Jun 9, 2008
Fairfax Financial in the Financial Times
I just came across another article on Fairfax Financial Limited (), this time in the Financial Times. All in all, the article does not mention anything new to me, but rather it reiterates why I’m holding Fairfax in the first place.
Here is an excerpt from the column penned by Whitney Tilson:
As of April 25, Fairfax owned $17.5bn of credit-default swaps (CDSs), the value of which is negatively tied to the fortunes of exposed finance companies such as AIG, Fannie Mae, Freddie Mac, MGIC and Washington Mutual. If we are right that subprime damage is still in its early stages, Fairfax’s CDS holdings should benefit enormously.
At about $260, Fairfax shares trade at tangible book value, or 1.3 times if one excludes the entire CDS portfolio. Because we believe its core insurance business is worth 1.5 times book value, an investor today is getting that business at a discount, while also gaining a free call option on Fairfax’s CDS portfolio, which could be worth billions more than its current stated book value.
If you look at how MGIC () or Washington Mutual () moved today, those credit default swaps might be performing quite well at the moment.
Recent Comments