4000 monkeys trying to make money but they can't. Still, they get their peanuts and bananas and a pat on the back for their efforts. Investment banking either you are really good or it's just a bad business with some average profits along the way and yearly explosions. Was it worth 5 billion when book value was 3.3 billion? I doubt any investment bank is worth more than book, except maybe the best. Now LUK is trading about 10% *below* tangible book value (assume intangibles are amortized), the kind of price that is actually, possibly, maybe cheap and management isn't buying back a single share. They are more confident in their investment skill than investing in what they already have although it's proven that they aren't that good. Yet I can't help notice that LUK is not really as liquid as some would think. The DTA is not cash they can use today. If they want to maintain about 400-500m cash at the corporate level, they have just 1 billion in cash to invest/buy back shares. That's for a company with 50 billion in assets and ~8 billion equity. Seems they are actually fully invested. Still, they could easily buy back 3-5% of shares. Really shows what they think about the business they own. Much easier to just take compensation for themselves than to share the profits all around with shareholders.
"Jefferies gets more of its income from junk bonds than those banks, which are more diversified...Marty Mosby, an analyst at Vining Sparks in Memphis, Tennessee, said that he doesn’t expect trading to decline as sharply at the bigger banks as it did at Jefferies."
Since when are junk bonds part of a conservative investment strategy? Have the former partners of Leucadia lost their marbles? I'm starting to think the split of Cumming from Leucadia may have been more a disagreement about direction of the company than an amicable parting. what is the board doing to control the risks, speculations, and gambles at Jefferies and to rein in excess bonuses and stock compensation which they said a few years back, sitting on the board, that they are trying to do?
The direction of LUK today is a real popping of the trust bubble shareholders have (had?) in management. I'm not so sure 2015 will be any better.
In retrospect, liquidation of the conglomerate or spinoff of the parts would have been considerably more lucrative for shareholders.
In the same boat. While not looking to divest completely, looking to reduce my stake after seeing what could be called circumstantial evidence that this management and this line of business is not as lucrative as I thought. As an aside, using estimate on the 9 months Jefferies earnings and if the Q4 coming out Thursday or Friday are inline with last quarter, Jefferies will meet the return thresholds set in last year's proxy for target bonus payout so I expect 2014 will go down as a year Handler gets a bigger bonus than last year, while ROE at the conglomerate level is still unacceptably low and arguably shareholders have had another bad year. Regards the NOL, I imagine they could use the NOL with any investment, there was no requirement to buy Jefferies per say. Look at the hundreds of mergers since 2012, many would have done just fine.
What we don't know is the earnings and break even of the properties they bought, this is kind of like a BDC unless they furnish more stats next yea. But they bought 600 wells from Enervest for 186 million around August/September at what must have been higher prices than today. Yes, they may invest more now, but they do have a substantial chunk already sunk in. Let's hope they are a low cost investor.
Check out this article and Q&As - http://www.valueinvestorsclub.com/idea/Jefferies_Group/1549#description
it's the same high comp, high bonus game over and over again. Outright speculators masquerading as long term value investors.
(If you look at the Q&A on that thread, the things Jefferies and Handler have done is damning. I mean, splitting profits from Jefferies high yield 2/3 to Leucadia instead of Jefferies shareholders for no reason. Mixing trading and investment banking (something that has come out since the financial crisis as a big problem conflict of interest). Understating of compensation expenses, gift kickbacks to clients in an echo of the current sage kelly do whatever it takes to get clients vein. Conspiring with Leucadia to pad earnings when they would have been bad through Jefferies high yield), being over leveraged and cash poor.
Ok, so maybe Leucadia invested in Jefferies cause they like to own junky companies and turn garbage into gold. But making their management LUK's management seems kinda risky. Investment banking , like Buffet said when he owned Solomon Brothers, is one headache after another and for peanut profits!
" Producing shale oil is more expensive than most other methods, and many smaller producers have borrowed heavily to finance their operations during the boom"
Of all the possible oil investments, count on LUK management to choose the 2nd worst (at least they didn't lose our money in oil sands!)
Still, in the spirit of contrarian investors, I predict bonuses are going up this year, as already the financial statements show bonuses for 9 months of 2014 are up over 2013 same period.
True, but they didn't need a deal like Buffetts to make a killing. BAC was selling for $7 when they acquired Jefferies in 2012. 3 years later BAC is $17/share and paid some nice dividends. Instead of owning Jefferies for $5 billion ( bought at a premium to book value) they could have put the same amount in BAC at a discount to book value and be 5-7 billion richer 3 years later.
Now, they've just put something like 400m into oil & Gas ventures in the summer/September, most likely at substantially higher oil prices so it's likely they have some losses in that in the short-term as well.
" Investment banks have been less profitable, more volatile and had consistently higher costs than commercial banks, according to a study of business models of the past decade."
"The study said the number of banks opting to keep a trading model was surprising given their sub-par returns. "While further analysis is needed to uncover the clear benefits to these banks’ shareholders, high cost-to-income ratios suggest outsize benefits to their managers," it said.
How true indeed! Shareholders bare the risk, management gets the steady paycheck and bonuses.
"Some Harbinger Group shareholders, including Leucadia, believed that the value of the company’s underlying assets wasn’t fully reflected in its share price and that replacing Falcone may lift the stock, according to a person familiar with the company, who asked not to be identified."
The hypocrisy! How about the fact that Leucadia stock is trading at something like 0.8x book value. So they would rather publicly go out and buy some other stock because valuation is too low instead of raising the price of their own stock which in itself is trading at a similar discount if not greater discount?
And these monkeys are being paid millions for this kind of reasoning?
"We feel noble intentions should be checked periodically against results. We test the wisdom of retaining earnings by assessing whether retention, over time, delivers shareholders at least $1 of market value for each $1 retained. To date, this test has been met. We will continue to apply it on a five-year rolling basis. As our net worth grows, it is more difficult to use retained earnings wisely." - Berkshire owner's manual.
Leucadia has failed the 5 year and 10 year rolling periods. It is time that management is held accountable to return money to shareholders or make a change. Somehow I doubt anybody cares or believes their words anymore.
Conversely if you had done nothing but buy the S&P500 index you're up about 90% and the dividend was slightly higher. Not only did LUK not keep up, it did *worse* than average. How can you do worse than average? Shareholders should be revolting, instead they seem docile. Some possibilities come to mind...
1. You made bad investment decisions/mergers that destroyed value (somewhat likely scenario)
2. You wasted so much money on compensation for this sub-par performance due to your high sense of ego that you ended up destroying value (but I can't see this as causing such a big difference in performance)
3. Your stock was so overvalued at the start due to say cult following, high expectations, etc... that it would take years and years of treading water before you could get back to average (very likely scenario)
4. You didn't necessarily make bad decisions but failed to see the big picture that owning mediocre businesses long-term isn't a very hot idea (somewhat likely)
5. You got scared in the crisis and went very defensive , even after it was over while others said what the hell? Something akin to depression era thinking.
6. You speculated on commodity prices or future interest rates/inflation that didn't materialize.
7. Long term policies are a good idea if you are a great investor, but the long term can be a convenient rug under which to sweep massive dysfunction. Since it's 'long term', investors won't question your actions and you can use the excuse that you are investing for the future. By the time it all comes to light, everyone will forget your promises or be long gone, or dead of old age ;)
True, but if you look at their 4q slides the NAV is $15.74. Not sure the tax dynamics but presumably the 15% discount is a conglomerate discount.
The liability is exactly the fact you mention. Why are the shares held in a conglomerate instead of being spun-off to shareholders? Does the conglomerate add any value in holding this stock with a conglomerate's overhead and interest payments on debt?
People are too focused on the high dividend. It's irrelevant. Look at the big picture. It was making 30-35 million per year. Market cap is $350m or a 10% yield. There are dozens and dozens of stocks yielding 10%. Nothing special here so far...and that income is going down in the short term as it's a cyclical business. Undervalued? not really. Overvalued? not really. Anything to get excited about? Not really.
They are restricted from dividends and buybacks by their lenders. Essentially they are what a bankrupt company would be - illiquid. They have to be very careful with their money right now or they're going to go belly up. No buybacks or dividends , that's why they got their friends to buy the stock and the directors, it's a "buyback substitute" since the corporation can't do it .
There is no money left to buyback! Have you seen the leverage on this thing? Dividends are restricted by the lenders as are buybacks. Wishful thinking.
Well, with the CEO gone might be better to do it sooner than later. Also an article mentioned Falcone was canned because the largest shareholders thought the stock should be $15/share. If you wanted to buy the whole thing, why work to make the price higher before you made the offer? I suspect it won't happen, or if it does, very slowly, like Jefferies, they'll wait a few years and then buy the whole thing at a high price, cause they love to buy high and sell low ;)
stock pinning near option strike prices is a documented effect. e.g. https://www.math.nyu.edu/faculty/avellane/PowerLaw.pdf
The news can get much worse. Reduction in fees to Altisource from Ocwen, there is a lot of anger from homeowners about mistaken and fraudulent fees funnelled to Altisource. This stock may be worth less than $20/share by next year.