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TORM A/S Message Board

j0n_48195 45 posts  |  Last Activity: 21 minutes ago Member since: Apr 2, 2001
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  • Reply to

    will spinning off the mortgage insurance business

    by kbkhkmartz 1 hour 48 minutes ago
    j0n_48195 j0n_48195 21 minutes ago Flag

    If shareholders got the proceeds (or the new shares) the answer is yes. But if the money from the IPO and subsequent market sales of the remainder go back into the company's coffers, then I don't see any cause for adjustment. It's really common sense, but as we all know, common sense doesn't always prevail. I'm comfortable that the warrants will be treated fairly, so I must confess I haven't paid much attention to how this deal is structured.

    Sentiment: Buy

  • Reply to

    AIG Coverage today...tgt..$63

    by lawstuff22 May 5, 2016 8:55 AM
    j0n_48195 j0n_48195 2 hours 29 minutes ago Flag

    That $75 seems high- not because I don't think AIG could be worth that, but because I think they want to get most of their buybacks done before we get that close to book value. I expect AIG to keep taking reserve and restructuring charges as long as cash flow allows hefty buybacks. I know in theory they don't have that much discretion, but my experience suggests otherwise.

    Sentiment: Buy

  • Reply to

    Warrant Buyback

    by harleynace May 2, 2016 4:38 PM
    j0n_48195 j0n_48195 May 4, 2016 8:32 AM Flag

    Thanks for the shout out. Like the Enron off-balance sheet deals, when the terms were written the extreme scenarios were "off the radar". Maybe they should have known better, but they didn't. What raises my eyebrows is how modest the "excess" distributions have to be for that formula to hijack the balance sheet. For now, this formula doesn't seem to matter at all, until it starts to matter a lot. Expect AIG to quietly and nervously buy as many warrants as they can. Their "Plan B" to modularize and sell units that fail to meet profitability goals cannot proceed, unless they can pave the way by shrinking that warrant float.

    Sentiment: Buy

  • Reply to

    Warrant Buyback

    by harleynace May 2, 2016 4:38 PM
    j0n_48195 j0n_48195 May 3, 2016 5:20 PM Flag

    Let me add one final note to the "that-can't-be-true" math I model below. Do you think it's a coincidence that these 10MM warrants were bought unannounced, and in this, of all quarters? Peter might be brilliant managing AIG's finances, but he missed what would appear to him to be a minor weakness in the capital structure, that only a financial "hacker" would notice- namely hedge fund managers like Paulsen and Icahn'. They no doubt alerted him to this obstacle to substantial liquidation and told him he needed to quietly retire as much of that float as he could get his hands on. Don't expect more than minimal discussion of the issue from Peter. The script will read something like, "we are making modest purchases, from time to time, as market conditions justify". Expect him to sound boring, formal and almost lethargic. He wants you to fall asleep before he's done answering any questions.

    Sentiment: Buy

  • Reply to

    Warrant Buyback

    by harleynace May 2, 2016 4:38 PM
    j0n_48195 j0n_48195 May 3, 2016 4:18 PM Flag

    You are correct, if the stock distributed $45, the strike would be ZERO for an infinite number of shares. That's not only why it cannot happen, but demonstrates that the warrant dilution begins to dominate the balance sheet as the adjusted distribution gets larger. I did look the paragraph up in the original document, but that was a few years ago and painfully tedious. A better proof is to look up the company's strike adjustment press releases and work the numbers for yourself. The total exercise price of each warrant remains $45. To the extent the strike goes down linearly, the number of shares converted goes up hyperbolically (!). The numbers only get crazy as the distributions get large. But if AIG falters and has to go through major liquidation, that "going concern" assumption built into the warrant adjustment equation becomes ridiculously generous. This is the type of formula that took down Enron. Many of those shady deals were collateralized by a specific dollar amount of stock value, never intending that as the stock approached zero an infinite number of shares would have to be issued to back those deals.

    If you're still stuck, let me know. I'll plod through that document again and reference it for you. If I can find it, and make some sense of it, anybody can. But if I hadn't seen hedge fund managers referencing the clause in various articles, it never would have occurred to me to go looking for it.

    Sentiment: Buy

  • Reply to

    Warrant Buyback

    by harleynace May 2, 2016 4:38 PM
    j0n_48195 j0n_48195 May 3, 2016 4:00 PM Flag

    Yes! That's exactly my point. It's easier to see when you exaggerate the effect. But to be more realistic, if the company distributes $15 per share total (beyond the $.68 unadjusted annual dividends, but well within reason by 2021), the strike would be $30/shr and the warrants would distribute 1.5 shares per. At that point the warrants' in-the-money value would equal the common at $90, and exceed it for anything higher. This assumption is based on a combined earnings and buyback profit of only $30 over the next 4 &1/2 years ($3 "lost"/unadjusted dividends, $15 adjusted distributions and $12 further increase in book value). Book value profits "hedge" poor profitability to some extent by keeping the stock at a steep discount.

    Sentiment: Buy

  • j0n_48195 j0n_48195 May 3, 2016 12:31 PM Flag

    Get a clue. You have no idea what you're talking about.

  • Reply to

    Warrant Buyback

    by harleynace May 2, 2016 4:38 PM
    j0n_48195 j0n_48195 May 2, 2016 8:18 PM Flag

    You might be right. My memory was never that good. That number is out there somewhere. I might have to go looking now.

  • Reply to

    Warrant Buyback

    by harleynace May 2, 2016 4:38 PM
    j0n_48195 j0n_48195 May 2, 2016 6:17 PM Flag

    It took me a while to track it down. but yes, 10MM at @ $17. I thought there were 80MM originally (79?). As i note below, this is paving the way to avoid big warrant adjustment costs associated with hefty cash and stock distributions. Good catch. Unless I'd known it was there I'm not sure I would have found it. Note too that, despite the hefty reported loss, book value rose by some $3. Keep them buy-backs coming.

  • Reply to

    Warrant Buyback

    by harleynace May 2, 2016 4:38 PM
    j0n_48195 j0n_48195 May 2, 2016 5:31 PM Flag

    I haven't read that report yet, but I keep harping on the why- it's middle school math. Not only is the numerator adjusted, but the denominator as well. In theory, just to make the point, If AIG distributed $44.99 in cash and shares, the remaining stock would have a book value of about $30. But the warrants would then convert 4500 shares at a penny apiece! At book value, in this ridiculous example, each warrant would be worth $13500. Get it? If AIG is going to do any serious cash distribution (beyond buybacks) and stock spinoff distributions, they cannot do it without shrinking that warrant float. Even if they're fairly valued now, their value explodes the more AIG shrinks itself. This quarter's dismal earnings report only points more strongly in that direction. (My "buy" refers to the warrants alone now.)

    Sentiment: Buy

  • Reply to

    I Keep Hearing Bad Things About AIG

    by combined_ratio May 1, 2016 3:07 PM
    j0n_48195 j0n_48195 May 2, 2016 11:02 AM Flag

    That may be true, but as an investment AIG looks good either way. If your sad scenario plays out, AIG will be liquidated and sold for parts. It's probably worth more dead than alive, but I have to hope they manage to pull out of their tail spin, if only for the sake of the employees.

    Sentiment: Buy

  • Reply to

    Too big to fail?

    by strappedtoo Apr 10, 2016 8:28 AM
    j0n_48195 j0n_48195 Apr 29, 2016 3:19 PM Flag

    That's true, but if his logic had been correct otherwise, the comparison to $1500 would have been valid. In other words, $56 worth of stock would have been worth $1500 wwithout dilution. But if you take into account 92% (I think) dilution (meaning a share today only represents .08 share of the old company) that makes the adjusted peak value $144 in todays share dollars. We're not there yet, but it's crazy to think AIG "should" see $1500 again before we're in the clear.

    Sentiment: Buy

  • Reply to

    Losses from Japanese Earthquakes

    by combined_ratio Apr 17, 2016 6:33 PM
    j0n_48195 j0n_48195 Apr 27, 2016 1:15 PM Flag

    That's a lot of reading between the lines, but I was at least able to infer the house fire stuff. Have to agree with you on all points, except I'm feeling a bit more generous about giving a slimmed down AIG more time to sort out their performance issues. BTW, dismantling AIG would be more than a "bone" to warrant holders. The double adjustment for distributions would be a windfall for us. Either way, AIG stands to be profitable, even if it is boring over the next few years. I'm assuming you're invested. If so, good luck to us both.

    Sentiment: Buy

  • Reply to

    Losses from Japanese Earthquakes

    by combined_ratio Apr 17, 2016 6:33 PM
    j0n_48195 j0n_48195 Apr 26, 2016 10:18 PM Flag

    I've done OK, but only OK, ball-parking big events like Sandy. That means high or low by a factor of 2- after the press released overall damage estimates. It's still guesswork. This was no Sandy. I expect this was just another day at the office, albeit an unpleasant one (human tragedy aside). This is, after all, what insurance companies do. Why they even need reinsurance is a mystery to me. I get the math of managing catastrophic risk. But when you add overhead and profit to the transaction you have to wonder if it's really worth it. (Kind of like hedge funds.) Regardless, AIG has bigger issues to deal with. KB would never be accused of being diplomatic, but he's right that this way down the list of concerns for AIG- if that is indeed what he's trying to say..

    Sentiment: Buy

  • Reply to

    Big banks

    by strappedtoo Apr 15, 2016 9:30 AM
    j0n_48195 j0n_48195 Apr 15, 2016 11:04 AM Flag

    AIG is a CASH machine. What it isn't is an EARNINGS machine. If ROE stays stuck in second gear, AIG will rightfully remain cheap. If they can get a grip on P&C expenses and underwriting, the gap between book and market value will close in a hurry.

    Sentiment: Buy

  • Reply to

    What do you know....

    by sunshinemink7 Mar 31, 2016 4:12 PM
    j0n_48195 j0n_48195 Apr 13, 2016 9:42 AM Flag

    Best of luck to you. Time will tell whether my stubbornness is a virtue or a vice. This is an odd case, where you can measure the market's irrationality by the price of the common. We're almost $10 in the money on the warrants. Given their double adjustments, and the fact they are rewarded even more if the company fails and is sold off by divisions, this is the most self-hedged investment I've ever made. In less than 5 years, it won't matter what the market thinks about the time value. Strike should be about $30, each warrant worth 1.3-ish shares and book value in the $85 range- unless AIG is dismantled, in which case the warrants are worth much more. So, my most probable scenario prices the warrants at $70 in 2021. I can't imagine them below $50. They could just as well be north of $100.

    Sentiment: Buy

  • Reply to

    Too big to fail?

    by strappedtoo Apr 10, 2016 8:28 AM
    j0n_48195 j0n_48195 Apr 10, 2016 12:53 PM Flag

    Most would agree with you, but add that AIG has more downsizing to do before they press their case. When they finally get there, they can't afford a "no". Further, I don't think this is just about what's logical or right. The feds are appealing the Met Life decision. That delisting is not a done deal. The truth is the fed doesn't really want these companies to downsize. They would rather regulate them. It's the government mindset. Once they got the authority, the fed would fight to regulate a corner gas station. Met Life won because the law lacked clear criteria and relied on government whim. That's the way the fed likes it. Don't expect them to give up without a fight.

    Sentiment: Buy

  • Reply to

    Question about buybacks

    by j0n_48195 Mar 23, 2016 1:25 PM
    j0n_48195 j0n_48195 Apr 5, 2016 4:15 PM Flag

    Points taken. We have to agree to disagree on some. Dividends are supposed to be "forever". I have to think the markets would discount for that "day of reckoning". But in the end, the market does what it wants to do. t's ironic I would argue against your view. If you had your way the warrants would hit the jackpot, but even more jobs would be put at risk. Buybacks can stop on a dime, AIG would have to make draconian cuts to protect an unsustainable dividend as long as possible.

  • Reply to

    Question about buybacks

    by j0n_48195 Mar 23, 2016 1:25 PM
    j0n_48195 j0n_48195 Apr 5, 2016 12:56 PM Flag

    You are right about many buybacks being used to hide stock bonuses. WB says options are the most egregious example of accounting abuse- they're not required to be posted as a cost. Nevertheless, I differ on the rest of your thesis. Do you think AIG would trade anywhere near $54, if they hadn't reduced share count by a third? To value investors, market based arguments are not foremost. You are correct, so far as the business commentators go (and yes there are "lumped together" studies to back them up). The warrants would have benefited even more, if that buyback cash were paid in dividends instead. But as a shareholder, I'd prefer buybacks. Book value has been growing yoy in the double digit range. The market is right to be skeptical, but that value will assert itself soon enough.

    Sentiment: Buy

  • Reply to

    Question about buybacks

    by j0n_48195 Mar 23, 2016 1:25 PM
    j0n_48195 j0n_48195 Apr 4, 2016 8:28 AM Flag

    My rationale is that their problems are fixable. Insurance is mainly a commodity business. What works and what doesn't is relatively easy to identify, though remedies may be difficult to execute. Insurance is also "fungible". What I mean by that is it may be worth more dead than alive. Just like an old car may be worth more for for parts than transportation. If AIG cannot get it's house in order, they will be dismantled and sold piecemeal. Many companies can delay that painful decision indefinitely. AIG no longer can. One way or another, AIG's underpriced assets will reach their natural peer valuations. The more that happens by shrinking, the more it benefits the warrants relative to the common.

    Sentiment: Buy