path to investment grade

Edit: In terms of divs, Fairfax may also see this as the return of capital phase as opposed to return on capital.  Just spit balling.

Edited December 2, 2024 by nwoodman

[petec]

On 12/2/2024 at 10:43 AM, nwoodman said:

Quite possibly, these guys have more under utilised IQ points than I have in aggregate. Some thoughts nonetheless:

 

1. 2x's interest coverage may be the lower bound for covenants. 3x's give them a shot at IG. I think they don't have a choice at the moment given higher for longer

2. This play is a small but important part the overall Fairfax portfolio. If rates rise then Atlas sucks but Fairfax rolls at higher yield. Rates fall then Atlas becomes very profitable.
3. Good chance that there will be an embedded buyout clause in the novations.

4. These guys are clever, hopefully Brian Bradstreet is in someway involved on the debt side and advising as part of the broader portfolio
5. The only head scratcher is why are paying divs at this stage in their growth

A rough cut on sensitivity:

 

CURRENT POSITION (Q3 2024):

• Interest Expense: $174.6M quarterly ($698.4M annualized)
• Operating Earnings: $334.6M quarterly ($1,338.4M annualized)
• Current Interest Coverage: 2.3x
• Total Borrowings: $10.39B
• Average Interest Rate: 6.66%

RATE SENSITIVITY:

Interest Rate Changes (Annual Impact): +100bps:

• Additional Interest: +$103.9M
• New Interest Coverage: 1.96x
• Coverage Decline: -14.8%

+50bps:

• Additional Interest: +$52M
• New Interest Coverage: 2.12x
• Coverage Decline: -7.8%

-50bps:

• Interest Savings: -$52M
• New Interest Coverage: 2.48x
• Coverage Improvement: +7.8%

-100bps:

• Interest Savings: -$103.9M
• New Interest Coverage: 2.69x
• Coverage Improvement: +17%

FAIRFAX PERSPECTIVE: At higher rates:

• Atlas interest burden increases
• Fairfax investment portfolio yields improve
• Net positive for Fairfax despite Atlas stress

At lower rates:

• Atlas profitability improves significantly
• Each 100bps = ~$104M annual impact
• Could accelerate path to investment grade

Edit: In terms of divs, Fairfax may also see this as the return of capital phase as opposed to return on capital.  Just spit balling.

 

I think the fact they're paying dividends tells you they're not capital constrained - the people involved are too rational and long term to make any other decision, but I could be wrong. 

 

I agree they're super smart, but I do think they got caught with their pants down somewhat when rates rose and I wonder why they didn't fix more of their liabilities, especially given that their contracts are not inflation-linked which I have always thought was a huge weakness of their model/the industry.

 

I see it as a kind of levered option, but I like your point that FFH overall benefits more if rates rise than fall - I hadn't really considered this aspect of their Atlas investment.

 

 

[Hoodlum]

It looks like the global bond market has recognized the stability at Eurobank. 
 

https://www.naftemporiki.gr/english/1848770/eurobank-strong-interest-in-600-million-euro-senior-preferred-notes/
 

The transaction received tremendous level of interest from the onset which resulted in a final demand of 3.4 billion euros, i.e. an oversubscription close to 6 times, thus enabling Eurobank to raise 600 million euro at a reduced credit spread of 125bps compared to the initial 155bps indication level.
 

Upon new issue allocation, foreign investors’ participation accounted for approximately 93% of the subscribed amount of the book, with key participation from the United Kingdom and Ireland (40%), France (14%), Germany (13%) and Italy (9%). In terms of investor type, 68% were Fund Managers, 19% were Banks and Private Banks, 6% were Hedge Funds and 5% were Insurance and Pension Funds.

[Hoodlum]

Hellenic bank received a ratings upgrade on Friday.  The update also provided some comments surrounding their decision and the impact from the Eurobank acquisition. 
 

https://www.financialmirror.com/2024/12/15/hellenic-bank-upgraded-on-strong-capitalisation-eurobank-synergies/

 

the acquisition by Eurobank is seen as strategically positive for HB given the expected synergies, particularly between the two Cyprus-based banks.

 

Eurobank Cyprus’ corporate banking operations are complimentary to HB’s predominately retail banking franchise.

 

“We therefore anticipate the planned merger to produce a more diversified balance sheet and earnings profile, and help address strategic challenges previously faced on a standalone basis,” CI Ratings said.

 

“We expect overall asset quality to remain stable post-merger given Eurobank Cyprus’ sound risk profile,” the rating agency added.

Capitalisation metrics are strong, as improved profitability and low dividend payouts have meant strong internal capital generation.

 

Meanwhile, higher capitalisation in combination with the decline in the volume of NPLs has improved the bank’s extended NPL coverage; this offsets the modest LLR coverage ratio. Capitalisation is anticipated to remain strong after the planned merger in view of Eurobank Cyprus good capital ratios.

 

“Looking ahead, we anticipate the quality of the funding base of the combined entity to remain good, despite Eurobank Cyprus having a much smaller proportion of retail deposits.”

[wondering]

A little nothing-burger of a Fairfax investment ZoomerMedia is going private.  The market cap is 20M, FFH owns approx 15%.  The selling price is 167% over the pre-announcement price.  I have no idea if Fairfax made any money on this thing.  I think if they broke even, they can call it a success.

 

I feel embarrassed because after quickly reading the press release and some of the disclosures, I still can't figure out if Fairfax is part of the purchasing group or are they selling their shares too.

 

under Continuing Shareholders paragraph "The Equity Commitment Provider is an affiliate of Fairfax.."  What is an Equity Commitment Provider?  Are they provide the loans for the buyout?

 

ZoomerMedia-NC-final.pdf

[SafetyinNumbers]

2 hours ago, wondering said:

A little nothing-burger of a Fairfax investment ZoomerMedia is going private.  The market cap is 20M, FFH owns approx 15%.  The selling price is 167% over the pre-announcement price.  I have no idea if Fairfax made any money on this thing.  I think if they broke even, they can call it a success.

 

I feel embarrassed because after quickly reading the press release and some of the disclosures, I still can't figure out if Fairfax is part of the purchasing group or are they selling their shares too.

 

under Continuing Shareholders paragraph "The Equity Commitment Provider is an affiliate of Fairfax.."  What is an Equity Commitment Provider?  Are they provide the loans for the buyout?

 

ZoomerMedia-NC-final.pdf 3.1 MB · 8 downloads

Looks like Northbridge is putting up most of the cash for the buyout. I bought some at 7.5 cents when the deal was announced. Seemed like a low risk arb. 

[Viking]

I am almost done putting together my ‘Top 10’ list of the most important things/events that drove shareholder value at Fairfax in 2024. My post should be out in the next couple of days. 

 

Eurobank deserves a special shout out. What it has accomplished/delivered over the past 4 years is amazing - it has delivered a total return of $2.1 billion to Fairfax shareholders (increase in market value + dividend paid). In 2024, it delivered a total return of $784 millon, or 35%. 

 

So it must be over valued today. Right? Wrong. It is still very (dirt?) cheap. (Tangible book value at Sept 30, 2024 was €2.27/share.)

 

Importantly, it will be taking Hellenic Bank private in 2025 and this sets the table nicely for the next stage in the growth of the company (top and bottom lines). The management team at Eurobank has been making all the right moved for years now - and this should tell investors something. 

 

Bottom line, Eurobank is turning into one of Fairfax's best-ever investments. And it looks like it is just getting started. 

 

PS: one week into 2025, Eurobank's stock is up another $150 million.  

 

Edited January 8 by Viking

[gfp]

Look at Eurobank breaking out!  I hadn't noticed until your post