Tim Travis

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    • Wed Aug 27th 12:55 PM | Rating: 0 0
      Commented on:
      AIG and the Lunacy of GAAP Reporting
      "What is the 'correct' current value of AIg based on their expected normalized earnings, normalized adjusted book value and cash flow? Has anyone figured that out with a reasonable degree of accuracy? Can the author tell us anything about that other than he thinks AIG's stock is 'too cheap'? If not, what is that notion of 'too cheap' based upon? "

      I would have touched on some of this but the article was long enough as is. The market cap is $55 Billion as it stands right now. Their stated book is $78 billion to which I would conservatively add back $15 billion to come to about $93 billion adjusted book value.

      This provides me with a considerable margin of safety as is and AIG has consistently proven that they can return 11-15% on equity over long periods of time. I'd estimate that their normalized earnings are arond $12-$15 billion per year assuming no growth which is probably far too conservative given the companies track record of growing earnings. Put a 10 multiple on those earnings and you will probably be lot closer to a reasonable market cap then you are right now. The point is the margin of safety is so large that it would be a waste of time and effort to try and come up with a precise DCF analysis. I'd be lying if I said I could accurately forecast exactly how this business will look in 5 years and what the cumulative losses will be. I feel extremely certain however that by observing the information available and making reasonable forecasts given the current strains on the US housing market and projecting further declines, that AIG is at least 50% undervalued under the most dire circumstances. The losses already taken are vastly overstated any reasonable assumptions. The capricousness of the ratings agencies could force a capital raise which would hurt shareholders but would also provide another buying opportunity for dollar cost averaging at absurd prices.
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    • Wed Aug 27th 12:34 PM | Rating: 0 0
      Commented on:
      AIG and the Lunacy of GAAP Reporting
      "Merrill's junk was super senior too. No, they did not get 22 cents on the dollar. They got a little over 5 cents cash and a promise for 17. What's the value at maturity of an empty rotting shopping mall? "

      Merrill's fire sale was from the 2007 vintage which is significantly worse then the 2005 vintage. Even with that being said I think that it was foolish for them to sell those securities at those prices in addition to financing them. I think that it was more of an institutional decision by John Thain to wash his hands of the securites, as opposed to an actual business decision in which they would try to maximize value for their shareholders.

      Investment Banks use far more leverage then insurers and have very different capital requirements in relation to mark to market losses then insurers, so it is not really an apples to apples comparison. Just think about the fact that these are secured first lien mortages for the most part. The CES and HELOC exposure is more risky but they also have more protection built into the structures, but on the first lien exposure come up with a default rate and severity that can possibly justify those prices. It is nearly impossible to come up with justification for the current pricing.
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    • Mon Jul 14th 11:33 AM | Rating: 0 0
      Commented on:
      Fannie & Freddie: Myth vs. Reality, Part 2
      "Losses of $99million? Where did you get this number?

      What facts are you basing your conclusions on? "

      Go on the FRE website and look at the investor presentation-freddie mac update.
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    • Fri Jul 11th 11:49 AM | Rating: 0 0
      Commented on:
      Fannie & Freddie: Myth vs. Reality
      "FNM and FRE holders wish they were only decimated. The term means
      reduced by 10%. "

      Good point on that rather embarrassing error.. I guess it was indeed wishful thinking on my part. Devastated would have been the correct term.

      "Jul 11 09:30 AMAfter the stocks have fallen ~40% this week why does the author use terms like "immensely remote" "overblown" these companies are going out of business as public companies and down another 50% pre-market."

      I think that there is a big difference between stock prices and the economic reality of these businesses. There is so much talk about being bailed out by the government that it has overshadowed the actual credit losses that the company is taking. As long term investors in mortgages FRE, and FNM, should be held accountable for credit losses but not the whims of traders on indices that have very little relation to the securities in the GSE's portfolio.

      "Many companies have a negative net worth, but if you have actual positive cash flow you just keep on trucking. Your stock would not fall 40% in an hour. "
      They both do have positive cash flow as the markdowns they have taken are non-cash charges. Actually MBI and ABK are very similar in that they are both cash flow positive as well. Short term stock prices are not the best indicators of a company's true financial situation. The major risk is the government stepping in due to public perception which seems quite high right now, but as a value investor I am comfortable holding on to my positions in the belief that fundamentals will outweigh public perception. We shall see though as there are no sure things in this environment.
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    • Sun Jun 29th 16:29 PM | Rating: 0 0
      Commented on:
      MBIA's GIC Exposure Could Trigger a Liquidity Crisis
      crashof2008 wrote
      "This is demonstrably false. If MBI were planning to hold this deeply toxic and radioactive waste to maturity, and pay any and all necessary claims as you so blandly assert, why are they (together with Ambac) so desperate to CANCEL 125 billion dollars worth of them as described just last week in the Financial Times at:"

      MBI and ABK are not the desperate ones in this situation. The banks and investment banks that have bought the insurance are the ones that are facing significant additional write downs as a result of the ratings downgrade. Since they are and should be relegated to MTM accounting to keep their Tier 1 capital ratios at acceptable levels, taking these write downs will likely lead to another round of capital raising.

      The reason that the insurers might be willing to discuss remediating some of these contracts is quite obvious in that it does not make sense to have your largest customers be extremely unhappy with your product. If they can come to a reasonable compromise with some of the policyholders to help their customers in a way which does not hinder the insurer’s shareholders then these negotiations are quite logical in that if these companies intend to stay in the financial guarantee business, these relationships will be crucial to their future. These discussions would be directly related to the ratings agency downgrades which have no true economic effect on the insurer’s CDS portfolios, but will have significant effects on the policyholder’s positions. Therefore it is clearly in the policyholder’s interests to have these discussions much more than the insurers.

      I don't even know if they are really having serious discussions or not and I'm not too concerned about rumors anyways but it does make sense for them to do everything in their power to assist their clients as long as it is fair to shareholders as well. Any future business prospects are up in the air and are not figured into my $20-$30 valuation of MBI but there are quite a few insurers who function quite well with ratings below AAA like AIG for instance. MBI has quite a bit of surplus cash with which to start new well capitalized subsidiaries so that is just a call option on the valuation, but I'd prefer to see an aggressive share buyback and perhaps a recapitalization of the debt structure if possible.

      Also you might note that the CEO has bought $1,724,690 of stock in the last month, and much more before that so his interests seem to be very much aligned with shareholders for what that is worth.


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    • Sun Jun 29th 13:15 PM | Rating: 0 0
      Commented on:
      MBIA's GIC Exposure Could Trigger a Liquidity Crisis
      Squashnut wrote
      "Fine article. Tim Travis notes that MBIA said in a May 12 conference call that they were not subject to any accelerated liabilities from GIC's. I guess he conveniently ignored the part about Friday's press release quoted above. Selective reading won't make you a profit. "

      I'm not totally clear on what you are saying here so if I am missing something please let me know, but to avoid ambiguity MBIA has repeatedly said that they are not subject to accelerating liabilities from their financial guarantee business. On the conference call presentation they detail the ramifications of a downgrade on the GIC business which is what Mr. Tilson is referring to.
      crashof2008
      "Tim Travis makes a classic mistake above when he insists on continuing to rely on historical precedent to value these derivatives.”

      To tell you the truth I do not feel competent at valuing those derivatives and I very much doubt that anybody else is either. The problem is that accounting rules require that MBIA and ABK mark their CDS exposure to market and the losses are not reflective of the actual expected performance of the contracts that they hold. The CDS positions that MBIA holds are not tradable securities and they often have significant protection on the actual portions that they insure. They are insurance contracts which they will hold and pay interest and principal on when they come due on defaulted contracts. They aren't going to sell them tomorrow to meet their tier one ratios like C or Mer might have to do so MTM accounting is not significant for MBIA. The relevant accounting format for the monolines due to the structure of the contracts would be to reserve against expected future losses as predicted by the performance and cash flow of the insured contracts, as opposed to the fickle predictions of future losses made by traders on the asset backed security indices. As more clarity comes into place in regards to the housing market I think it is very likely that you will see these indices undergo a significant re-pricing.

      In the insurance business assumptions are made to estimate future claims and loss reserves and it is no perfect science. After a hurricane property and casualty insurers are very unlikely to be able to tell you with precision what their losses will be right after the event. Eventually as claims come in over time they get a more accurate picture which is why it is not uncommon to see drastic differences from estimated losses for insurance companies to actual losses. Berkshire Hathaway's annual reports are very candid about the subject.

      There is no doubt that there are a lot of unknowns and uncertainties but if you look at MBIA's strong liquidity position, and extremely large claims paying ability I think it is very likely that the run off value of the company would be well above $20. If you look at the future premiums they will be collecting, in addition to their large investment portfolio, and the eventual reversal of a great deal of the MTM losses that MBIA's balance sheet and income statements have incurred, I believe an investment at these levels creates an excellent risk/reward opportunity for the long term investor.
      (Disclosure Long MBIA, short puts on MBIA and ABK)
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    • Sat Jun 28th 23:50 PM | Rating: 0 0
      Commented on:
      MBIA's GIC Exposure Could Trigger a Liquidity Crisis
      Considering that $9.3 billion of the total $25.1 billion of liabilities are not subject to flexible withdrawals or downgrade triggers, and the overall quality of the investment portfolio, liquidity issues are virtually non-existent.

      From your article:
      "Translation: "Contrary to everything we've ever said about no accelerating liabilities in any part of our business, we now have to immediately come up with $7.4 billion of cash and eligible collateral (U.S Treasury or agency securities, with appropriate haircuts -- roughly 5%). But don't worry, we have $25 billion of assets...""

      When questions were asked about the financial guarantee business MBIA did state that they were not subject to any accelerating liabilities and even after the downgrade that has obviously been true. If you took the time to read the May 12th Conference Call Presentation pages 20-22 you would see that MBIA was very clear in relation to the effects of a downgrade on the GIC business. The fact that your "translation"... of alleged fraud is so obviously careless points to one of two possibilities.

      1) Your research is so negligent that it would ignore the effects of a downgrade on this GIC business when it is spelled out in an investor’s presentation for all to see on the MBIA website. (Perhaps following Ackman has made you more accepting of the final result in which you don't feel that you have to put in the proper time.)

      2) This like other write ups by the likes of Ackman and followers are blatant attempts to conjure up the worst fears in an already panicked market by distorting facts and conjuring up alleged corporate frauds, to reignite the downward spiral that this uncertainty in the bond market has caused.

      Why don't you write a column on the assumptions being made in the Asset Backed Securities Market to validate the current pricing? Let's asses how realistic these prices are in relation to various historical precedents. The beauty of the insurance business is that they are not forced to sell their CDS exposure like banks do to maintain their capital ratios so the MTM losses are strictly an accounting notion and nothing more. Just as they are passed through the income statement they will come back again as the prices of the ABS indexes rally in the future. It seems very odd to me that so called "value investors" like yourself and Ackman put so much faith and validation in indexes that are subjected to the vagaries of technical analysis and momentum trading techniques. Either you are the new flag bearers for EMT or you are purposefully being misleading in your analysis. Now MBIA was probably never worth $80 and is now worth a lot closer to $20 or $30, but to publicly brag about shorting at $5 on a public website should lead to an interesting note on financial commentators when the books are written on the current financial crisis.

      I have no problem with short selling or talking your own portfolio but I think that both you and Ackman have been far more disingenuous and misleading in your dissertations then either MBIA or Ambac have been. It's allowed me to buy at far cheaper prices then I ever thought I would be able to so I have no qualms about it but it would be nice to see a little more merit and integrity in your fear mongering then the current offering.
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