Fortress Investment Group: Creates Losses, But Pays Itself First

Fortress Investment Group (FIG) reported Q4 and year end results using a few tricks from the AIG public relations machine. Pre-tax distributable earnings [DE] were reported at a loss of $162 million for the full year. Then they lay this complicated sentence on investors and report GAAP net loss, excluding principals agreement compensation, of $100 million. GAAP net loss of $322 million. Presumably the company paid principals $222 million despite the fact that it is experiencing losses.

In Q4 it reported GAAP net loss, excluding principals agreement compensation, of $85 million. GAAP net loss of $140 million. Which means in Q4 the company paid out $55 million despite losses. It continues on with an explanation in bold letters that one quarter's results is not indicative of another quarter and it concludes that Quarterly dividends are not necessarily representative of the Company's earnings in the current quarter.

It then goes on to announce that “The Company's Board of Directors elected not to pay a dividend in the fourth quarter of 2008. Consistent with its decision in the third quarter, the Board elected to retain capital for potential future investment opportunities and for working capital purposes“ Who needs a dividend when you can just take the cash out directly?

At the same time Forbes Magazine reports Chief Executive Wesley Edens plans to participate in this week's TALF program which will help stabilize financial markets; we pray and hope.

Not quite like AIG, which needs to be propped up, but the mind set is the same. Inside management lines their pockets, pays themselves first and leaves poor results behind for investors.

What a compelling investment proposition.

Disclosure: No position

Comments

[detailedreader:]

Per the 10K, it looks like a legit add back.

As a result of the principals agreement, the value of a significant portion of the Principals’ equity in Fortress prior to the Nomura Transaction is being recorded as an expense over a five year period. Fortress is not a party to this agreement. It is an agreement between the Principals to further incentivize them to remain with Fortress. This GAAP expense has no economic effect on Fortress or its shareholders.

Mar 18 06:24 PM