Restatement of Financials Likely to Affect Faifax's Prices in the Short Term

Portfolio holding Fairfax Financial (FFH) said on Thursday it earned $223.6 million in the second quarter of 2006, but said previously reported financial results should not be relied upon due to the discovery of accounting errors. As Reuters reports:

The Toronto-based property, casualty and life insurer said it had uncovered various noncash accounting errors during a recent review of the accounting implications of a decision to commute a $1 billion insurance instrument reinsured with a Swiss subsidiary.

The linked story from Reuters quotes CEO Prem Watsa as saying the restatement will not impact Fairfax's cash flows or fundamental strength. Though shareholders' equity will be reduced by up to $190 million.

For now, don't be surprised to see the stock price drop. Perhaps sharply. But if you're in Fairfax, you should be in for the long haul and be willing to suffer steep price swings.

FFH 1-yr chart: