Fairfax 2025

[Viking]

2 hours ago, Hoodlum said:

Eurobank sold it's 8.58% share of remaining Demetra assets for €27M, which is help offset the purchase of the Hellenic shares from Demetra.  The completion of the Hellenic share acquisition from Demetra is expected to close Feb 10 and the final closing including squeeze of remaining share holders by May.  Hellenic Bank acquisition of CNP Assurances is also expected to close in Q1.

 

https://cyprus-mail.com/2025/01/17/eurobank-to-finalise-hellenic-bank-acquisition-by-may

 

https://knews.kathimerini.com.cy/en/business/eurobank-sells-€27m-stake-in-demetra-holdings

 

After another big dividend increase this summer, we will likely see a much higher valuation for Eurobank.

 

@Hoodlum The Hellenic Bank CEO presented at a bank conference (material below is from your link). It looks like there are lots of opportunities to grow top line and bottom line at Hellenic Bank - it will be a multi-year process.

----------

Meanwhile, Hellenic Bank announced this week that the acquisition of CNP Assurances will also be finalised in the first quarter of 2025. 

 

This development, the bank stated, will establish it as “a leading financial group with a strong presence in both the banking and insurance sectors in Cyprus”.

 

“Customer service, financing growth, completing the merger, and expanding operations remain our priorities for 2025,” Louis said. 

 

What is more, he pointed out that Cyprus would serve as the group’s headquarters for expansion into the East, “where wealth is being created”. 

 

Louis added that the goal is to “promote Cyprus as an attractive base for foreign investors“.

 

Louis also spoke about the importance of strengthening trust between banks and society. 

 

“Despite the criticism they face, banks support society and development, listening to the needs of the state and investing tangibly in the country’s future,” he said.

 

“The banks are supporting and financing Cypriot businesses and households, with Hellenic Bank’s total lending in 2024 reaching €1.1 billion,” Louis added. 

However, he cautioned that lending now takes place under “a much stricter supervisory framework and demanding criteria to avoid past mistakes”.

Furthermore, Louis provided commentary on the role that banks play in attracting investors.

 

“The services sector is a significant asset that we must preserve and strengthen by ensuring stability in our tax and legal framework, which should not create uncertainty for potential investors,” he stated.

[Viking]

Just now, Viking said:

 

@Hoodlum The Hellenic Bank CEO presented at a bank conference (material below is from your link). It looks like there are lots of opportunities to grow top line and bottom line at Hellenic Bank - it will be a multi-year process.

----------

Meanwhile, Hellenic Bank announced this week that the acquisition of CNP Assurances will also be finalised in the first quarter of 2025. 

 

This development, the bank stated, will establish it as “a leading financial group with a strong presence in both the banking and insurance sectors in Cyprus”.

 

“Customer service, financing growth, completing the merger, and expanding operations remain our priorities for 2025,” Louis said. 

 

What is more, he pointed out that Cyprus would serve as the group’s headquarters for expansion into the East, “where wealth is being created”. 

 

Louis added that the goal is to “promote Cyprus as an attractive base for foreign investors“.

 

Louis also spoke about the importance of strengthening trust between banks and society. 

 

“Despite the criticism they face, banks support society and development, listening to the needs of the state and investing tangibly in the country’s future,” he said.

 

“The banks are supporting and financing Cypriot businesses and households, with Hellenic Bank’s total lending in 2024 reaching €1.1 billion,” Louis added. 

However, he cautioned that lending now takes place under “a much stricter supervisory framework and demanding criteria to avoid past mistakes”.

Furthermore, Louis provided commentary on the role that banks play in attracting investors.

 

“The services sector is a significant asset that we must preserve and strengthen by ensuring stability in our tax and legal framework, which should not create uncertainty for potential investors,” he stated.

 

Mr. Market is starting to warm to Eurobank's purchase of Hellenic Bank. Fairfax's position in Eurobank has increase $336 million 17 days into 2025. Yes, early days. But it is a positive development. 

 

Fairfax's carrying value for Eurobank will likely come in at around $2.5 billion at December 31, 2024. That would put excess of FV over CV at about $750 million. This is economic value that is being created by Fairfax that is not being captured in accounting value: EPS, BV or ROE. 

 

Fairfax received a dividend payment from Eurobank of $126 million in 2024. Because Eurobank is an associated holding:

• This payment did not show up in 'interest and dividends' for Fairfax.
• Fairfax's carrying value for Eurobank was reduced by $126 million.

Eurobank's dividend payment caused the excess of FV to CV to increase. 

 

[Maverick47]

2 hours ago, Viking said:

Fairfax received a dividend payment from Eurobank of $126 million in 2024. Because Eurobank is an associated holding:

• This payment did not show up in 'interest and dividends' for Fairfax.
• Fairfax's carrying value for Eurobank was reduced by $126 million.

Eurobank's dividend payment caused the excess of FV to CV to increase. 

@Viking  Really appreciate your sharing the above.  I try my best to be aware of the impact of accounting nuances and how they might in some cases overstate or understate financial realities, but am more comfortable with GAAP and less so with IFRS.  I have to say that I wasn’t aware of how dividends from associates affected carrying values.

 

By the way, thanks for the two- part Top 10 list for 2024 earlier in this thread.  When I saw them I said to myself that the only thing better than finding a new long form post from @Viking is finding two new long form posts…

[Viking]

45 minutes ago, Maverick47 said:

@Viking  Really appreciate your sharing the above.  I try my best to be aware of the impact of accounting nuances and how they might in some cases overstate or understate financial realities, but am more comfortable with GAAP and less so with IFRS.  I have to say that I wasn’t aware of how dividends from associates affected carrying values.

 

By the way, thanks for the two- part Top 10 list for 2024 earlier in this thread.  When I saw them I said to myself that the only thing better than finding a new long form post from @Viking is finding two new long form posts…

 

@Maverick47 , as I have said many times before, I am not an accountant. Like you and others on this board, I am simply trying to keep learning so I can better understand the performance and value the company. Sometimes I get it wrong - so I would really appreciate other board members letting me know when I make a mistake. (I have thick skin... what is important other than me is getting things right.)

 

As we keep peeling the onion back another layer there are sometimes accounting peculiarities that become useful/helpful to understand.

 

One other nuance for associate holdings that has been mentioned on the board before is there is a one quarter lag in when an associate holding reports and when Fairfax reports. Fairfax's reporting (share of profit of associates) is one quarter behind what is actually happening at the associate holding. Now I am not sure if this is true for all associate holdings but I think it is the case with Eurobank and Poseidon...  

 

PS: I am planning on digging a little more into the insurance side of Fairfax (sometime the next month or so). I know that is your specialty so I will be looking for your feedback/input  

Edited Friday at 10:43 PM by Viking

[dartmonkey]

5 hours ago, Viking said:

 

Mr. Market is starting to warm to Eurobank's purchase of Hellenic Bank. Fairfax's position in Eurobank has increase $336 million 17 days into 2025. Yes, early days. But it is a positive development. 

 

Fairfax's carrying value for Eurobank will likely come in at around $2.5 billion at December 31, 2024. That would put excess of FV over CV at about $750 million. This is economic value that is being created by Fairfax that is not being captured in accounting value: EPS, BV or ROE. 

 

Fairfax received a dividend payment from Eurobank of $126 million in 2024. Because Eurobank is an associated holding:

• This payment did not show up in 'interest and dividends' for Fairfax.
• Fairfax's carrying value for Eurobank was reduced by $126 million.

Eurobank's dividend payment caused the excess of FV to CV to increase. 

 

 

I've just been trying to figure out the logic of dropping the carrying value based on receiving dividends, and based also on Eurobank's earnings. From Fairfax's Q3 report, I see that Carrying Value went from $2099.5 at year end 2023 to $2385.2 on Sept 30, 2024, the number in your table, and they also mention that in Q3 Fairfax received dividends worth $127.9m from Eurobank (slightly different from the number in your table.) Also, Fairfax's share of Eurobank's earnings in Q1-Q3 was $343.7m. There are also exchange rate changes in USD:EUR, with the USD up about 1% over the same time period.

Can anyone explain in simple terms how Fairfax might have updated the carrying value of their Eurobank stake? We non-accountants thank you in advance.

 

 

[Dinar]

58 minutes ago, dartmonkey said:

 

I've just been trying to figure out the logic of dropping the carrying value based on receiving dividends, and based also on Eurobank's earnings. From Fairfax's Q3 report, I see that Carrying Value went from $2099.5 at year end 2023 to $2385.2 on Sept 30, 2024, the number in your table, and they also mention that in Q3 Fairfax received dividends worth $127.9m from Eurobank (slightly different from the number in your table.) Also, Fairfax's share of Eurobank's earnings in Q1-Q3 was $343.7m. There are also exchange rate changes in USD:EUR, with the USD up about 1% over the same time period.

Can anyone explain in simple terms how Fairfax might have updated the carrying value of their Eurobank stake? We non-accountants thank you in advance.

 

 

Accounting rules are as follows: if you own between 20 and 50% of another company, you usually carry your investment on the balance sheet as an investment in associate.  It is carried at cost + your share of company's net income less dividends received.  So say Company A bought 30% of company B for $100 on December 31st of 2023.  In 2024, company B earned $40 in net income and paid zero dividends.  So on 12/31/2024, Company A carries on its balance sheet its stake in company B at : $100 + 30%*$40 = $112.  Had company B paid $10 in dividends during 2024, then the figure would become: $100 + 30%*$40-30%*$10 = $109 on 12/31/2024.

[Maverick47]

2 hours ago, Dinar said:

Accounting rules are as follows: if you own between 20 and 50% of another company, you usually carry your investment on the balance sheet as an investment in associate.  It is carried at cost + your share of company's net income less dividends received.  So say Company A bought 30% of company B for $100 on December 31st of 2023.  In 2024, company B earned $40 in net income and paid zero dividends.  So on 12/31/2024, Company A carries on its balance sheet its stake in company B at : $100 + 30%*$40 = $112.  Had company B paid $10 in dividends during 2024, then the figure would become: $100 + 30%*$40-30%*$10 = $109 on 12/31/2024.

Thanks for the example, @Dinar.  For me, these are always helpful to help me understand a subject of which I am a novice…

[Hamburg Investor]

7 hours ago, Dinar said:

Accounting rules are as follows: if you own between 20 and 50% of another company, you usually carry your investment on the balance sheet as an investment in associate.  It is carried at cost + your share of company's net income less dividends received.  So say Company A bought 30% of company B for $100 on December 31st of 2023.  In 2024, company B earned $40 in net income and paid zero dividends.  So on 12/31/2024, Company A carries on its balance sheet its stake in company B at : $100 + 30%*$40 = $112.  Had company B paid $10 in dividends during 2024, then the figure would become: $100 + 30%*$40-30%*$10 = $109 on 12/31/2024.

 

Thank you! Really appreciate helping us (me) learning.
 

What I don’t get: And the dividends received itself just disappear from the balance sheet (so Viking has to adjust) But why? What’s the inherent logic? I mean it doesn’t feel accurate in the sense, that what’s hapenning is more like shifting something you own from one pocket into another, while the balance sheet just perceives the pocket with less in it. I thought the idea of the balance sheet was putting on record all pockets.

[gfp]

2 hours ago, Hamburg Investor said:

 

Thank you! Really appreciate helping us (me) learning.
 

What I don’t get: And the dividends received itself just disappear from the balance sheet (so Viking has to adjust) But why? What’s the inherent logic? I mean it doesn’t feel accurate in the sense, that what’s hapenning is more like shifting something you own from one pocket into another, while the balance sheet just perceives the pocket with less in it. I thought the idea of the balance sheet was putting on record all pockets.

the dividends don’t disappear from the balance sheet - they are there as cash (initially) and were most likely run through as earnings at some point - this only effects the carrying value of the equity method investment on the balance sheet. Just like Berkshire and OXY, Berkadia, Pilot before the buy-out, etc..

[SafetyinNumbers]

3 hours ago, Hamburg Investor said:

 

Thank you! Really appreciate helping us (me) learning.
 

What I don’t get: And the dividends received itself just disappear from the balance sheet (so Viking has to adjust) But why? What’s the inherent logic? I mean it doesn’t feel accurate in the sense, that what’s hapenning is more like shifting something you own from one pocket into another, while the balance sheet just perceives the pocket with less in it. I thought the idea of the balance sheet was putting on record all pockets.

Fairfax includes its share of earnings from Eurobank based on its ~34% ownership so the carrying value goes up by that amount every quarter. The dividend moves from carrying value to cash but since it’s gone through earnings once it wouldn’t make sense to put it though earnings again. 
 

Does that make sense? 

[gfp]

I'm curious what happens when an equity accounted investment was a bargain purchase but the company has zero profit and dividends reduce the carrying value to zero and then what.  Let's say you have a carrying value of $100 and zero profitability.  Dividends are paid out such that the $100 carrying value becomes zero.  What happens when the next $50 dividend rolls in?

 

I know when the carrying value is being depleted by D&A it just stays at zero (like Nelnet's fiber internet company).

 

Just curious about the accounting result of the above scenario

[SafetyinNumbers]

10 minutes ago, gfp said:

I'm curious what happens when an equity accounted investment was a bargain purchase but the company has zero profit and dividends reduce the carrying value to zero and then what.  Let's say you have a carrying value of $100 and zero profitability.  Dividends are paid out such that the $100 carrying value becomes zero.  What happens when the next $50 dividend rolls in?

 

I know when the carrying value is being depleted by D&A it just stays at zero (like Nelnet's fiber internet company).

 

Just curious about the accounting result of the above scenario

I believe a gain has to be recorded in that scenario effectively reflecting the bargain purchase. 

[Dinar]

53 minutes ago, gfp said:

I'm curious what happens when an equity accounted investment was a bargain purchase but the company has zero profit and dividends reduce the carrying value to zero and then what.  Let's say you have a carrying value of $100 and zero profitability.  Dividends are paid out such that the $100 carrying value becomes zero.  What happens when the next $50 dividend rolls in?

 

I know when the carrying value is being depleted by D&A it just stays at zero (like Nelnet's fiber internet company).

 

Just curious about the accounting result of the above scenario

On the liability side there is a liability account called: distribution and loss in excess of investment in joint venture

[SafetyinNumbers]

1 hour ago, Dinar said:

On the liability side there is a liability account called: distribution and loss in excess of investment in joint venture

Joint venture would be different than equity accounting wouldn’t it? 
 

I was trying to think of a scenario where a liability would be created in an equity accounting scenario. 

[Dinar]

5 hours ago, SafetyinNumbers said:

Joint venture would be different than equity accounting wouldn’t it? 
 

I was trying to think of a scenario where a liability would be created in an equity accounting scenario. 

Why would an accounting for joint venture be different than equity associate?  In both case you don't have 50% nor do you have control.

[SafetyinNumbers]

6 hours ago, Dinar said:

Why would an accounting for joint venture be different than equity associate?  In both case you don't have 50% nor do you have control.

I was thinking a joint venture is like a partnership where there may be liability but an interest in a corporation would have limited liability i.e. non-recourse given the structure. 

[villainx]

Also, presumably there is greater say in company with joint venture?  Different degree of passivity?

[Dinar]

5 minutes ago, SafetyinNumbers said:

I was thinking a joint venture is like a partnership where there may be liability but an interest in a corporation would have limited liability i.e. non-recourse given the structure. 

Joint venture can be a corporation.  Also, even if a partnership, if it is a limited partnership, then why would there be unlimited liability?  By the way, a corporation does NOT mean no liability.  The stock must be non-assessable.  

[SafetyinNumbers]

9 hours ago, Dinar said:

Joint venture can be a corporation.  Also, even if a partnership, if it is a limited partnership, then why would there be unlimited liability?  By the way, a corporation does NOT mean no liability.  The stock must be non-assessable.  

That’s helpful thanks. I gave up my CPA for a reason! At least it’s just an intellectual exercise only and not an issue that we have to worry about with FFH/Eurobank.

[dartmonkey]

On 1/18/2025 at 4:07 AM, Hamburg Investor said:

What I don’t get: And the dividends received itself just disappear from the balance sheet (so Viking has to adjust) But why? What’s the inherent logic?

The simple way I understand it is that Fairfax has invested a certain amount of money in Eurobank, say it is $500m for a third of Eurobank, for the sake of the argument. At the outset, that is both the fair value (as demonstrated by the transaction, with Eurobank presumably worth $1.5b) and also the carrying value. Now after a few years Eurobank makes $150m in net income, and pays out $30m in dividends. Since Fairfax owns a third, this means the company essentially made $50m for Fairfax, and paid Fairfax $10m of that in dividends. So Eurobank has retained $120m in earnings, and this is an additional investment that Fairfax has made in Eurobank - its $40m worth of retained earnings were reinvested in the company, so that is added to the carrying value. That may also be the increase in fair value, too, if those reinvested earnings are not producing a lot of return. But in the case of Eurobank, we also have publicly traded shares that are indicating that fair value has gone up more than the $120m in retained earnings. No matter, carrying value rules say that, on Fairfax's book, carrying value is what it paid initially, plus its share of the earnings, minus what Fairfax received in the way of dividends. 

 

Eventually, if Eurobank does well enough and pays out lots of dividends, Fairfax's carrying value for its Eurobank could go right down to zero. So there can be a major divergence between carrying value and fair value. Muddy Waters suggested that Fairfax had not written down its carrying value enough, and that its book value was overstated. Most of us feel it is the opposite, that IFRS rules have increased the excess of fair value over carrying value, with Eurobank being a good example of this, and that Fairfax's book is actually understated. 

[Hamburg Investor]

3 hours ago, dartmonkey said:

The simple way I understand it is that Fairfax has invested a certain amount of money in Eurobank, say it is $500m for a third of Eurobank, for the sake of the argument. At the outset, that is both the fair value (as demonstrated by the transaction, with Eurobank presumably worth $1.5b) and also the carrying value. Now after a few years Eurobank makes $150m in net income, and pays out $30m in dividends. Since Fairfax owns a third, this means the company essentially made $50m for Fairfax, and paid Fairfax $10m of that in dividends. So Eurobank has retained $120m in earnings, and this is an additional investment that Fairfax has made in Eurobank - its $40m worth of retained earnings were reinvested in the company, so that is added to the carrying value. That may also be the increase in fair value, too, if those reinvested earnings are not producing a lot of return. But in the case of Eurobank, we also have publicly traded shares that are indicating that fair value has gone up more than the $120m in retained earnings. No matter, carrying value rules say that, on Fairfax's book, carrying value is what it paid initially, plus its share of the earnings, minus what Fairfax received in the way of dividends. 

 

Eventually, if Eurobank does well enough and pays out lots of dividends, Fairfax's carrying value for its Eurobank could go right down to zero. So there can be a major divergence between carrying value and fair value. Muddy Waters suggested that Fairfax had not written down its carrying value enough, and that its book value was overstated. Most of us feel it is the opposite, that IFRS rules have increased the excess of fair value over carrying value, with Eurobank being a good example of this, and that Fairfax's book is actually understated. 

Thank you and thank you @SafetyinNumbers and @gfp. I mixed up different things, all clear now. Thanks!

[ValueNation]

On 1/17/2025 at 2:55 PM, Maverick47 said:

@Viking  Really appreciate your sharing the above.  I try my best to be aware of the impact of accounting nuances and how they might in some cases overstate or understate financial realities, but am more comfortable with GAAP and less so with IFRS.  I have to say that I wasn’t aware of how dividends from associates affected carrying values.

 

By the way, thanks for the two- part Top 10 list for 2024 earlier in this thread.  When I saw them I said to myself that the only thing better than finding a new long form post from @Viking is finding two new long form posts…

+1!

 

Thanks @dartmonkey, @SafetyinNumbers, @Viking, very helpful to understand this better!