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bbarberayr

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  • Puerto Rican Sell-Off Brings Forward Tremendous Opportunity For Assured Guaranty [View article]
    On the balance sheet, the Net Loss Expense and LAE Reserve is now $787 million with a Net Reserve (after taking out Salvage and Subrogation Recoverable) of $582 million. This is already a liability on this balance sheet and out of shareholder equity, so payment out of here will not hit the earnings or book value. They do not break this out, so we don't know how much of this is for Puerto Rico, but say "U.S. Public Finance Economic Loss Development: The net par outstanding for U.S. public finance obligations rated BIG by the Company was $7.9 billion as of March 31, 2015 compared with $7.9 billion as of December 31, 2014. The Company projects that its total net expected loss across its troubled U.S. public finance credits as of March 31, 2015 will be $310 million, compared with $303 million as of December 31, 2014. Economic loss development in First Quarter 2015 was approximately $9 million, which was primarily attributable to certain Puerto Rico exposures. "

    I would think most of this $310 million is for Puerto Rico as all the other big trouble spots have been taken care of, but, as said above, they can't for business reasons.

    The "Net Expected Loss to be Paid" was $1,154 million and the "Net Expected Loss to be Expensed" was $315 million, with this loss spread out over many years with a max loss of $25 million in a single year.
    Jul 1, 2015. 11:29 AM | 1 Like Like |Link to Comment
  • The View From Punch Bowl Mountain [View article]
    Thanks for the article Tom - well written!

    I read your comment on shorting bonds and it certainly is tempting to do so, but it has been tempting several times in the last few years and been wrong. At some point it will be and this may be it, but so hard to know. Warren Buffet was on TV a couple of months ago saying he'd do it if he could a way to do so inscale in a safe manner. Better just to avoid stocks which will be hurt by rising rates and buy those which will benefit.
    Jun 25, 2015. 09:40 AM | 1 Like Like |Link to Comment
  • It'll Take More Than A New CEO To Fix Deutsche Bank [View article]
    I also am pretty sure Greece leaving the Euro won't have a major inpact on DB. This has been discussed and analyzed to death, so is pretty fully in the market at this time.

    Plus, the real reason Greece is having to leave is because it should not have gotten in in the first place. The remaining countries in the Euro want to stay in (actually so does Greece!) and see the benefits from doing so.
    Jun 8, 2015. 09:33 PM | 2 Likes Like |Link to Comment
  • Has The Market Forgotten About SORL Auto Parts? [View article]
    I have a small, long position and I'm pretty certain SORL is a legit company, but you re definitely taking a higher level of risk with China. A dividend would help show legitimacy and improve the valuation, but management wants to save cash for growth.
    May 22, 2015. 07:32 AM | 1 Like Like |Link to Comment
  • Taking A Position In MetLife [View instapost]
    My favourite life insurer is NWLI.

    Very conservatively run, strong balance sheet (one of the ratings agencies said it would be AAA, except that it is too small). They don't use derivatives, but do use stock market call options to fund their variable annuities and do a good job of matching these as shown by their consistent profitability.

    They have similar margins to TMK, but a lower ROE (7%) probably because they have no debt.

    The downside to NWLI is dual class share structure, controlling shareholder, but he is interested in the long term growth of the company, no debt which hurts in these markets, and no interest in pushing the stock price up via a share repurchase which they could easily afford and would be very accretive.

    It has had a puillback recently as they are being sued by Brazil for selling insurance illegally in Brazil, but I think is a buying opportunity. I think the worst that would happen is they sell less business in Brazil, which would hurt, but not be a catastrophe for the company.

    From their latest SEC filing:

    On October 26, 2011 the Brazilian Superintendence of Private Insurance (“SUSEP”) attempted to serve the Company with a subpoena regarding an administrative proceeding initiated by SUSEP in which it alleged that the Company was operating as an insurance company in Brazil without due authorization. The Company had been informed that SUSEP was attempting to impose a penal fine of approximately $6.0 billion on the Company. SUSEP unsuccessfully attempted to serve the Company with notice regarding this matter. The Company does not transact business in Brazil and has no officers, employees, property, or assets in Brazil. The Company believes that SUSEP has no jurisdiction over the Company, that SUSEP's attempts at service of process were invalid, and that any penal fine would be unenforceable. For the reasons described above, the Company does not believe that this matter meets the definition of a material pending legal proceeding as such term is defined in Item 103 of Regulation S-K but has included the foregoing description solely due to the purported amount of the fine sought at that time.

    Although there can be no assurances, at the present time, the Company does not anticipate that the ultimate liability arising from such other potential, pending, or threatened legal actions will have a material adverse effect on the financial condition or operating results of the Company.

    Separately, the Company has recently become aware that the Brazilian authorities have commenced an investigation into possible violations of Brazilian criminal law in connection with the issuance of the Company's insurance policies to Brazilian residents, and in assistance of such investigation a Commissioner appointed by the U.S. District Court for the Western District of Texas has issued a subpoena upon the Company to provide information relating to such possible violations. Because the Company has only recently become aware of this investigation, no conclusion can be drawn at this time as to its outcome or how such outcome may impact the Company's business, results of operations or financial condition. The Company plans to cooperate with the relevant governmental authorities in regard to this matter.
    May 18, 2015. 08:08 AM | Likes Like |Link to Comment
  • Taking A Position In MetLife [View instapost]
    Hi Tom,

    Seems like the Fed's are scrambling to justify calling MET a SIFI, looking at their GIC exposure, etc. and their case is probablypretty weak. Nice to see Kandarian pushing back and hopefully they get to reasonable solution.

    MET has been basing for a couple years now and I think MET and all the lifeco's are finally getting ready to break upwards and get revalued by the market in a more rational manner as interest rates actually do rise. But I am playing this through smaller companies, which are cheaper, but also don't have options.
    May 15, 2015. 09:31 PM | Likes Like |Link to Comment
  • Terravest Capital: Manufacturing Returns [View article]
    Thanks for the article. Used to own this, but sold a few years ago. Will have to take another look.
    May 3, 2015. 09:16 AM | Likes Like |Link to Comment
  • The Case For And Against Standard Chartered Plc [View article]
    Thanks for the article. FWIW, value fund manager Tweedy Browne has Standard Chartered as one of its largest holdings.
    May 3, 2015. 09:16 AM | Likes Like |Link to Comment
  • Haynes International: High-Performance Alloy Maker Positioned For Growth [View article]
    Thanks for the article Tom. Will have to do some more research, but seems like a conservative way to play a potential rebound in metal prices without taking on the high risk of a miner. It seems, that at some point, even if nickel were to continue down significantly, the industrial part of their business will provide a floor.
    Apr 20, 2015. 02:23 AM | Likes Like |Link to Comment
  • Assured Guaranty - Aggressive Stock Buyback Will Reward Long-Term Investors [View article]
    Well, we really can't bet on that or I wouldn't collect for 25 years.

    But here's the thing. The problems with pension funding is well-documented and known, so for AGO to say it expects 12 payouts in a SEC filing, it means they have looked into their insured risks and the pension plan underfunding, etc. information and can justify saying 12 claims. If we were talking about 20% or almost 2,000 of their obligors requiring support, someone at AGO would be getting sued or going to jail.

    You can argue that they don't understand the scope of the problem, but I would argue the other side, that they do understand it very well as judged by their navigation through the financial crisis. You also have the ratings agencies, who obviously made mistakes in the past, but are not repeating them now, saying things are fine. And, the municipalities know this problem and most municipalities will figure out a way to fix things without resorting to not paying bond-holders. The pension problem is an issue, but but it is being addressed, even in areas like Chicago, which is one of the worst.


    So, for you to be correct, you have to believe that there is something unexpected coming down the road. And that's fair, it is possible. But I really don't see it being the pension and benefit obligations of municipalities which are well known.
    Mar 28, 2015. 08:12 PM | Likes Like |Link to Comment
  • Assured Guaranty - Aggressive Stock Buyback Will Reward Long-Term Investors [View article]
    According to their latest company presentation,

    "Out of approximately 9,500 direct U.S. public finance obligors, we expect future losses to be paid, net of recoveries, on less than a dozen. In 4Q-14, we made payments on only three"
    Mar 27, 2015. 02:14 PM | Likes Like |Link to Comment
  • Assured Guaranty - Aggressive Stock Buyback Will Reward Long-Term Investors [View article]
    Management at AGO is smart and see the same things you are describing. They also know they are overcapitalized and have been doing buybacks and dividends with this, but if it looks like the business truly is dead long term, they will either go into run-off mode or, more likely, get involved in more M&A to grow the business.
    Mar 27, 2015. 09:17 AM | Likes Like |Link to Comment
  • Assured Guaranty - Aggressive Stock Buyback Will Reward Long-Term Investors [View article]
    Since WTM came public, they have doubled the return of the S&P 500, so they are a well run company.

    Berkshire got into municipal bond insurance back in 2007, pretty much the worst possible time, so it was good they got out. They did not have the seasoned, well-underwritten book of business AGO had. They have done a bit of underwriting of bond insurance since, so they do not appear against insuring this market, just not doing it at the price/risk level of the 2007 - 2009 period.

    As far as why others have not entered the market, the market is currently not large enough to attack a lot of other companies. AGO is well-positioned and WTM is trying to get in early while returns are high and risks much lower than before. It is a smart business strategy to get into a market before it starts growing. Should the market for this type of insurance get larger, it will attract other companies to underwrite business in it. In the meantime, companies like AGO, can write very profitable business having just one competitor. It is great to invest in monopolies or 2 company oligarchies as they tend to price for maximum profits.
    Mar 17, 2015. 07:43 AM | Likes Like |Link to Comment
  • Assured Guaranty - Aggressive Stock Buyback Will Reward Long-Term Investors [View article]
    It seems pretty likely that there shouldn't be a lot of muni-defaults going forward, based on the rationale that, except for specific unique problems, the broad pressure on municipalities has eased. So owning AGO, even if it is pretty much is in run-off, should still be a good business.

    The second thing I would think about is why would a smart insurance company like White Mountain be moving into the muni-market through their Build America investment if this was a permanently impaired industry. While of course they could be wrong, I think this shows there is a good chance this type of insurance revives as rates rise and White Mountain sees it as lucrative, which it would also be for AGO.
    Mar 15, 2015. 05:37 PM | 1 Like Like |Link to Comment
  • Assured Guaranty - Significant Intrinsic Value Per Share Growth Continues [View article]
    I think the selloff in October was mainly just market related. If you compare the charts of AGO with the general market, you'll see the trends are quite similar there, with AGO being a bit more volatile.

    I agree with your comment that AGO is pretty much a "no-brainer" at this time. If you look at their record over the last 10 years, you'll see they've consistently increased book value per share (which is how this stock is generally valued) and only had 1 year of losses.

    They survived the financial crisis and dealt with all of their major issues (Alabama, Stockton, Detroit, Harrisburg) easily and with minor hits to earnings. The one major outstanding one is Puerto Rico, but like Tim says, it is very manageable.

    Because the crisis is over, it should be quite rare to see future major issues in the state/municipal market (even Illinois is trying to do some things to fix it!), and the book value (GAAP and Operating Shareholder Equity) should approach the $53.66 Adjusted Book Value over time. Any new business which is being written is certainly going to be underwritten conservatively as well and add to book value.

    The biggest risk with AGO that I see is the time cost to get to the adjusted book value. They've been growing their Operating Shareholder Book Value by about 10% a year, so we should see the stock increase by 10% a year plus the discount to book should decrease over time, so a 20% average annual return is probably realistic with a 3 to 5 year time horizon.

    This does not count the upside if the municipal market should come back, IF that does, there are only 2 players in the market, AGO and BuildAmerica, which was funded by White Mountain Insurance, which is another successful insurance company which obviously thinks municipal insurance should do well in the future. With only 2 players and AGO being the better established, larger player, they should be able to win significant market share and grow the new business.
    Mar 3, 2015. 09:06 PM | Likes Like |Link to Comment
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