Fairfax stock positions

[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

 

[Viking]

15 minutes ago, gfp said:

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

 

 

+1. Both Eurobank and especially Hellenic Bank are overcapitalized. My guess is the management team at Eurobank is licking their chops - and already has a plan in place to 'solve' that problem.

• Another large dividend?
• Begin sizeable share buybacks?
• More acquisitions? (After they close on and digest Hellenic Bank)

Edited January 8 by Viking

[Viking]

Fairfax's second largest equity holding is FFH-TRS. This holding is up $914 million in 2024. Over the past 4 years it is up $2 billion. 

 

Now let's put Eurobank and FFH-TRS together. Together they are up $1.7 billion in 2024 ($784+$914). And $4.1 billion over the past 4 years. WOW!

 

Fairfax's average total equity portfolio was probably about $20 billion in 2024. Eurobank and FFH-TRS represent about 26.5% of the total. In 2024, these two investments delivered a total return of 8.5%.

 

Guess what Fairfax's equity portfolio delivered in 2024? A number much higher than 8.5%. Two investments delivered that. Fairfax has another 73.5% in equity investments that are - as a group - performing well (some very well).

 

At the start of 2024, investors were WAY TOO PESSIMISTIC in their estimates of what Fairfax's equity portfolio would deliver in 2024 and future years. My guess is that remains the case today.   

 

Edited January 8 by Viking

[Dinar]

This is going to sound horrible, but I think the California fire situation is about to drive premiums, including reinsurance up quite a bit.  The property loss must be immense, and even if insurance losses are not that big, it might still enforce underwriting discipline.  

[gfp]

Sounds like the state of California FAIR Plan insurance outfit is going to get a large chunk of it.  I wonder who sells reinsurance to that entity?

[mananainvesting]

JP Morgan estimated $10B in Insured Losses due to California Wild Fires. 

 

https://www.investors.com/news/top-california-property-insurer-earns-double-upgrade-from-goldman/

 

[Hoodlum]

51 minutes ago, mananainvesting said:

JP Morgan estimated $10B in Insured Losses due to California Wild Fires. 

 

https://www.investors.com/news/top-california-property-insurer-earns-double-upgrade-from-goldman/

 

 

But with of most of that not covered by reinsurance.

 

Based on a preliminary assessment of the affected area and historical events, insured losses from this fire could approach $10 billion, with primary carriers being more exposed than reinsurers, the note said. Arch Capital (ACGL) and RenaissanceRe (RNR) are the most exposed reinsurers, but their losses should be less than for similar events prior to 2023, the JPMorgan note said.

[Hoodlum]

Just to close of on the Peak (Bauer acquisition).  It looks like both CCM and Bauer were valued at 8x earning.

 

https://www.theglobeandmail.com/business/article-northleaf-buys-ccm-stake-hockey-equipment/

 

Quote

Altor’s growth strategy at Rossignol included building the company’s sports clothing business. Mr. Nabib said under its new owners, CCM plans to expand its apparel sales.

 

The private equity funds declined to disclose the terms of the transaction. Two sources with knowledge of the sale said Altor and Northleaf paid a total of $600-million in enterprise value – equity plus debt – which is eight times the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) last year.

 

Private equity firms control the hockey equipment industry. CCM has approximately 35 per cent of the market and its major rival is Bauer Hockey LLC, with a roughly 60-per-cent share.

 

In October, Fairfax Financial Holdings Ltd. announced a deal to take control of Bauer by acquiring Sagard Holdings Inc.’s stake. The two sources said Fairfax also paid eight times EBITDA for Bauer, and Altor looked at buying the company before purchasing CCM.

 

 

 

 

Edited January 9 by Hoodlum

[Maverick47]

 

On 1/8/2025 at 1:38 PM, gfp said:

Sounds like the state of California FAIR Plan insurance outfit is going to get a large chunk of it.  I wonder who sells reinsurance to that entity?

All of the primary property insurers in the state share in the losses of the FAIR plan in proportion to their own voluntary market shares.  They will receive assessments from the FAIR plan to pay for losses that exceed the Plan’s ability to pay…because of this, I don’t believe the FAIR plan purchases reinsurance coverage itself, but I could be wrong about that.

 

I also don’t know how companies’ assessments are handled.  In some states, companies are allowed to recoup FAIR plan assessments in future years from their own future customers by adding recoupment surcharges to their customers’ bills until they have recouped the full amount of the assessment they paid previously.  Since a recoupment mechanism may exist, typical cat reinsurance contracts wouldn’t cover assessments.

 

Another possibility if a state doesn’t allow this sort of assessment recoupment mechanism is for their catastrophe reinsurance contract to specifically allow for these FAIR Plan assessments to be included with their own direct losses reported to their reinsurers.  In that case, it would be difficult to know which reinsurers have the most exposure since it would depend upon the reinsurance contract language for each primary company, loss attachment points, and the percentage share of each reinsurer in the company’s cat reinsurance treaty….

 

 

[gfp]

3 hours ago, Maverick47 said:

 

All of the primary property insurers in the state share in the losses of the FAIR plan in proportion to their own voluntary market shares.  They will receive assessments from the FAIR plan to pay for losses that exceed the Plan’s ability to pay…because of this, I don’t believe the FAIR plan purchases reinsurance coverage itself, but I could be wrong about that.

 

I also don’t know how companies’ assessments are handled.  In some states, companies are allowed to recoup FAIR plan assessments in future years from their own future customers by adding recoupment surcharges to their customers’ bills until they have recouped the full amount of the assessment they paid previously.  Since a recoupment mechanism may exist, typical cat reinsurance contracts wouldn’t cover assessments.

 

Another possibility if a state doesn’t allow this sort of assessment recoupment mechanism is for their catastrophe reinsurance contract to specifically allow for these FAIR Plan assessments to be included with their own direct losses reported to their reinsurers.  In that case, it would be difficult to know which reinsurers have the most exposure since it would depend upon the reinsurance contract language for each primary company, loss attachment points, and the percentage share of each reinsurer in the company’s cat reinsurance treaty….

 

 

 

thanks Maverick47!  Also explains all these line items on my Louisiana insurance policies that are tacked on "2005 Louisiana FAIR plan emergency assessment" ... That was 20 years ago and I'm still paying several hundred

[Maverick47]

4 hours ago, gfp said:

thanks Maverick47!  Also explains all these line items on my Louisiana insurance policies that are tacked on "2005 Louisiana FAIR plan emergency assessment" ... That was 20 years ago and I'm still paying several hundred

From what I can tell, the 2005 hurricane losses to the Louisiana FAIR plan were higher than the maximum 10% of 2005 statewide voluntary property premiums in the state that the FAIR plan was allowed to assess…so they issued revenue bonds to pay the 2005 FAIR plan losses instead, and the assessments since then have been used to retire the bonds.  If I’m not mistaken, the Louisiana assessments started in 2007 and are expected to end in 2025.  So if there are no assessable FAIR plan losses in 2025 and forward, you may be able to see those surcharges finally drop off your insurance bills in the not too distant future…

[Hoodlum]

On 1/8/2025 at 3:42 PM, gfp said:

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

 

 

it is Interesting that Go Digit has gone in the opposite direction the past few weeks and is now back to the IPO price.  I wonder what that is about.

[TwoCitiesCapital]

7 hours ago, Hoodlum said:

 

it is Interesting that Go Digit has gone in the opposite direction the past few weeks and is now back to the IPO price.  I wonder what that is about.

I know I saw India's GDP growth is expected to slow some in 2025 - perhaps thats weighing on the market as a whole? The NIFTY index is down 10-12% since September?

 

Also, while dangerous to apply generalizations to individual circumstances, my understanding is that MOST IPOs return to their IPO price, if not lower, within 3-years of the IPO once the hype and limited volume/access has faded. This is precisely why I have a rule to not buy IPOs in the first 2-years in place for my portfolios. 

Edited January 10 by TwoCitiesCapital

[Hoodlum]

Fairfax is selling 2.2% of Eurobank to meet regulatory ownership requirement of minority ownership to be below 33%.  Price will be announced tomorrow.

https://www.tovima.com/finance/eurobank-prem-watsa-s-fairfax-reducing-stake-to-33/

 

Canadian billionaire investor and businessman Prem Watsa commenced the placement of 2.2% of Greek systemic lender Eurobank’s shares – some 80 million shares in total – on Wednesday, with the price per share to be announced on Thursday morning.

 

According to sources from within the bank, the founder and CEO of Fairfax Financial Holdings was reducing the holding company’s stake in ATHEX-listed Eurobank to meet regulatory conditions – which mandate a minority stake of no more than 33.3% – and is not part of any change in the composition of the bank’s main shareholders.

 

According to market watchers, the price per share was expected to be just under of the current market rate.

 

According to a Reuters dispatch, demand for the placement is already oversubscribed.

Watsa had previously received a special exemption from banking regulators to own a stake higher than 33.3% but without retaining board voting rights. That exemption was recently rescinded.

[nwoodman]

53 minutes ago, Hoodlum said:

Fairfax is selling 2.2% of Eurobank to meet regulatory ownership requirement of minority ownership to be below 33%.  Price will be announced tomorrow.

https://www.tovima.com/finance/eurobank-prem-watsa-s-fairfax-reducing-stake-to-33/

 

Canadian billionaire investor and businessman Prem Watsa commenced the placement of 2.2% of Greek systemic lender Eurobank’s shares – some 80 million shares in total – on Wednesday, with the price per share to be announced on Thursday morning.

 

According to sources from within the bank, the founder and CEO of Fairfax Financial Holdings was reducing the holding company’s stake in ATHEX-listed Eurobank to meet regulatory conditions – which mandate a minority stake of no more than 33.3% – and is not part of any change in the composition of the bank’s main shareholders.

 

According to market watchers, the price per share was expected to be just under of the current market rate.

 

According to a Reuters dispatch, demand for the placement is already oversubscribed.

Watsa had previously received a special exemption from banking regulators to own a stake higher than 33.3% but without retaining board voting rights. That exemption was recently rescinded.

That sounds more like they are taking money off the table to me than compliance.  The upside is that that it will free up Eurobank to repurchase shares.  

 

Definitely closer to FV than it was but still cheap. Should give Fairfax around 80mx€2.40/.96=$USD200m pre-tax 

 

Edit: it gives them a mark too

 

https://www.eurobankholdings.gr/en/investor-relations/shareholders/shareholding-structure

Edited January 22 by nwoodman

[dartmonkey]

If Fairfax had 32.89% on 2024-12-31, how did they get over 33.3%, requiring a 2.2% reduction? Eurobank repurchased shares in 2023, but not in 2024, as far as I can tell, and I don't see any repurchase announcement for 2025.

 

 

[Viking]

35 minutes ago, nwoodman said:

That sounds more like they are taking money off the table to me than compliance.  The upside is that that it will free up Eurobank to repurchase shares.  

 

Definitely closer to FV than it was but still cheap. Should give Fairfax around 80mx€2.40/.96=$USD200m pre-tax 

 

Edit: it gives them a mark too

 

https://www.eurobankholdings.gr/en/investor-relations/shareholders/shareholding-structure

 

@nwoodman, thanks for highlighting magnitude... US$200 million is a meaningful amount. At what point would something like this require Fairfax to update its carrying value on Eurobank (to their selling price)? That would trigger a massive unrealized gain. 

 

I wonder if this also ties into capital return at Eurobank moving forward. We will find out shortly what Eurobank has planned (for 2024 earnings): 

• Continue with dividend
• Buy back stock

Perhaps Eurobank wants to buy back stock. Perhaps the Greek regulator signalled that Fairfax would need to get their ownership position below 33% before approving a buyback. 

 

It is nice that Fairfax was able wait a year to do this - Eurobank's stock is much higher.  

 

[nwoodman]

Looking at this more closely, I don't think the sale gives them the ability to mark to market because of the rules around equity method accounting:

 

"To capture the excess of fair value on their balance sheet, Fairfax would need to:

1. Reclassify the Eurobank stake as a financial asset (FVTPL or FVOCI).

2. Lose significant influence over Eurobank (e.g., reduce stake or governance involvement).

3. Take an impairment reversal under IFRS if applicable.

 

Absent these changes, the excess fair value can only be disclosed but not formally reflected in the balance sheet under the equity method."

 

However, the gain on sale of the 80m shares does flow through the P&L.  Roughly (2.4-0.92)*80m/0.96=123.3 m =123.3/22=5.6 per share 

Edited January 22 by nwoodman

[Viking]

6 minutes ago, nwoodman said:

Looking at this more closely, I don't think the sale gives them the ability to mark to market because of the rules around equity method accounting:

 

"To capture the excess of fair value on their balance sheet, Fairfax would need to:

1. Reclassify the Eurobank stake as a financial asset (FVTPL or FVOCI).

2. Lose significant influence over Eurobank (e.g., reduce stake or governance involvement).

3. Take an impairment reversal under IFRS if applicable.

 

Absent these changes, the excess fair value can only be disclosed but not formally reflected in the balance sheet under the equity method."

 

However, the gain on sale of the 80m shares does flow the P&L.  Roughly (2.4-0.92)*80m/0.96=123.3 m =123.3/22=5.6 per share 

 

@nwoodman , got it! Thanks for the explanation. 

 

In terms of how much of Eurobank that Fairfax owns, perhaps we can use the dividend payment as a guide. Fairfax received 34.6% of the total dividend payment ($128/370).

 

From Fairfax's Q3 earnings report.

 

"On July 31, 2024 Eurobank paid a dividend of approximately $370 (€342). The company’s share of that dividend was approximately $128 (€118), which will be recorded in the company's consolidated financial reporting in the third quarter of 2024 as a reduction of Eurobank's carrying value under the equity method of accounting."

[nwoodman]

@Viking, when this came up a while back there was a view that they were over the reported 33.29%.  That div calculation suggests the same