February 17, 2012 / 7:58 PM / 6 years ago

Fairfax shares dive, but CEO Watsa defends result

TORONTO (Reuters) - Fairfax Financial’s shares dove 6 percent on Friday after the company posted steep quarterly loss, even as CEO Prem Watsa sought to downplay the disappointing result by saying the property and casualty insurer focuses on long-term performance.

“We achieve these results by taking short-term pain for long-term gain. We have always been focused on the long term,” said Watsa, whose shrewd direction of the company’s investments have earned him comparisons to Warren Buffet.

Speaking on a conference call, he also said the company was hanging on to its equity hedges despite strong stock markets in recent months, citing Europe’s fragile financial system and China’s property market.

Fairfax’s shares dropped to their lowest in about five months after the company said it lost $771.5 million, or $38.47 a share in the fourth quarter, due to catastrophe-related insurance claims and losses on investments.

The results missed analysts’ expectations of a net loss of C$2.60 and drew criticism from analysts.

BMO Capital Markets analyst Tom MacKinnon chopped his 12-month target on the stock to C$430 from C$450, calling the results a “huge miss” in a research note.

Jeff Fenwick of Cormark Securities left his C$450 price target intact but cut his rating on the shares to “market perform” from “buy”.

The steeper-than-expected loss was due to higher claims stemming from the Japan tsunami and floods in Thailand, as well as to losses on the company’s equity hedges, which became unprofitable as stock markets rallied late last year.

All told, investment losses for the quarter were $915 million, though Watsa emphasized they were unrealized “and if history is any guide, should result in profits over time,” he said.


Watsa defended the equity hedges, which he put on in late 2010 - hedging virtually the company’s entire equity holdings - due to his concerns that the stock market has yet to bottom in this cycle.

“We continue to be very concerned about the prospects for the financial markets and the economies of North America and Western Europe, accentuated by the breaking of the real estate bubble in China in late 2011,” he said.

Such contrarian bets are nothing new for Watsa.

Since taking over as head of Fairfax in 1985, he has built a reputation as a shrewd value investor by making moves such as betting against the U.S. housing market in the last decade and reaping billions when the market collapsed.

Recently, he has taken a substantial position in Research In Motion RIM.TO and was appointed to the BlackBerry maker’s board last month as part of a front office shakeup in which co-CEOs Jim Balsillie and Mike Lazaridis stepped down.

On the call, he noted that Fairfax’s book value has risen a compounded 19.5 percent over the past five years, and is up 23 percent a year since 1985.

“I don’t think you’ll find too many companies with that, but that means we don’t worry about a quarter and quite often a year,” he said.

“If you’re looking for quarterly results and perhaps annual results, Fairfax really is not the company for those investors.”

Reporting By Cameron French; Editing by Frank McGurty

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