Fairfax Holdings: The Shorts May Be On To Something

Barely 24 hours after announcing its $5 (some say $6) billion suit accusing hedge funds of driving down its stock price, Fairfax Financial Holdings Ltd  (FFH) said that it would be restating its financial results since 2002 in a move that even chief executive V. Prem Watsa characterized as making its future financial performance “very uncertain.”

I claim no expertise at all in analyzing the financial statements of funky insurance companies, or even its at least equally funky affiliates: specifically, Odyssey Re (ORH), which announced its own restatement on Jul. 27, and doubtless by way of mere coincidence, announced Jul. 19 that its chief financial officer will begin pursuing other interests effective Aug. 15.

But a combination of

• The someone-just-ran-over-a-skunk stench enveloping Fairfax, which is in that rare group of companies being investigated by both the US Securities and Exchange Commission and the Justice Department for something other than fiddling option grants, and
• The big sloppy kisses that Watsa’s been blowing – along with chunky caches of Fairfax capital – in the direction of Overstock.com and its demented chief executive Patrick Byrne

suggest that the hedge funds and the short-sellers may well be onto something. Some resources:

Financial services errors put Fairfax's future in doubt
'Very embarrassing': Investigation could reveal more problems, chief executive says
by Duncan Mavin
Financial Post Jul. 29 2006

Fairfax Restates, Sees No Link With Suit; Shares Fall
by Sean B. Pasternak
Bloomberg Jul. 28 2006

Fairfax vs The Shorts
by Jane Sasseen
Business Week Jun. 5 2006

Recent Fairfax/Odyssey press releases
Second quarter earnings, Commutation of Swiss Re cover and restatement
Jul. 27 2006

Odyssey Re Holdings Corp. Reports Second Quarter 2006 Results And Restatement
Jul. 27 2006

Fairfax announces filing of lawsuit alleging stock manipulation
Jul. 26 2006

Odyssey Re Holdings Corp. Announces New Chief Financial Officer
Jul. 19 2006

Herb Greenberg’s Reality Check
Fairfax follies (scroll down)
Jul. 24 2006

FFH 1-yr chart:

Comments

[FIG trader:]

The press always gets the story too late. Shorts were onto something at $180, and bought back at $90 in early August the date of your report. The stock looks like it has bottomed, and "shorts' should they still be around, will enter much higher. One thing they do well is get people to create a "buzz" around their story.

2006 Sep 05 06:01 PM