Fairfax 2023

[newtovalue]

So we're past peak hurricane season and so far no major storms. 

 

Fingers crossed but looks like this season may be milder than in the past. This will be a huge windfall for all the insurance companies that wrote CAT insurance in Florida. I remember BRK had done it - but not sure if FFH - any insight from the board?

[gfp]

36 minutes ago, newtovalue said:

So we're past peak hurricane season and so far no major storms. 

 

Fingers crossed but looks like this season may be milder than in the past. This will be a huge windfall for all the insurance companies that wrote CAT insurance in Florida. I remember BRK had done it - but not sure if FFH - any insight from the board?

 

Fairfax certainly has exposure to hurricane risk and profit but is much more diversified in their cat exposure.  Berkshire this year is extremely unbalanced in their cat exposure with unusual concentration in Florida hurricane risk.  Fingers crossed, there is still plenty of Hurricane season left.

 

Quote from Peter Clarke on the most recent (august) conference call -

Quote

Peter Clarke

Yes. Thanks, Nik. You're exactly right. The markets continue to harden, but especially on the property side and the property cat side. To date, we've grown marginally on property cat. We're taking advantages. We're seeing rate in excess of 30%. And our net exposure has been going up as we reduced the amount of reinsurance we bought. But generally speaking, we're evaluating that as we speak. It continues to be a very good market, the property cat market. And we'll look at it again on the 1/1 renewals.

 

Edited September 24, 2023 by gfp

[SafetyinNumbers]

4 hours ago, gfp said:

 

Fairfax certainly has exposure to hurricane risk and profit but is much more diversified in their cat exposure.  Berkshire this year is extremely unbalanced in their cat exposure with unusual concentration in Florida hurricane risk.  Fingers crossed, there is still plenty of Hurricane season left.

 

Quote from Peter Clarke on the most recent (august) conference call -

 

Still not out of the woods on hurricane season but Q3 consensus EPS is only ~US$25 and that seems very beatable without large cat losses in the quarter. I think it’s why the stock made new highs this week. Presumably FFH is trading below book value again based on real time book value.

[Viking]

4 hours ago, newtovalue said:

So we're past peak hurricane season and so far no major storms. 

 

Fingers crossed but looks like this season may be milder than in the past. This will be a huge windfall for all the insurance companies that wrote CAT insurance in Florida. I remember BRK had done it - but not sure if FFH - any insight from the board?

Strictly from a financial perspective, we all should be praying for a couple of bad hurricanes. Small hit to short term results. But it would likely extend the hard market another year of two - resulting in higher for longer profits (price increases and better terms and conditions).
 

I think much of what people are discounting into their models when valuing Fairfax is too pessimistic and one sided. Because each risk has a corresponding opportunity. Discounting the risk and not adding back some of the opportunity is not being conservative. That makes no sense to me.

[SafetyinNumbers]

3 hours ago, Viking said:

Strictly from a financial perspective, we all should be praying for a couple of bad hurricanes. Small hit to short term results. But it would likely extend the hard market another year of two - resulting in higher for longer profits (price increases and better terms and conditions).
 

I think much of what people are discounting into their models when valuing Fairfax is too pessimistic and one sided. Because each risk has a corresponding opportunity. Discounting the risk and not adding back some of the opportunity is not being conservative. That makes no sense to me.

 

I think the long term analysis is complicated. The extra capital from avoided losses this season can be invested at high returns. If pricing gets worse and premium growth declines that would free up even more capital for potential equity investments. 
 

I think in the short term, the stock likely benefits if we avoid any meaningful cat losses in Q3. Hurricane season makes holders antsy and buyers reluctant. Between this hurricane season and next, I think we likely get some multiple expansion. 

[Viking]

2023 Interest and Dividend Income - Earnings Update

 

The key to forecasting is getting the ‘big rocks’ right. From an earnings perspective, there is no more important item to Fairfax today than interest and dividend income. From 2016-2022, this one ‘bucket’ represented a total of about 30% of Fairfax’s various income streams. With ‘higher for longer’ increasingly becoming the new reality for interest rates, interest and dividend income will likely increase in the near term to represent close to 40% of Fairfax’s various income streams.

 

If we can get can get our estimates for this part of earnings modelled properly we should be well on our way to coming up with a quality earnings estimate for the company as a whole.  

 

Interest and dividend income is quite simple. It is relatively easy to calculate. It is usually not very volatile quarter to quarter. And it is pretty predictable, looking out a couple of years. This is why interest and dividend income is considered the highest quality source of earnings for an insurance company. 

 

Bottom line, interest and dividend income is important to Fairfax (and investors) because of its size, growth and its quality.

 

Interest and dividend income - components

 

Fairfax reports ‘interest and dividend income’ as a line item on its Consolidated Statement of Income. It is made up of three parts:

• Interest income: received from the fixed income portfolio (cash, short term investments, bonds, derivatives and other invested assets)
• Dividends: received from equity portfolio (common and preferred stocks)
• Investment expenses: paid to Hamblin Watsa

When looking at ‘interest and dividends’ for Fairfax, dividends now represent less than 10% of the total. Interest income represents more than 90% of the total, so this is what we are going to focus on. 

 

Before we do the deep dive on interest income at Fairfax, let’s step back a look at the big picture. 

—————

 

What did we learn in financial markets this week? 

 

Like a splash of cold water to the face, financial markets are waking up to the likelihood that interest rates are not coming down any time soon. At the longer end of the curve, despite the big move that has happened over the past month, bond yields look like they could be headed even higher.  

 

What is ‘higher for longer?’ 

 

Higher for longer is the realization from financial markets that the Fed will likely need to keep interest rates elevated well into 2024. The Fed met this week and they delivered this message loud and clear. US economic growth continues to surprise to the upside. Employment is strong. Oil is back over $90. Although it has come down, inflation remains stubbornly high.

 

Further out on the curve, bond yields have reached new cycle (16 year) highs. Financial markets are likely saying they don’t think higher interest rates are going to cause a recession - the economy can handle higher interest rates. The current supply / demand situation also suggests rates further out on the curve might go even higher: issuance (supply) of longer dated treasuries has increased while demand remains muted and this has pushed prices lower (and yields higher). This supply/demand dynamic is expected to persist in 2H 2023. 

 

What were financial markets thinking at the end of 2022?

 

At the end of 2022, financial markets were expecting a recession in 2023. And it was expected the Fed would be cutting the Fed funds rate by 100 basis points in 2H 2023. 

 

Financial markets were completely wrong in December 2022. Today, they are now expecting Fed fund rate to peak near 5.5% in January 2024. And from there to slowly drift a little lower but to still be over 5% in July of 2024. 

 

Yes, financial markets could be wrong again. Bottom line, ‘higher for longer’ appears to be what has been getting priced into financial markets in recent weeks.    

 

Source: https://x.com/asif_h_abdullah?s=21

 

What does all this mean for Fairfax?

 

‘Higher for longer’ is a big deal for Fairfax. They have a $40 billion fixed income portfolio. As we discussed, interest and dividend income is already the largest driver of earnings for Fairfax. So an already big number is going to get even bigger.

 

The fixed income portfolio of Fairfax has a very short average duration of 2.4 years at June 30, 2023. This means a significant amount of their portfolio continues to mature each quarter. Compared to all other P&C insurers (not named WR Berkley - who is also at 2.4 years), Fairfax is able to reinvest a significant portion of their fixed income portfolio at still increasing interest rates. This means the quarterly run rate for interest income will likely continue to move meaningfully higher in the coming quarters. 

 

As a result of ‘higher for longer,’ estimates for interest and dividend income for Fairfax will need to be updated - yes, it is going higher. And given the importance of interest and dividends, this means earnings estimates will also need to go higher. Analysts are going to feel like they are living their own version of the movie Groundhog Day. However, we will not wait until Fairfax reports Q3 results to ‘discover’ what we already largely know - we are going to update our forecast for interest and dividend income in remainder of this post.

—————-

 

Interest Income - a deep dive

 

Two items drive interest income: 

• The size of the fixed income portfolio
• The average yield earned on the investments held in the portfolio

How big is the fixed income portfolio at Fairfax?

 

The fixed income portfolio at Fairfax increased in size from $20.3 billion in 2016 to $38.9 billion in 2022. The total increase was 92% and the annual compound growth rate was 11.5%.

 

My forecast is for the size of the fixed income portfolio to: 

• increase 8% in 2023 to $42 billion. This will be driven by growth in premiums from the continuing hard market. It will also be driven by earnings, some of which will likely be reinvested in fixed income securities. The continuing bear market in longer dated bonds is a small headwind (as the value of these securities fall).
• increase 12% in 2024 to $47 billion. Similar to 2023, this will be driven by the hard market and growth in earnings. The closing of the GIG acquisition will add $2.4 billion to fixed income portfolio. This may happen in Q4 of 2023. 
• increase 6.4% in 2025 to $50 billion. This is a very rough number. Strong earnings are expected to be a tailwind. We will fine tune this estimate when we get into 2024 as we get more information.   

Bottom line, we are seeing strong growth in the size of the fixed income portfolio at Fairfax and this should continue moving forward. 

 

How much did Fairfax earn on its fixed income portfolio? A look back.

 

Total interest income at Fairfax increased from $514 million in 2016 to $874 million in 2022. The total increase was 70% and the annual compound growth rate was 9.3%.

 

The average yield on the fixed income portfolio from 2016-2022 was 2.4%. Yes, that is a low number. From 2016, Fairfax has been positioned very conservatively with their fixed income portfolio (high quality and low duration). 

 

Green shoots: in 2022, interest income was $874 million, an increase of 54% over 2021. This was a new record for Fairfax. 

 

Active management matters again - duration and credit quality

 

One of their best investment decisions ever: in Q4, 2021 Fairfax shortened the average duration of their fixed income portfolio to 1.2 years. They also shifted to holding mostly government bonds. Of note, in Q4 of 2021, Fairfax sold $5.2 billion in corporate bonds at a yield of 1% and realized a $253 million gain (these bonds were purchased in March/April of 2020 when credit spreads blew out due to covid). 

 

And in 2022, the fed moved to aggressively moved to increase interest rates which unleashed hell on bond (and stock) markets. Of course, with their fixed income portfolio sitting at 1.2 years average duration, Fairfax avoided billions in losses on their fixed income portfolio. This positioning also allowed Fairfax to quickly benefit from much higher interest rates. Interest income bottomed out in Q4 2021 and has been relentlessly moving higher every quarter since then (more on this below). 

 

In 2022 Fairfax began extending duration to 1.6 years. And in 1H 2023 average duration has been increased further to 2.4 years. This is locking in higher rates for years into the future. 

 

‘Higher for longer,’ with yields on longer dated treasuries hitting 16 year highs this month, Fairfax has a wonderful opportunity to extend duration even more. This will be something to watch for when Fairfax reports Q3 results.

 

Quality management: lead by Brian Bradstreet, the fixed income team at Fairfax/Hamblin Watsa has been executing exceptionally well in recent years. This is not surprising - their track record over the long term has been outstanding. Another misunderstood and under appreciated part of Fairfax.

 

The move in US treasuries over the past 7 quarters has been epic - and that is not hyperbole.

 

Fun thought exercise

 

Can we estimate how much of Fairfax’s $40 billion fixed income portfolio is ‘maturing’ each quarter and what the pickup in yield is when the proceeds are reinvested at todays much higher rates? Let’s assume $2.5 billion is maturing each quarter and the yield pickup is 2%. If close to accurate, this suggest interest income should continue to grow at $50 million each quarter over the prior quarters number. And this should continue for the next couple of quarters.  

 

What to board members think? Too high?

 

Forecast for fixed income for 2023, 2024 and 2025

 

Given the importance of interest income to the Fairfax story we are going to get into the weeds a little bit more. 

 

Because so much has changed so fast over the past 24 months, historical numbers are pretty much useless to use on their own to estimate interest income. This is why most analysts have been so wrong with their earnings estimates for Fairfax over the past year. They are primarily using historical numbers to estimate interest income. In another couple of quarters, once interest income ‘normalizes’ then the analysts earnings estimates will better reflect reality. 

 

To build an accurate forecast for interest income we do need to start with historical numbers, as they provide a valuable baseline. But we need to use quarterly numbers. And then we need to overlay the new news (I call these ’swings’): 

• interest rate pickup - for bonds maturing each quarter which are then reinvested at much higher rates. Let’s assume $20 million per quarter. Likely way low. Is $50 million more accurate as per my numbers above? To be conservative let’s assume there is no interest rate pickup in 2024; my guess is there will be some in Q1.
• organic growth - this is growing the size of fixed income portfolio. Let’s assume an increase in the size of the fixed income portfolio of $2.5 billion x 4% = $100 million per year = $25 million per quarter. 
• new business - interest rate pickup: PacWest loans are expected to deliver a 10% total return. Some of this gain will be price. It seems reasonable to assume the yield pickup will be about 4% or 5% = $90 million per year = $22 million per quarter, starting in Q3, 2023.
• new business - increase in fixed income portfolio: when it closes the GIG acquisition will add another $2.4 billion to the fixed income portfolio. Let’s assume an interest rate of 4% = $100 million per year = $25 million per quarter. Let’s start this in Q1 2024. If the deal closes in Q4, as expected, we can move this forward a quarter when we do out next update.
• Fed rate cuts - let’s build in 2 rate cuts from the Fed in 2H 2024. Let’s assume this cut impacts $10 billion by 0.5% = $50 million annual decline = $12.5 million per quarter. To be conservative lets go with a decline of $25 million per quarter.

The key here is to try and understand what the largest drivers of change are and to do a very rough estimate of the impact. 

 

Bottom line, doing our estimate by quarter should add a lot of accuracy to our quarterly and annual estimates.

 

Step 1: Understand interest income swings by quarter

 

Below I have tried to capture the big ‘swings’ that will impact interest income moving forward. By breaking down the impact by quarter we now have a rough number we can add to our baseline numbers.

 

Please note, it is important to get these estimates approximately right. Some will be high. Other will be low. Collectively, they will should be close.

 

Step 2: Build our annual forecast by quarter

 

Together with our baseline (historical) numbers, we used the ’swings’ above to help us come up with our new forecasts for the remainder of 2023 and for 2024 and 2025. Note, i did take my ‘swings’ numbers above down a little for each quarter - to add some conservatism. 

 

My new forecast for interest income for Fairfax is:

• $1.865 billion in 2023, a YOY increase of 114%
• $2.4 billion in 2024, a YOY increase of 29%
• $2.24 billion in 2025, or a YOY decline of 7% 

This results is a portfolio yield of:

• 4.4% in 2023
• 5.1% in 2024
• 4.5% in 2025

The total number of $2.4 billion for 2024 looks high (just because it IS a huge number). But the portfolio yield of 5.1% looks reasonable (remember the Kennedy Wilson portfolio is about $4 billion and it is yielding around 8%). But these numbers are where my logic and math takes me so that is what I will go with for now. As new information comes in (or I discover errors in data to logic) I will update my forecasts. 

 

Important: this is my first stab as this kind of detail. So there will be errors. Please let me know where my logic is wrong so I can make the estimate better over time. Discussing/debating the assumptions/logic with others on the board is when the learning really happens. Thank you in advance

 

 

Interest and Dividend Income

 

Coming full circle, let’s now overlay our new estimate for interest income into our estimate for interest and dividend income.

 

My new forecast for interest and dividend income for Fairfax is:

• $1.945 billion in 2023, a YOY increase of 102% 
• $2.525 billion in 2024, a YOY increase of 30%
• $2.381 billion in 2025, or a YOY decline of 6% 

 

 

Conclusion

 

Interest and dividend income is the most important income stream for Fairfax. It is poised to increase more than 100% in 2023 and another 30% in 2024.

 

The driver of this increase is the fixed income portfolio. 

• double in size: the total fixed income portfolio more than doubled in size the past 8 years from $20.3 billion in 2016 to an estimated $42 billion in 2023.
• double in yield: The yield on the fixed income portfolio averaged 2.4% from 2016-2022. It is estimated to come in at 4.4% in 2023 and 5.1% in 2024.   

A double in size combined with a double in yield is nuts. Investors are getting served up a double-double with Fairfax’s fixed income portfolio (that line will only make sense to Tim’s coffee drinkers). 

 

The story gets better. 

 

Fairfax is positioned perfectly to benefit from ‘higher for longer.’ Fairfax has an opportunity today to lengthen duration. This would then lock high interest income into 2025 and 2026.  

 

What about corporates? Fairfax has the majority of its fixed income portfolio invested in safe but lower yielding government bonds today. What if they start to move out on the curve AND at the same time shift more into corporates. That would likely result in a yield pickup of around 1.5% or 2% over governments bonds. So for all of you out there who are thinking that interest and dividend income will peak out at $2.5 billion in 2024… maybe not.  

—————

 

Dividends

 

Dividends have increased from $80 million in 2014 to $140 million in 2022, a compound increase of 7.2% per year over 8 years.

 

Dividends should continue to increase in the future. Eurobank would like to start paying a dividend in 2024. They have discussed 25% as a reasonable payout ratio. If this happens, Fairfax could see dividends increase by up to $75 million just from Eurobank. That would be a 50% increase to dividends. Regardless, we should see this continue to increase in the future as Fairfax grows its equity holdings and as existing holdings increase their payouts. 

—————

 

Where do i go to learn about where interest rates might be going?

 

I follow a guy named Joseph Wang - The Fed Guy. I have been following Joseph for more than a year and he has been remarkably accurate with his projections for interest rates. Just as importantly, Joseph is a great educator. He lays out his thinking on interest rates (and the Fed meeting last week) in his most recent podcast on September 23.

 

Edited September 24, 2023 by Viking

[StubbleJumper]

1 hour ago, Viking said:

Important: this is my first stab as this kind of detail. So there will be errors. Please let me know where my logic is wrong so I can make the estimate better over time. Discussing/debating the assumptions/logic with others on the board is when the learning really happens. Thank you in advance

 

 

Thank you for sharing your thought process.  Don't worry about being wrong, as it's impossible to be precisely right.  The quarterly report gives a breakdown of the fixed income portfolio broken down by ranges of maturity, but even with those breakdowns it's still not possible to take an aging of accounts approach because there is undoubtedly a great deal of churn within the fixed income port during a year (eg, sell a whackload of 5-yr and use the proceeds to buy 2-yr, then turn around and sell a whackload of 2-yr and use the proceeds to buy 10-yr).  The approach you've taken gets you to the right neighbourhood for interest income, and that's probably good enough, particularly for 2025 when the level of uncertainty grows.

 

1 hour ago, Viking said:

Fairfax is positioned perfectly to benefit from ‘higher for longer.’ Fairfax has an opportunity today to lengthen duration. This would then lock high interest income into 2025 and 2026.  

 

 

Higher for longer would definitely be a major boon for FFH if they keep the duration relatively short.  I do wonder, however, whether they aren't looking at the 5-yr these days and contemplating a slight increase in duration.  Then again, I was the guy who suggested in Feb 2022 that the 2-yr looked like a bit of a sweet spot, and if FFH had held that same view, it would have cost a pile of interest income.  In fact, in 2023, FFH would have been better off to shorten duration rather than lengthen it!  All of our collective hand-wringing in Feb 2023 about whether duration should be 2, 2.5 or 3 years has been entirely directionally wrong!

 

1 hour ago, Viking said:

What about corporates? Fairfax has the majority of its fixed income portfolio invested in safe but lower yielding government bonds today. What if they start to move out on the curve AND at the same time shift more into corporates. That would likely result in a yield pickup of around 1.5% or 2% over governments bonds. So for all of you out there who are thinking that interest and dividend income will peak out at $2.5 billion in 2024… maybe not.  

 

 

 

I don't think that we will see a wholesale move into corporates unless all hell breaks loose in credit markets.  FFH tends to be pretty rational about when to reach for yield and when to stick to sovereign debt.  In short, they don't tend to buy risky bonds unless they are getting adequately paid to do so.  I don't think a spread of 1% or 2% is anywhere close to enough to trigger a shift into risky bonds.  On the other hand, if all hell does break loose in credit markets and the market does begin paying for risk, that will be the time when FFH becomes opportunistic and we will see more corporates, and, in particular, more bond/warrant deals.

 

Keep your fingers crossed for another couple years of favourable underwriting conditions AND favourable movement in fixed income markets.  It's a remarkable set of conditions!

 

 

SJ

[dealraker]

8 hours ago, Viking said:

Strictly from a financial perspective, we all should be praying for a couple of bad hurricanes. Small hit to short term results. But it would likely extend the hard market another year of two - resulting in higher for longer profits (price increases and better terms and conditions).
 

I think much of what people are discounting into their models when valuing Fairfax is too pessimistic and one sided. Because each risk has a corresponding opportunity. Discounting the risk and not adding back some of the opportunity is not being conservative. That makes no sense to me.

Yes.

[MMM20]

https://www.wsj.com/real-estate/commercial/commercial-real-estates-next-big-headache-spiraling-insurance-costs-604efe4d?st=jtyozjrpfikx3at&reflink=desktopwebshare_permalink

 

So, all else equal, what happens to insurance pricing if property values actually do reset down ~20-30%, with mortgage rates being what they are and the markets actually starting to price in higher rates for longer? Obviously don't want to read too much into SF office prices down 50%+ or whatever it is exactly from peak. Just trying to poke holes in the FFH thesis...

 

Edited September 26, 2023 by MMM20

[gfp]

Not sure I understand your question.  Commercial property values have already reset down 20-30%.  The replacement cost of the buildings hasn't gone down.  I don't think the price of commercial insurance is closely linked to the market value of the properties except to the extent that the size of the loan on a building will set a floor on the amount of coverage a lender will let you get away with.

[StubbleJumper]

8 minutes ago, MMM20 said:

https://www.wsj.com/real-estate/commercial/commercial-real-estates-next-big-headache-spiraling-insurance-costs-604efe4d?st=jtyozjrpfikx3at&reflink=desktopwebshare_permalink

 

So, all else equal, what happens to insurance pricing if property values actually do reset down ~20-30%, with mortgage rates being what they are and the markets actually starting to price in higher rates for longer? Obviously don't want to read too much into SF office prices down 50%+ or whatever it is exactly from peak. Just trying to poke holes in the FFH thesis...

 

 

Well, when you buy insurance, what are you buying?  You aren't insuring for the cost of buying a replacement building on the commercial real estate market.  You are insuring for the cost of repairing the existing building, or in the worst case, rebuilding it.  The cost to rebuild can be much higher or much lower than the prevailing market price for a similar existing building.

 

The interesting thing that actually has happened is that repair and rebuild prices have both gone up substantially due to inflation, so premium must follow....

 

 

SJ

[MMM20]

Yeah, I guess I'm conflating replacement cost with market prices, but you'd think one would follow the other. Property values down -> weakening demand for building materials and labor and so prices down -> replacement costs down -> insurance rates down. Maybe not the best logic. 

 

Edited September 26, 2023 by MMM20

[UK]

1 hour ago, MMM20 said:

https://www.wsj.com/real-estate/commercial/commercial-real-estates-next-big-headache-spiraling-insurance-costs-604efe4d?st=jtyozjrpfikx3at&reflink=desktopwebshare_permalink

 

So, all else equal, what happens to insurance pricing if property values actually do reset down ~20-30%, with mortgage rates being what they are and the markets actually starting to price in higher rates for longer? Obviously don't want to read too much into SF office prices down 50%+ or whatever it is exactly from peak. Just trying to poke holes in the FFH thesis...

 

 

Nice chart:)

Edited September 26, 2023 by UK

[TwoCitiesCapital]

2 hours ago, MMM20 said:

Yeah, I guess I'm conflating replacement cost with market prices, but you'd think one would follow the other. Property values down -> weakening demand for building materials and labor and so prices down -> replacement costs down -> insurance rates down. Maybe not the best logic. 

 

 

It should work that way - and probably does given a long enough perspective and timeline. But you can get significant deviations. 

 

We have ~30 story sky scraper downtown that was built in 1986 for $150 million back during the 80s. It's been empty for the better part of a decade. 

 

It can't even be sold today for $4 million (the last auction price that was walked away from) because the cost to redevelop to anything usable remains uneconomic. 

 

So you have a value that is down 97% from its original build price, probably is less than a fraction of 1% of what it'd cost today, but I guarantee insurance on it wouldn't be cheap because the costs to repair and etc would still be exorbitant relative to the property's market price. 

[UK]

21 minutes ago, TwoCitiesCapital said:

 

It should work that way - and probably does given a long enough perspective and timeline. But you can get significant deviations. 

 

We have ~30 story sky scraper downtown that was built in 1986 for $150 million back during the 80s. It's been empty for the better part of a decade. 

 

It can't even be sold today for $4 million (the last auction price that was walked away from) because the cost to redevelop to anything usable remains uneconomic. 

 

So you have a value that is down 97% from its original build price, probably is less than a fraction of 1% of what it'd cost today, but I guarantee insurance on it wouldn't be cheap because the costs to repair and etc would still be exorbitant relative to the property's market price. 

 

https://www.statista.com/statistics/916054/us-nonresidential-building-construction-market-cost/

 

It seems it went down only -12 per cent after 2008-2009. 

[nwoodman]

Why buy for $1 when you can pay $1.20.  I am not not surprised the share price went down considerably.  Still under book (€1.99) so will be accretive but I am speculating that it buys some political good will down the track.  I was really hoping they would get this done around market value of say €1.50-1.60 rather than €1.80

 

https://www.ekathimerini.com/economy/1220864/hfsf-launches-disposal-of-its-stake-in-eurobank/

Edited September 27, 2023 by nwoodman

[SafetyinNumbers]

4 hours ago, nwoodman said:

Why buy for $1 when you can pay $1.20.  I am not not surprised the share price went down considerably.  Still under book (€1.99) so will be accretive but I am speculating that it buys some political good will down the track.  I was really hoping they would get this done around market value of say €1.50-1.60 rather than €1.80

 

https://www.ekathimerini.com/economy/1220864/hfsf-launches-disposal-of-its-stake-in-eurobank/

Net additional cost €10-15m doesn’t hurt too badly. Do you really think the share price reacted to that or just the general market jitters?

[nwoodman]

5 minutes ago, SafetyinNumbers said:

Net additional cost €10-15m doesn’t hurt too badly. Do you really think the share price reacted to that or just the general market jitters?

Nah, should have had my morning coffee before posting There has been some rumours doing the rounds about the ECB raising the minimum reserve requirements (MRR). Morgan Stanley did some modelling  attached,  TLDR minimal impact on Eurobank.  I guess I am just a little surprised as I figured this would be up and to the right given the low valuation but Greece has been suffering their share of misfortunes of late.

eemea_20230919_0946.pdf

[Viking]

59 minutes ago, nwoodman said:

Nah, should have had my morning coffee before posting There has been some rumours doing the rounds about the ECB raising the minimum reserve requirements (MRR). Morgan Stanley did some modelling  attached,  TLDR minimal impact on Eurobank.  I guess I am just a little surprised as I figured this would be up and to the right given the low valuation but Greece has been suffering their share of misfortunes of late.

eemea_20230919_0946.pdf 282.72 kB · 2 downloads

@nwoodman Thanks for the colour on Eurobank. I was wondering what was up with the share price. The important think to me is the health of the underlying business. As long as that keeps improving i am not too fussed about the share price. 

[gfp]

Routine renewal of the NCIB, including automatic plan to continue repurchase activity during blackout periods if they wish -

https://www.fairfax.ca/press-releases/fairfax-financial-holdings-intention-to-make-a-normal-course-issuer-bid-for-subordinate-voting-shares-and-preferred-shares-2023-09-28/

[SafetyinNumbers]

2 hours ago, gfp said:

Routine renewal of the NCIB, including automatic plan to continue repurchase activity during blackout periods if they wish -

https://www.fairfax.ca/press-releases/fairfax-financial-holdings-intention-to-make-a-normal-course-issuer-bid-for-subordinate-voting-shares-and-preferred-shares-2023-09-28/

The automatic plan is new, I think. 

[Crip1]

Meanwhile...
 

Interest rates have been volatile for the past few weeks as the 10-year has moved 45 basis points in less than a month. Besides the Fed saying “Higher for Longer” there has not been much news showing inflation getting worse. Though it’s been sticky, it is moving lower. Besides that, the resumption of student loan payments and likelihood of a Government shutdown are only going to take steam out of the economy. Noteworthy is that the inversion of the yield curve is moving lower, seemingly each day. It will be REALLY interesting to see what Fairfax does on their Fixed Income investments in the next few months. For the past year or two the risk-reward of buying long-term debt was skewed towards risk over reward. The more than longer-term rates move higher and inflation measures continue to look more benign, the risk-reward analysis will at some point flip to reward. When this happens, the returns which are currently locked in through 2025 will extend depending on what percentage of their fixed income investments they move into longer-term bonds.

 

-Crip

[UK]

https://www.wsj.com/finance/investing/catastrophe-bond-market-4a96483c?mod=hp_minor_pos21

 

 

[newtovalue]

End of Q3 today - any estimates of book value? 

 

I'll go first - no major cat events, small bond losses MTM due to rising yields, equities relatively flat. 

 

Roughly i would bet $870-900 USD. My method is not scientific as @Viking - but hopefully in the right ballpark.

[MMM20]

1 hour ago, newtovalue said:

End of Q3 today - any estimates of book value? 

 

I'll go first - no major cat events, small bond losses MTM due to rising yields, equities relatively flat. 

 

Roughly i would bet $870-900 USD. My method is not scientific as @Viking - but hopefully in the right ballpark.

 

Mine is US$869.420 and stock hits US$1000 by Dec or we get another big dutch auction.