July 29, 2011 / 4:48 PM / 7 years ago

UPDATE 2-Fairfax sees Treasuries as solid long-term bet

* CEO says even in worst case, U.S is best place to invest

* Watsa Bank of Ireland capital levels, management

* Fairfax shares up 1.4 pct in Toronto

By John McCrank

TORONTO, July 29 (Reuters) - The chief executive of Canada’s Fairfax Financial Holdings Ltd, (FFH.TO) which made a big bet on Ireland’s last private bank this week, believes U.S. Treasuries are still “the best government bonds that you can buy.”

Prem Watsa, who has a reputation as a shrewd contrarian investor, said on Friday he is bullish on the long-term prospects for the U.S. economy and that he intends to hold on to U.S. Treasuries despite the country’s debt problems.

“We are long term and we think that debt limits will be worked out ultimately,” he said on a call with analysts.

“Even in the worst case where the U.S. takes a downgrade, if you compare the world, I think investors worldwide will still think U.S. Treasuries to be the best government bonds that you can buy, the best country to invest in, in spite of all of the problems.”

Watsa, who founded Toronto-based Fairfax in 1985, is perhaps best known for its bets against the U.S. housing market when it was still booming. He reaped billions of dollars when the market collapsed earlier this decade.


Earlier this week, Fairfax, along with New York buyout firm WL Ross & Co and others, made a 1.1 billion euro ($1.58 billion) private investment in Bank of Ireland BKIR.I.

“We like Ireland — we’ve been there for 20 years,” he said, referring to a Fairfax insurance subsidiary. “This is just a regular insurance investment.”

Bank of Ireland is the country’s last private bank, as two Irish lenders have closed, another two state-controlled institutions have merged, and the government took over another on Tuesday.

The investment by Fairfax helped the Irish government avoid full nationalization of its banking sector. [ID:nL3E7IR1E5]

“Their capital position is very strong,” Watsa said of Bank of Ireland, adding that the lender’s tier 1 capital was at 15 percent and its equity capital was at 10 percent.

“The central bank of Ireland has very significant, very tough stress tests.”

Bank of Ireland was told to raise 4.2 billion euros in additional core tier 1 capital following stress tests in March. The tests were required under the terms of the 85 billion euro EU-IMF bailout Ireland received late last year.

On top of a rights issue and stake sale, the bank raised 1.96 billion euros by imposing losses on junior bondholders and expects to secure another 510 million euros from further burden sharing.

Watsa said he was also impressed by Bank of Ireland CEO Richie Boucher and his team.

“He is very disciplined, focused, very commercial. So we liked him, and we made the investment. We will own less than 10 percent but it will be an investment for us as part of our $24 billion portfolio.”


Fairfax on Thursday said its profit surged in the second quarter thanks to increases in its stock and bond portfolios. [ID:nN1E76Q249]

The firm, which deals in property and casualty insurance as well as reinsurance and investment management, earned $83.3 million, or $3.40 a diluted share, in the second quarter ended June 30. That compared with a profit of $23.7 million, or 87 cents a share, a year earlier.

Revenue rose to $1.76 billion from $1.39 billion.

Fairfax’s debt-to-capital ratio rose to 27.1 percent at the end of the quarter from 23.9 percent at Dec. 31.

Its cash position was $2.94 billion, compared with $3.02 billion at Dec. 31, while the book value per share fell 2 percent to $358.60 from Dec. 31.

Shares of Fairfax were up 1.41 percent at C$375.26 on the Toronto Stock Exchange on Friday around midday.

$1=$0.95 Canadian Reporting by John McCrank; Editing by Frank McGurty

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