No Guru is more interesting to follow in 2011 that Berkowitz. He went into a lot of detail with CNBC this week with Bank of America (BAC, Financial), Citi (C, Financial), Goldman Sachs (GS) 5%, and AIG (AIG, Financial).
Most interesting parts to me is that Bruce emphasizes that he is smack in the middle of his circle of competence with these financial investments and that he added more AIG with the government offering.
Below is a transcript (apologize for the rough format) and the original video.
We're back on strategy session.
Goldman, Morgan Stanley even Bank of America, they're all higher today. Bruce Berkowitz is a manager of a fund that has had an uncharacteristically difficult year due in part to all of the financials in his portfolio.
Bruce, I’m told your voice is not doing so well. You apparently had some plane troubles there, too, but we're glad you're with us. Why all the financials? Why do you continue to hold so many financials, especially given what seem to be so many concerns as reflected in the performance of their stocks?
Well, to me, it's very much déjà vu all over again with the financials. This is exactly what I did in the early 90s. It's very reminiscent of the early 90s. And how can you not buy companies selling tangible book value that are essential to the country?
Well, you may have to wait a while. And I just wonder, you know, when you own 6.5% of your portfolio is in Bank of America (BAC), Citi (C) is almost 5%, Goldman Sachs (GS) 5%, are you willing to sit there and wait? I could have made the same argument a year ago. Don't forget AIG (AIG). Of course. How could I ever forget AIG? Which we'll get to in a moment.
I know. But that's why my voice is bad. I’m suffering from premature accumulation.
Let's talk about Bank of America. I want to get to AIG in a minute. That one more than any other has suffered. There's concerns about slowly portfolio, rising severities, subprime, for example, to which it still has exposure. What gives you the confidence that this stock trading now back where it was two years ago is going to ultimately be higher?
Well, I think Brian Moynihan is doing a great job. He's added the curve. He's lowering late fees, he's doing everything that's right. But the problem is that Bank of America is being kicked around like a dog. They're being blamed for events that have taken ten and 15 years to unfold and that has to stop. It's time for everybody to get together, settle up and move on and that will happen.
Bruce, I am a little bit surprised when you talk about Moynihan because your success has been really based on looking at the numbers, buying as you're looking for a quantitative standpoint buying value. You've got to believe that part of the issue with Bank of America, whether it's right or wrong, part of the issue has got to be the idea that a lot of participants do not believe Moynihan is the right person for that role, given what's happened to the company in the public markets since he became CEO. So are you essentially endorsing, while a number of called for change in management, are you saying that you believe Bank of America management should stay as is? I think he's doing a good job. And making money.
I know the trends are going in the right direction. He inherited commercial credit. They're burning through it. It's going to take another year, year and a half. But commercial credit issues are hiding everything else that there is at Bank of America. They are generating a tremendous amount of money, 45, $50 billion a year. They're generating pretax. Compare that, which is $4.5, $5 a share, they're already priced for -- they are priced for disaster already. Yeah. I mean, one does wonder why this stock is back writ was two years ago. I think most people would be hard pressed to say things aren't any better two years later. But that being said -- right.
Bruce, when you talk about the trends going in the right direction, what are you talking about specifically?
I’m talking about delinquencies, charge-offs, bad loans. You know, the whole morning mess. Most of it is based on what was done in 2007 and 2008. Today, it's less than 40% of 2007 loans remain. 2008, less than 50% remain. They're burning through. Their half lives are over already. It's just a matter of another year for everyone to fully see it.
Bruce were you pleased with the way the IPO was handled? Were you pleased with the pricing the way the banks priced it? And more importantly, did you and Fairhome participate and increase your position in AIG as a result of that a result of that IPO?
Well, let me say this partnership overestimated the powers of government and underestimated the powers of Wall Street. I think whoever participated in that public offering did very well and they will do well. Yes, we did participate.
You raised your position in AIG.
Yes, we did.
Why?
Well, AIG at half a book value charted its great global franchise on America, made in lap two, made in lane three and there's more, but one-third of AIG, I don't understand -- I really don't understand the price, but a lot of the times, I don't. That team’s too early get all bloodied up and hopefully eventually everyone figures out. You had the asset group substantially given your incredible performance. Not just last year, but in years 3r50ir. What do us at this point to who’s looking at AIG who helps fuel hair homes gains in 2010, people who moved into your mutual fund in the last six months and are going, what is going on here? Well, the math tab in the center of my circle, I grew up in the financial services business doing it for almost 30 years. I've studied these companies for decades. This is how I made my money in the early 90s with at the time was Wells Fargo. Wells Fargo was going bust. Everybody was shorting Wells Fargo. Well, it only one up seven or eight times in as many years. I don't know how the banks are going to work out this time, but they're very cheap. They're priced to fail. And we're going to make some good money.
Bruce, another high profile nonfinancial situation you were involved with at St. Joe, a real estate holding company down there in Florida. On the other side of that, David Einhorn now. Bring us up to date. That was a situation where you were not happy with management and you did want change. Bring us up to date in terms of what's happening at St. Joe or where you stand on that.
Since February we've been going through all the assets of the company. If you asked us, we're looking under the ground, we're looking over, we're better understanding the airport. The airport has about 20 flights a day now coming in and they're trying to figure out the best and better use for all the lay-ups. There's nothing more we've dramatically produced our expenses. We're going to stop the bleeding. We're going to wait and let the market come to us. 80% of it is within 20 miles of the Gulf of Mexico. Some of the most beautiful beaches in the world, it's going to take time. All right. They're reasonable people. Discuss the price, but we have dozens of projects that are in the works. A man who is waiting and is willing to be patient.
Bruce Berkowitz, thank you, as always, for joining us. I hope your voice gets better. I look forward to you joining us in studio where I can reach out and touch and you have that nice voice fully functioning again. Thank you. You're very welcome. That does it for strategy session, by the way.
Here is the video:
Most interesting parts to me is that Bruce emphasizes that he is smack in the middle of his circle of competence with these financial investments and that he added more AIG with the government offering.
Below is a transcript (apologize for the rough format) and the original video.
We're back on strategy session.
Goldman, Morgan Stanley even Bank of America, they're all higher today. Bruce Berkowitz is a manager of a fund that has had an uncharacteristically difficult year due in part to all of the financials in his portfolio.
Bruce, I’m told your voice is not doing so well. You apparently had some plane troubles there, too, but we're glad you're with us. Why all the financials? Why do you continue to hold so many financials, especially given what seem to be so many concerns as reflected in the performance of their stocks?
Well, to me, it's very much déjà vu all over again with the financials. This is exactly what I did in the early 90s. It's very reminiscent of the early 90s. And how can you not buy companies selling tangible book value that are essential to the country?
Well, you may have to wait a while. And I just wonder, you know, when you own 6.5% of your portfolio is in Bank of America (BAC), Citi (C) is almost 5%, Goldman Sachs (GS) 5%, are you willing to sit there and wait? I could have made the same argument a year ago. Don't forget AIG (AIG). Of course. How could I ever forget AIG? Which we'll get to in a moment.
I know. But that's why my voice is bad. I’m suffering from premature accumulation.
Let's talk about Bank of America. I want to get to AIG in a minute. That one more than any other has suffered. There's concerns about slowly portfolio, rising severities, subprime, for example, to which it still has exposure. What gives you the confidence that this stock trading now back where it was two years ago is going to ultimately be higher?
Well, I think Brian Moynihan is doing a great job. He's added the curve. He's lowering late fees, he's doing everything that's right. But the problem is that Bank of America is being kicked around like a dog. They're being blamed for events that have taken ten and 15 years to unfold and that has to stop. It's time for everybody to get together, settle up and move on and that will happen.
Bruce, I am a little bit surprised when you talk about Moynihan because your success has been really based on looking at the numbers, buying as you're looking for a quantitative standpoint buying value. You've got to believe that part of the issue with Bank of America, whether it's right or wrong, part of the issue has got to be the idea that a lot of participants do not believe Moynihan is the right person for that role, given what's happened to the company in the public markets since he became CEO. So are you essentially endorsing, while a number of called for change in management, are you saying that you believe Bank of America management should stay as is? I think he's doing a good job. And making money.
I know the trends are going in the right direction. He inherited commercial credit. They're burning through it. It's going to take another year, year and a half. But commercial credit issues are hiding everything else that there is at Bank of America. They are generating a tremendous amount of money, 45, $50 billion a year. They're generating pretax. Compare that, which is $4.5, $5 a share, they're already priced for -- they are priced for disaster already. Yeah. I mean, one does wonder why this stock is back writ was two years ago. I think most people would be hard pressed to say things aren't any better two years later. But that being said -- right.
Bruce, when you talk about the trends going in the right direction, what are you talking about specifically?
I’m talking about delinquencies, charge-offs, bad loans. You know, the whole morning mess. Most of it is based on what was done in 2007 and 2008. Today, it's less than 40% of 2007 loans remain. 2008, less than 50% remain. They're burning through. Their half lives are over already. It's just a matter of another year for everyone to fully see it.
Bruce were you pleased with the way the IPO was handled? Were you pleased with the pricing the way the banks priced it? And more importantly, did you and Fairhome participate and increase your position in AIG as a result of that a result of that IPO?
Well, let me say this partnership overestimated the powers of government and underestimated the powers of Wall Street. I think whoever participated in that public offering did very well and they will do well. Yes, we did participate.
You raised your position in AIG.
Yes, we did.
Why?
Well, AIG at half a book value charted its great global franchise on America, made in lap two, made in lane three and there's more, but one-third of AIG, I don't understand -- I really don't understand the price, but a lot of the times, I don't. That team’s too early get all bloodied up and hopefully eventually everyone figures out. You had the asset group substantially given your incredible performance. Not just last year, but in years 3r50ir. What do us at this point to who’s looking at AIG who helps fuel hair homes gains in 2010, people who moved into your mutual fund in the last six months and are going, what is going on here? Well, the math tab in the center of my circle, I grew up in the financial services business doing it for almost 30 years. I've studied these companies for decades. This is how I made my money in the early 90s with at the time was Wells Fargo. Wells Fargo was going bust. Everybody was shorting Wells Fargo. Well, it only one up seven or eight times in as many years. I don't know how the banks are going to work out this time, but they're very cheap. They're priced to fail. And we're going to make some good money.
Bruce, another high profile nonfinancial situation you were involved with at St. Joe, a real estate holding company down there in Florida. On the other side of that, David Einhorn now. Bring us up to date. That was a situation where you were not happy with management and you did want change. Bring us up to date in terms of what's happening at St. Joe or where you stand on that.
Since February we've been going through all the assets of the company. If you asked us, we're looking under the ground, we're looking over, we're better understanding the airport. The airport has about 20 flights a day now coming in and they're trying to figure out the best and better use for all the lay-ups. There's nothing more we've dramatically produced our expenses. We're going to stop the bleeding. We're going to wait and let the market come to us. 80% of it is within 20 miles of the Gulf of Mexico. Some of the most beautiful beaches in the world, it's going to take time. All right. They're reasonable people. Discuss the price, but we have dozens of projects that are in the works. A man who is waiting and is willing to be patient.
Bruce Berkowitz, thank you, as always, for joining us. I hope your voice gets better. I look forward to you joining us in studio where I can reach out and touch and you have that nice voice fully functioning again. Thank you. You're very welcome. That does it for strategy session, by the way.
Here is the video:
