No. of Recommendations: 5
Well, that was one of the more entertaining earnings calls I've listened to lately.
After the normal intro summarizing the Q4 and full-year performance, Fairfax management voluntarily took up the subject of the Muddy Waters report, responding at length and considerable detail prior to the q&a.
As part of his rebuttal, Prem Watsa said that to his knowledge Muddy Waters never contacted Fairfax with questions or issues. Instead, he said, it went to CNBC to publicize its claims during the quiet period leading up to the company's earnings release, implying it was taking advantage of Fairfax's inability to respond in detail to make a quick profit on market reaction to the short report's claims.
Muddy Waters says on its website that it remains short Fairfax. On Feb. 15, the day of the earnings release and one week after publication of the short report, Muddy Waters published five questions for Fairfax. The site's terms of use note that all content is copyrighted and prohibit quoting from it on any other site, directing users to post only its web address so that others can access the materials there:
https://www.muddywatersresearch.com/research/Seeking Alpha published a transcript of the earnings call. The portion devoted to rebuttal of the short report was long enough that I think reproducing it here could violate Seeking Alpha's copyright. A subscription might be required to access the transcript:
https://seekingalpha.com/article/4671013-fairfax-f...Carson Block, the founder of Muddy Waters, was on the call and was allowed to ask a question. I transcribed that short portion of the call myself:
Operator: Our next question comes from Carson Block with Muddy Waters. Your line is open.
Carson Block: Hi, I appreciate you calling on me. Um, I guess with only one question. We published, uh, we published five questions yesterday, and the first one that we’re asking is for disclosure regarding associates that have been on the balance sheet at any time since Jan. 1 of 2020. To summarize what we’re looking for is basically disclosure by associates of cash that’s been invested, versus cash that’s come back, and also profits that have been booked, as well as contingent liabilities arising, say, with the disposals. Will you be disclosing these associate transactions?
Prem Watsa: Thank you very much, Mr. Block, for your question. Jen, would you answer that?
Jen Allen: Sure. Our disclosure with respect to the associates is disclosed in respect of those transactions as applicable in our annual report, and in accordance with the IFRS framework that Fairfax follows.
Carson Block: Well, I mean, rather than going for the bare minimum that IFRS requires, I mean, why not provide transparent, enhanced disclosure to be very investor friendly? I mean, that’s, obviously, you can do the bare minimum, but why leave it there?
Prem Watsa: So, Mr. Block, just for your information, we’ve taken a lot of time to go through the allegations you’ve made. We’ve made the point very clearly that we will not tolerate false and misleading information. That’s the reason we’ve taken time to explain all of that to our shareholders. And so we appreciate your question. Next question, please.In fairness, I should mention that Mr. Block played a salutary role in exposing a series of fraudulent Chinese companies listed on U.S. exchanges in the aftermath of the great financial crisis. His role is covered in the 2017 documentary
The China Hustle, which is available on the Hulu streaming service.
This is a rather different case. Mr. Block's allegations of fraud against a variety of Chinese listings offered evidence easily understood by non-accountants of physical inspections revealing little or no activity at company sites supposedly doing hundreds of millions of dollars worth of business.
In the case of Fairfax he seems to acknowledge that the company's reporting is adequate under IFRS rules, but wants more disclosure. I am not familiar enough with the company's history to be able to follow the back and forth on particular transactions, but it's hard to argue with Fairfax's recent results, particularly when compared with Markel, which just reported a combined ratio in excess of 100% for the same year Fairfax's was 93.2%.
