Fairfax 2024

[Tommm50]

Large volume on FRFHF the last few days, pattern seems to be price rises in the morning session and sells off as the day goes on. Very large volume on FFH.CA today with no movement in price. Any insights into the activity? Related to building a position prior to year end results announcement?

[Tommm50]

Simply looking to pick up the dividend?

[gfp]

12 minutes ago, Tommm50 said:

Large volume on FRFHF the last few days, pattern seems to be price rises in the morning session and sells off as the day goes on. Very large volume on FFH.CA today with no movement in price. Any insights into the activity? Related to building a position prior to year end results announcement?

 

I would assume it is more related to the stock going ex-dividend on Thursday of next week than the results announcement over a month away.  There are also usually some large share crosses around the turn of the year related to the total return swap counter-party but I haven't noticed anything.

[Spekulatius]

On 1/9/2024 at 11:33 PM, Viking said:

@SafetyinNumbers i think your list is a good start. Here are some thoughts:

1.) equity position with most upside in 2024? Eurobank. I was surprised to see the stock value of Fairfax’s position up +$700 million in 2023. That values Eurobank at Euro 1.61/share. I think analyst price targets are currently in the Euro 2.25/share range.  Eurobank could easily be up 30% in 2024 = $600 million gain for Fairfax. Re-starting the dividend at Eurobank will be very good. But Hellenic Bank could really drive earnings later in the year. The Eurobank management team is very good - my guess is they are not done growing.

 

2.) FFH-TRS: it would not shock me to see Fairfax’s share price increase $300 in 2024 = another $600 million gain. Not a prediction. We will see. If you prediction of Fairfax getting added to the TSX60 comes true - that would just be another tailwind, and probably a significant one.

 

3.) India has been a very quiet region for Fairfax for a couple of years now. I suspect that will change in 2024. You highlight two big potential catalysts:

- Digit IPO: could we see a +$500 million increase in the value of Fairfax’s stake? There are also the ‘compulsory convertible preferred shares’ that Fairfax owns… when they get valued properly that will increase Fairfax’s ownership stake in Digit (74%?) and result in a big gain ($300 million?).

- Anchorage IPO (BIAL): i think BIAL is the real deal. The more i read/research the more i like that asset. 

And there are reports Fairfax is bidding for part of IDBI Bank. if successful, that would be a big investment (even for a 10% stake).
- https://www.livemint.com/companies/news/carlyle-fairfax-dbs-bank-may-bid-for-idbi-bank-11670349260107.html

The problem with India is it is impossible to predict the timing of these events. I would probably be 50% for Digit IPO and 40% for Anchorage IPO - but those are wild guesses (more than my usual guesses).

 

4.) Is 2024 the year investors start to notice Fairfax’s group of consolidated holdings? Do we see $200 million in annual earnings from this group? Perhaps $250 million? Does Fairfax continue to grow the number of holdings in this group? 
 

Is the plan at Fairfax to morph into more of a Berkshire type structure? And make a concerted effort to grow another large income stream (that would complement the insurance businesses)? I am not sure. But they kind of appear to be moving in that direction a little.
 

5.) Poseidon. This is a massive holding for Fairfax. And it has been in a holding pattern for the past 2 years. More of the same in 2024? Or do we see earnings (finally) start to grow as the company modelled a couple of short years ago. They certainly messed up with the structure of their debt in a rising rate environment (surprising given Fairfax’s positioning two years ago). But i do think Sokol will get the train back on the rails… just not sure if it happens in 2024 or 2025. Probably 2025 - but we will see.

 

6.) Commodity holdings: Stelco, Foran Mining, EXCO, OXY, Altius Minerals

- i think some of these holdings are going to rip higher in the next up-cycle in commodities (late 2024 or 2025?). Just not sure if that is 2024 or 2025. I love Stelco - it is a coiled spring. Foran is a lottery ticket. I wonder if EXCO gets sold (nat gas). Buffett sees something with OXY. 
 

7.) Insurance

- I am looking forward to seeing what GIG does to Fairfax’s balance sheet at year end when it gets consolidated. Total investments/float should get a nice pop. 
- Does the hard market continue into 2024? If Fairfax can get another year of 5 or 6% growth in net premiums written that would be great. With GIG that would put them +10% for the year, which would be very good. 
- Can we get another year with CR of around 95% or 96%? Lots of investors think it has to go to 100% - and quickly. I am not convinced.

 

8.) Kennedy Wilson debt platform. This went from $2 to over $4 billion in 2023. Do we go over $6 billion (or higher) in 2024? What is average interest rate earned? Is 8% a crazy high number? $6 billion at 8% = $480 million. 

 

9.) Rabbit: For the past couple of years, Fairfax has pulled a rabbit out of their hat - something that no one is expecting that is good for shareholders. I think we get another one in 2024 - and, of course, i have no idea what it is. 
 

10.) Like each of the past 5 or 6 years, capital allocation is going to be huge again in 2024. Why? Earnings at Fairfax are so high. The team is going to have billions to allocate, especially if they sell/monetize one or two largish holdings. What new income streams are they going to seed/create? In what bucket? Insurance or investments? Public or private?
 

Anyways, there are some random/rambling thoughts about 2024… Would love to hear what others are thinking. 

They better be careful with $KW. I don't know about the loans, but the stock does not look good.

[gfp]

22 minutes ago, Haryana said:

 

I would like to confirm that if the dividend is paid to shareholders of record on Jan18 and it takes 2 days to settle then the shareholders upto Jan16 will get paid and therefore the ex-dividend date should be Jan17 on Wednesday or is it Thursday?

 

 

Sorry, I was sloppy with my wording.  Shareholders of record on Jan 18th, so you would have to own the stock by Jan 16 to receive the dividend.  (with Jan 17th being the ex-div. date)

[SafetyinNumbers]

30 minutes ago, Spekulatius said:

They better be careful with $KW. I don't know about the loans, but the stock does not look good.

We’ll find out if FFH added to their position when they report earnings. Recall, they adjusted their agreement to be able to add late last year.
 

The stock hasn’t really done much in two months, why do you think it looks particularly bad now?

[dartmonkey]

On 1/12/2024 at 4:33 PM, Tommm50 said:

Simply looking to pick up the dividend?

Yes, for people who think they don’t pay enough tax already this might be an attractive idea. 

[Dipesh Patel]

On 1/14/2024 at 4:02 PM, dartmonkey said:

Yes, for people who think they don’t pay enough tax already this might be an attractive idea. 

 

[Dipesh Patel]

Just now, DM1 said:

 

Congratulations Prem well deserved 

[Haryana]

4 hours ago, DM1 said:

Congratulations Prem well deserved 

 

"Since 1979, over 200 business leaders have been bestowed with Canada’s highest business honour."

https://cbhf.ca/companions/

 

I went through all those over 200 names and his is the only one there with an Indian name.

He has broken some ceiling here. Even Michael Lazaridis and James Balsillie got it in 2009.

 

[Crip1]

OK, so there has been some conversation on this board about how great the next three years ahead look and how great of a job management did to position the company as it is, and so on. All of that is valid and correct. There have been concerns around what happens after these 3 years (not sure whether the “3 years” is because Viking has been projecting that time period, or because of the stated run rate by the company). Specifically, concern over what happens when this “gravy train” ends and interest rates come back down to 1% or thereabouts. The more I ponder this, I’m increasingly less concerned about three years down the road for the following reasons:

• After peaking in October rates have come down, but they are still notably higher compared to Covid-times.
• Every day that the market moves sideways, and we’re a month plus into the sideways movement, that three years gets extended into 2026. (and I’m willing to bet that we don’t see 6 rate cuts by the fed in 2024, nor do I see that happening in 2024 and 2025 combined FWIW). 
• The assumption (fear) that rates go back down to 1% is, in my opinion, overblown. Yes, if we do go into a recession, rates will drop, but we seem to be anchored into recent memory when rates were at historical lows and expect that to happen again. That fear is overblown.
• Assuming treasury yields do move lower, at some point the spread between treasuries and high-grade corporates is going to widen such that the risk-reward equation moves squarely in favor of moving some monies into corporates. It’s not always wrong to take prudent steps to “reach for yield” and with the size of the investment portfolio FFH is better able to benefit from this compared to the competition.

Of course, black swan events do occur, and there is no guarantee that Fairfax will avoid doing unwise things as has happened in the past, but risk-reward is squarely in “reward” at this juncture, and I think will be 2-3 years from now. 

 

-Crip
 

[dartmonkey]

There have been concerns around what happens after these 3 years (not sure whether the “3 years” is because Viking has been projecting that time period, or because of the stated run rate by the company).

 

 

Here is what Watsa has said about prospects in the next few years:

 

Q3 Press release:

 

During the first nine months of 2023 the company used cash and net proceeds from sales and maturities of U.S. treasury and other government short term investments and short-dated U.S. treasuries to purchase $5.8 billion of U.S. treasuries with maturities between 3 to 5 years and $2.4 billion of U.S. treasuries with maturities between 5 to 7 years, and to make net purchases of $2.1 billion of short-dated first mortgage loans and $1.6 billion of corporate and other bonds with maturities primarily between 2 to 5 years. These actions should result in continued higher levels of interest income for approximately the next 4 years.

 

and more recently, announcing the dividend increase:

 

“Given Fairfax’s substantial growth since it inaugurated a US$10 per share annual dividend 14 years ago, and given Fairfax’s current position of foreseeing strong earnings for the next few years based on insurance company underwriting income, locked-in interest and dividend income and income from associates, we felt it was appropriate to raise our annual dividend this year to US$15 per share, and we believe that this should be a sustainable level,” said Prem Watsa, Chairman and Chief Executive Officer of Fairfax.

 

It seems to me that it is the extension of the average maturity of the bond portfolio to an average maturity of about 4 years that gives them this confidence about the next few years, since interest income of something like $2b/y is now locked in. 

 

I think this was also mentioned by Watsa in the 3Q conference call but I can't find a transcript - does anyone have one? 

[Viking]

57 minutes ago, dartmonkey said:

There have been concerns around what happens after these 3 years (not sure whether the “3 years” is because Viking has been projecting that time period, or because of the stated run rate by the company).

 

 

Here is what Watsa has said about prospects in the next few years:

 

Q3 Press release:

 

During the first nine months of 2023 the company used cash and net proceeds from sales and maturities of U.S. treasury and other government short term investments and short-dated U.S. treasuries to purchase $5.8 billion of U.S. treasuries with maturities between 3 to 5 years and $2.4 billion of U.S. treasuries with maturities between 5 to 7 years, and to make net purchases of $2.1 billion of short-dated first mortgage loans and $1.6 billion of corporate and other bonds with maturities primarily between 2 to 5 years. These actions should result in continued higher levels of interest income for approximately the next 4 years.

 

and more recently, announcing the dividend increase:

 

“Given Fairfax’s substantial growth since it inaugurated a US$10 per share annual dividend 14 years ago, and given Fairfax’s current position of foreseeing strong earnings for the next few years based on insurance company underwriting income, locked-in interest and dividend income and income from associates, we felt it was appropriate to raise our annual dividend this year to US$15 per share, and we believe that this should be a sustainable level,” said Prem Watsa, Chairman and Chief Executive Officer of Fairfax.

 

It seems to me that it is the extension of the average maturity of the bond portfolio to an average maturity of about 4 years that gives them this confidence about the next few years, since interest income of something like $2b/y is now locked in. 

 

I think this was also mentioned by Watsa in the 3Q conference call but I can't find a transcript - does anyone have one? 

 

Prem Watsa - Fairfax Q3, 2023 Conference Call:

 

“As I've said for the last number of quarters, the most important point I can make for you is to repeat what I have said in the past. For the first time in our 37-year history, almost 38 years now, I can say to you we expect, of course no guarantees, our operating income to be more than $3 billion annually for the next three years. Operating income consisting of $1.5 billion-plus frominterest and dividend income we earned $1.4 billion year-to-date, $1 billion from underwriting profit, we made $943 million year-to-date, and $500 million from associates and management companies versus $1 billion year-to-date. This works out to be over $100 per share after interest expenses overhead and taxes.

 

“We continue to exceed our expectations for the year with the year-to-date operating income already at $3.1 billion, excluding the effects of discounting and risk margin. Fluctuations in stock and bond prices will be on top of that. And this only really matters, as I've said many times, over the long-term. Recently, in October, during spike in treasury yields, we have extended our duration to 3.1 years with an average maturity of approximately 4 years, and yield of 4.9%. In the next four years, we are likely to have a recession in the United States, resulting in corporate spreads widening, allowing us to extend our maturities further.”

[Hoodlum]

13 minutes ago, Viking said:

In the next four years, we are likely to have a recession in the United States, resulting in corporate spreads widening, allowing us to extend our maturities further.”

 

I think this last sentence is important because if we do see a sizable drop in interest rates, then that would suggest we are in a recession and allows them to move to longer corporate bonds with higher interest rates.  This would allow them to extend the duration further for higher yields.

[Parsad]

6 hours ago, Haryana said:

 

"Since 1979, over 200 business leaders have been bestowed with Canada’s highest business honour."

https://cbhf.ca/companions/

 

I went through all those over 200 names and his is the only one there with an Indian name.

He has broken some ceiling here. Even Michael Lazaridis and James Balsillie got it in 2009.

 

 

I thought he was already in there!  This is long overdue.  Congratulations Prem!  Cheers!

[Viking]

4 hours ago, Crip1 said:

OK, so there has been some conversation on this board about how great the next three years ahead look and how great of a job management did to position the company as it is, and so on. All of that is valid and correct. There have been concerns around what happens after these 3 years (not sure whether the “3 years” is because Viking has been projecting that time period, or because of the stated run rate by the company). Specifically, concern over what happens when this “gravy train” ends and interest rates come back down to 1% or thereabouts. The more I ponder this, I’m increasingly less concerned about three years down the road for the following reasons:

• After peaking in October rates have come down, but they are still notably higher compared to Covid-times.
• Every day that the market moves sideways, and we’re a month plus into the sideways movement, that three years gets extended into 2026. (and I’m willing to bet that we don’t see 6 rate cuts by the fed in 2024, nor do I see that happening in 2024 and 2025 combined FWIW). 
• The assumption (fear) that rates go back down to 1% is, in my opinion, overblown. Yes, if we do go into a recession, rates will drop, but we seem to be anchored into recent memory when rates were at historical lows and expect that to happen again. That fear is overblown.
• Assuming treasury yields do move lower, at some point the spread between treasuries and high-grade corporates is going to widen such that the risk-reward equation moves squarely in favor of moving some monies into corporates. It’s not always wrong to take prudent steps to “reach for yield” and with the size of the investment portfolio FFH is better able to benefit from this compared to the competition.

Of course, black swan events do occur, and there is no guarantee that Fairfax will avoid doing unwise things as has happened in the past, but risk-reward is squarely in “reward” at this juncture, and I think will be 2-3 years from now. 

 

-Crip

 

 

@Crip1 i agree with your thinking: “I’m increasingly less concerned about three years down the road…”

At the start of 2023, many people were concerned that higher interest income was not sustainable. Fairfax’s fixed income portfolio had an average duration of 1.6 years and there were concerns a recession was likely later in 2023 (which would drive interest rates lower). 
 

A year later… what actually happened?
1.) Fairfax earned a record amount of interest income in 2023 (est $1.8 billion). That baby has been delivered. What a surprise. 

2.) current run rate of interest income is likely over $500 million per quarter. It looks like 2024 will deliver another record year of interest income (third straight year). A second surprise.

3.) on the Q3 conf call, Prem stated average duration was extended to 3.1 years. High interest income is now locked in for 2024, 2025 and 2026. A third surprise.

 

Investors response? Yes… BUT…
 

My guess is lots of people still think interest income still has to come down… ‘soon’. My guess is this line of thinking is driven by recency bias. 

From Charles Schwab: “Recency bias can lead investors to put too much emphasis on recent events, potentially leading to short-term decisions that may negatively affect their long-term financial plans.”

 

With hindsight, it is now clear that Fairfax was grossly under-earning on its fixed income portfolio for many years. It was under-earning primarily for two reasons:

1.) central bank policy - zero interest rate

2.) Fairfax positioning - very short duration and high quality (government). This happened way back in late 2016 (Fairfax pivoted after Trumps’s election).

 

So the interest income numbers from 2017-2021 are abnormally low for Fairfax - and probably by a lot in some years (like 2021). Are they a good number to use as a baseline? Only if you think the Fed is going back to zero interest rates and you think Fairfax is going to go back to extremely conservative positioning (low duration and high quality government bonds). 

Otherwise, Fairfax’s historical numbers are a terrible baseline to use for interest income - looking forward. They will lead you to expect something that is highly unlikely. That is not being conservative… That is simply using faulty logic.

For example, interest income was $568 million in 2021. It will come in around $1.8 billion in 2023 and likely north of $2 billion in 2024. What is the right number to use looking out a few years? An average of 2021 and 2023 = $1.2 billion?

 

No. That is complete garbage. $568 million in 2021 is an outlier. As a result, you have to throw it out when doing your estimates for future interest income.
 

What is a reasonable number? Probably something north of $2 billion. Why?
 

1.) Today, it looks highly unlikely that global central banks will be returning to zero interest rate policy. The risks look (to me) more skewed to inflation turning up again - but that is just a guess.  

2.) The fixed income portfolio at Fairfax is going to increase in size - and it will probably be meaningful:

- We are still in a hard market.
- The GIG acquisition will add about 5%.

- Minority partners (insurance) will likely get taken out.
- Fairfax will do some other things in the coming years that will grow the size of the fixed income bucket.

 

If the fixed income portfolio increases in size by 10% and the average yield comes down 10% (not a given) then total interest income will be (about)… flat. Still a very big number.

 

3.) Fairfax has been moving up (not down) the risk spectrum with its fixed income portfolio. And, as we said earlier, it has been extending duration not shortening it.

- $1.8 billion in Pac West loans, taking the KW real estate loan portfolio to over $4 billion. In December, Fairfax increased the ‘capacity’ of this program to $10 billion, suggesting more real estate loans will be brought on board. These were earning around 8 to 9% in Q3. 
 

What if Fairfax expands the KW real estate program to $6 billion? Or $8 billion in 2024. Remember, capacity just got expanded to $10 billion. Earning an average yield of even 8%. That would support an even higher average yield on the total fixed income portfolio than what we have today. 

- Fairfax also has been slowly increasing its corporate holdings and they have talked about doing more of this should the right opportunity come along. 

When i forecast i like to stick to one or two years (three max). Looking out 4+ years, as i have said before, it is really a bet on the capital allocation skills of management. And for the past 6 years Fairfax has been best-in-class. And that is just another reason to be optimistic about future results. 

Edited January 16, 2024 by Viking

[Viking]

10 minutes ago, Parsad said:

 

I thought he was already in there!  This is long overdue.  Congratulations Prem!  Cheers!

+1

[TwoCitiesCapital]

Now that they've locked in duration, I too am far less concerned about the next few years. 

 

Having some foresight into a certainty of a level of earnings regardless of the economic scenario is great

[SafetyinNumbers]

11 hours ago, Viking said:

 

 

@Crip1 i agree with your thinking: “I’m increasingly less concerned about three years down the road…”

At the start of 2023, many people were concerned that higher interest income was not sustainable. Fairfax’s fixed income portfolio had an average duration of 1.6 years and there were concerns a recession was likely later in 2023 (which would drive interest rates lower). 
 

A year later… what actually happened?
1.) Fairfax earned a record amount of interest income in 2023 (est $1.8 billion). That baby has been delivered. What a surprise. 

2.) current run rate of interest income is likely over $500 million per quarter. It looks like 2024 will deliver another record year of interest income (third straight year). A second surprise.

3.) on the Q3 conf call, Prem stated average duration was extended to 3.1 years. High interest income is now locked in for 2024, 2025 and 2026. A third surprise.

 

Investors response? Yes… BUT…
 

My guess is lots of people still think interest income still has to come down… ‘soon’. My guess is this line of thinking is driven by recency bias. 

From Charles Schwab: “Recency bias can lead investors to put too much emphasis on recent events, potentially leading to short-term decisions that may negatively affect their long-term financial plans.”

 

With hindsight, it is now clear that Fairfax was grossly under-earning on its fixed income portfolio for many years. It was under-earning primarily for two reasons:

1.) central bank policy - zero interest rate

2.) Fairfax positioning - very short duration and high quality (government). This happened way back in late 2016 (Fairfax pivoted after Trumps’s election).

 

So the interest income numbers from 2017-2021 are abnormally low for Fairfax - and probably by a lot in some years (like 2021). Are they a good number to use as a baseline? Only if you think the Fed is going back to zero interest rates and you think Fairfax is going to go back to extremely conservative positioning (low duration and high quality government bonds). 

Otherwise, Fairfax’s historical numbers are a terrible baseline to use for interest income - looking forward. They will lead you to expect something that is highly unlikely. That is not being conservative… That is simply using faulty logic.

For example, interest income was $568 million in 2021. It will come in around $1.8 billion in 2023 and likely north of $2 billion in 2024. What is the right number to use looking out a few years? An average of 2021 and 2023 = $1.2 billion?

 

No. That is complete garbage. $568 million in 2021 is an outlier. As a result, you have to throw it out when doing your estimates for future interest income.
 

What is a reasonable number? Probably something north of $2 billion. Why?
 

1.) Today, it looks highly unlikely that global central banks will be returning to zero interest rate policy. The risks look (to me) more skewed to inflation turning up again - but that is just a guess.  

2.) The fixed income portfolio at Fairfax is going to increase in size - and it will probably be meaningful:

- We are still in a hard market.
- The GIG acquisition will add about 5%.

- Minority partners (insurance) will likely get taken out.
- Fairfax will do some other things in the coming years that will grow the size of the fixed income bucket.

 

If the fixed income portfolio increases in size by 10% and the average yield comes down 10% (not a given) then total interest income will be (about)… flat. Still a very big number.

 

3.) Fairfax has been moving up (not down) the risk spectrum with its fixed income portfolio. And, as we said earlier, it has been extending duration not shortening it.

- $1.8 billion in Pac West loans, taking the KW real estate loan portfolio to over $4 billion. In December, Fairfax increased the ‘capacity’ of this program to $10 billion, suggesting more real estate loans will be brought on board. These were earning around 8 to 9% in Q3. 
 

What if Fairfax expands the KW real estate program to $6 billion? Or $8 billion in 2024. Remember, capacity just got expanded to $10 billion. Earning an average yield of even 8%. That would support an even higher average yield on the total fixed income portfolio than what we have today. 

- Fairfax also has been slowly increasing its corporate holdings and they have talked about doing more of this should the right opportunity come along. 

When i forecast i like to stick to one or two years (three max). Looking out 4+ years, as i have said before, it is really a bet on the capital allocation skills of management. And for the past 6 years Fairfax has been best-in-class. And that is just another reason to be optimistic about future results. 

All great points. I think most investors are focused on the downside risk and not the optionality which is open ended on forward ROE and multiple expansion.

 

With the stock trading ~1x BV, the market is assuming a forward ROE of 10%. Based on Viking’s analysis, it’s pretty clear that the odds of only a 10% ROE for the foreseeable future are pretty low. I would argue the odds of 20% ROE over the next 3-5 years are higher. 
 

If forward ROE does surprise i.e. exceeds 10% for a few years, the multiple might expand to where IFC trades or where FFH has traded historically I.e. 2.5-3x+ P/B. I think with Fairfax’s near term outlook, the stock is unlikely to trade below 1x so the multiple expansion optionality also seems to the upside. 
 

Multiple expansion so far has been relatively slow. Lifting 0.1x P/B in past 6 months. That could change dramatically once those benchmarked to the S&P/TSX Composite/60 figure out that FFH is likely next in line to go in the 60.

 

That equates  ~1m shares of buying in a short time frame which has a greater impact than buying spread out over long periods of time. Further, all of those benchmarked to the index may feel compelled to get to market weight so as not to underperform.  It makes sense to do that before the add and not after but plenty of both is possible. Inevitably a spot in the 60 will open up and it could happen at any time either on active deletion or M&A. 

 

 

Edited January 17, 2024 by SafetyinNumbers

[nwoodman]

Hardly an original thought but while the TRS position remains open at a carrying cost of Libor + spread they are expecting something north of book value as a multiple. 

[MMM20]

9 hours ago, SafetyinNumbers said:

the multiple might expand to where IFC trades or where FFH has traded historically I.e. 2.5-3x+ P/B

 

many will scoff at 2.5-3x P/B but that roughly equates to intrinsic value IMHO

[SafetyinNumbers]

1 hour ago, MMM20 said:

 

many will scoff at 2.5-3x P/B but that roughly equates to intrinsic value IMHO

I think you’re correct. The multiple is open ended so if FFH can keep up a strong ROE, the flows could take multiples above fair value (north of 3x) but I doubt most of us will have the patience to hold on that long. I think it’s important to think about the outcomes probabilistically to avoid selling too soon and letting in the institutions that are underweight in too cheaply. 

[SafetyinNumbers]

On 1/17/2024 at 7:09 AM, nwoodman said:

Hardly an original thought but while the TRS position remains open at a carrying cost of Libor + spread they are expecting something north of book value as a multiple. 

I don’t think it’s necessary to get multiple expansion to justify keeping the TRS on given BV growth + dividend is well north of the cost of keeping the position on but the optionality is pretty great.

[nwoodman]

4 hours ago, SafetyinNumbers said:

I don’t think it’s necessary to get multiple expansion to justify keeping the TRS on given BV growth + dividend is well north of the cost of keeping the position on but the optionality is pretty great.

I don’t disagree.  However,  I believe there is a share price that they would unwind the position today  (IV).  The fact that they haven’t (AFAIK)  means we aren’t there yet.

 

It is quite a unique situation.  When they do eventually unwind the position it should create some short term downward selling both from physical availability of shares and sentiment.  
 

A problem for a much higher share price.

[SafetyinNumbers]

3 hours ago, nwoodman said:

I don’t disagree.  However,  I believe there is a share price that they would unwind the position today  (IV).  The fact that they haven’t (AFAIK)  means we aren’t there yet.

 

It is quite a unique situation.  When they do eventually unwind the position it should create some short term downward selling both from physical availability of shares and sentiment.  
 

A problem for a much higher share price.

it would be interesting if they found a single buyer for it like a pension plan or endowment fund. That could be structured very creatively too.