The Banking and Strategy Initiative

Chillin' out till it needs to be funded

So you think Berkowitz lost his touch? | Fund insight

Paulson recovered 5% though on his funds in 2012 even as Berowitz started coming back from the 58% loss on Bank of America in 2011. AIG and Sears Holdings are his Fairholme fund’s Top 2 holdings and the funds annual return pushed to a -1.4% in the last 5 years. In Sears Holdings, the 1 mln shares that he holds in the $7.2 bln fund ( down at least a $1 bln from Oct 2011 when the run on Sears came to destroy its hopes for 2011. Despite the broad response to Financials his investment in 48 mln shares of MBIA may unlikely turn to profit soon.

Though Berkowitz exited positions in the Big 4 Financials before October, the banks are back with a bang. Bruce Berkowitz chose to exit banks and increase positions in Regions Financial and stick around in Bank of America though he is also stuck with the half baked Sears’ plan locked unto death by the CIT refusal to supplier agreements and finance after mismanagement cost the big retailer the John in 2011, falling behind S&P’s last month 2% recovery on the year by 34%

His 2.2 bln shares of AIG are seemingly the second largest holding in AIG after the US Treasury, picking up the 200 mln shares offered by the Treasury in May . The Treasury still holds 77% of AIG.

The big comeback in Capital Reserves on the banks prompted the fund manager to build up positions in banks and financial services and likely the years beginning has prompted him to add to not just his JP Morgan and Wells Fargo positions but Goldman Sachs and Morgan Stanley as well. He has also built positions in Regions Financials Also AIG’s stock is just 60% of book value and BofA 40% even as it has recovered the entire loss as a scrip in 2011. Including warrants he still holds 106 mln shares in AIG now worth $3 bln. The fund’s 10 year return is 10%

AIG came back 9% in January 2012. According to Forbes,a ‘reversion’ to AIG as brand promted sales at AIG’s Matrix up 24% in January and further recomination of Chartis and American General has been approved as AIG Benefits Solutions

Bank of America could revive Berkowitz’ Fairholme fortunes?

Bruce Berkowitz has been accumulating Bank of America on the country wide purchase in 2008, a window of opportunity for the lagging stock as it finally seemed to oevr exert itsllf in buyouts that began form its history as  North Carolina Nations Bank whose parent NCNB corp picked up three Florida banks in 1980s. Tom Storrs, the man who made Bank of America died earlier yesterday at 93. Despite his five year negative return, as recently as 2010, Fairholme got Berkowitz the US domestic stock dund manager of the decade from Morningstar

Bank of America’s 30,000 job cuts and $20 bln in write offs have however cleared the boards for a hopeful 2012 as the foreclosure settlement costs have already been applied and the two bailouts from the Treasury to digest Countrywide ( and even Merrill Lynch)

Berkowitz’s thesis for financial stocks is: 1% return on assets = 10% return on owner’s equity = 20% implied annual return on investment. (Forbes)

The bank’s return on Assets has been poor throughout 2011, falling below 1% after the third quarter, managing a miraculous $2 bln in Profits in the 4th quarter to score an absolute ‘0’ for 2011 and apparently make a clean break in 2012


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