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Embrace the uncertainty (at low risk) with Aviva

May 26, 2012 | About:
Chandan Dubey

Chandan Dubey

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About the author:

Chandan Dubey
I invest because I want to be free by the time I reach 40 years of age i.e., 2025. My investment style is to find a small number of bets with large margins of safety. I pay a lot of attention to management and their incentive. Ideally, I like to buy owner operator businesses. I am fortunate to have a strong inclination towards studying. I aid my financial understanding by extensive reading in psychology, economic, social sciences etc.

Rating: 4.2/5 (23 votes)

Comments

vgm
Vgm - 2 years ago
Nice write-up. Thanks.

I agree Aviva looks cheap and has a whopping dividend approaching 10%.

As you say, the exposure to peripheral European country debt is limited. The big(ger) risk seems to be exposure to debt securities of European banks - perhaps especially Spain.

With the important exception of Ireland, the Euro-banks have not been cleaned up yet, as Buffett reminded us recently. And even in the past few days the Spanish banking crisis has deepened, with Bankia (which was created out of some 7 failing regional banks less than a year ago) requesting an extra 20 billion Euro bailout from the government, largely because of soured real estate and non-performing loans.

No-one knows how big the property hole is for Spain's banks, and because of its struggling economy, including almost 25% unemployment, bad loans are still rising.
cdubey
Cdubey premium member - 2 years ago
From the annual report, we see that exposure to Spain's bank is less than £1.18b. This is maybe what Aviva pays as dividend in a year and half. I don't see this as a major problem.

Gross of non-controlling interests, our direct shareholder assets exposure to worldwide banks debts securities and equities is

£7.4 billion. The majority of our holding (58%) is in senior debt (covered, secured and senior unsecured). The primary exposures

are to United States (28%), Spain (16%) and United Kingdom (15%) banks. Our holdings include strategic holdings in Unicredit

and other Italian banks of £439 million.

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