Sitting at the top of Leucadia National Corp. for the past 31 years have been Ian M. Cumming, Chairman and Joseph S. Steinberg, President. For 31 years, the two investment Gurus have grew their company leaps and bounds: Book value grew at a rate of 18.5% from 1979 to 2009, and market price of the Leucadia National Common stocks increased 21.4%.
Match that!
The two have recently published their 2009 letter to shareholders. As usual, the letter tells a terrific story of good stewardship. You are urged to get a copy, I know quite a few famed money managers would as they own Leucadia stocks. Click here to see for the heavy-weight league who own the stock.
Earning of 2009 came in very decent at $550 million, but shareholders’ equity grew $1.7 billion, thanks to the non-trivial accounting rules (Cumming and Steinberg explained it all, I just want to stir your interest to read the letter). Leucadia has a market value of about $6.2 billion, so the increase in shareholders’ equity is not a small change.
Comments on Holdings
The Cumming and Steinberg pair paraded their holdings of businesses one by one in the letter, and here are the excerpts of comments on the US publically traded companies:
Comments on the Future
During a crisis that was dubbed as “The Great Recession”, you would expect the masters in Leucadia would have done more deals. In reality, they have been rather quiet. Other than a joint venture with Warren Buffett’s Berkshire Hathaway to buy out assets of the bankrupt Capmark and formed Berkadia Commercial Mortgage LLC (see details in the letter), there has not been any other major movements of capital during 2009.
Cumming and Steinberg are still rather pessimistic but looking, according to their own words (emphasis mine):
Conclusion
Borrowing from Mohnish Pabrai's recent words, I would call Cumming and Steinberg "Gentleman of Leisure" based on their low investment activity during 2009.
The outstanding performance of the investments conclude another great year from Ian Cumming and Joseph steinberg. My only complaint is that they should be writing more often.
GuruFocus tracks Leucadia’s entire common stock holdings under Ian Cumming.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Ian Cumming for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
Match that!
The two have recently published their 2009 letter to shareholders. As usual, the letter tells a terrific story of good stewardship. You are urged to get a copy, I know quite a few famed money managers would as they own Leucadia stocks. Click here to see for the heavy-weight league who own the stock.
Earning of 2009 came in very decent at $550 million, but shareholders’ equity grew $1.7 billion, thanks to the non-trivial accounting rules (Cumming and Steinberg explained it all, I just want to stir your interest to read the letter). Leucadia has a market value of about $6.2 billion, so the increase in shareholders’ equity is not a small change.
Comments on Holdings
The Cumming and Steinberg pair paraded their holdings of businesses one by one in the letter, and here are the excerpts of comments on the US publically traded companies:
AmeriCredit Corp.Cumming and Steinberg provided an equally detailed reflection on their other investment holdings, so it is to your advantage to get a copy of their latest letter. I think the letters from all CEOs of the should be written in this fashion.
At December 31, 2009, we owned approximately 25% of the outstanding common shares of
AmeriCredit Corp. (ACF, Financial) for an original cost of $418.6 million. ACF is an independent subprime auto finance company that purchases and services automobile sales finance contracts, typically for consumers who struggle to obtain traditional financing from a bank or manufacturer’s captive finance company. At December 31, 2009, our investment in ACF is classified as an investment in an Associated Company and is carried at fair market value of $639.8 million.
For almost 20 years, we owned a similar business and as a result carefully followed ACF. ACF’s large volume and efficient processing and underwriting abilities made it a fierce competitor. In 2004 we exited our business, deploying our capital elsewhere, rather than fighting a pyrrhic war with larger, more efficient competitors, some of them willing to accept puny returns.
But, we retreated with our eyes open. We observed that in previous recessions ACF suffered its share of poor credit performance; however, when a recovery was underway ACF made larger profits by being able to select more credit worthy customers and to charge more for loans.
Although the current recession has been much harder and deeper than we anticipated, ACF performed as expected. ACF is acquiring more credit worthy customers and is able to charge higher rates. Credit performance is improving. Securitizations, which were completely frozen until the Federal Reserve’s TALF program got rolling, have come back to life. During 2009, ACF issued two separate TALF-eligible securitizations, one of which had investors who benefited from the TALF program. All indications are that ACF has adequate liquidity for the foreseeable future.
As in much of life, ACF’s secret to success is discipline. Currently, competition has lessened and ACF can earn a fair return for its risk. Eventually, banks and other folks will come rushing back into the market, margins will fall as evaluation of risk becomes, yet again, ignored and loan volume will become the sole focus of competitors as a means to impress the Stock Market. When that day comes, we hope ACF will eschew volume, efficiently harvest its portfolio and watch the lemmings as they launch themselves off a cliff. Then the cycle will begin anew. We have a great relationship with, and respect for, the management team. We believe they are the best in the industry.
Jefferies Group, Inc.
Jefferies (JEF, Financial) is a full-service global investment bank and institutional securities firm. Jefferies offers its customers capital markets executions, mergers and acquisitions, restructurings and other financial advisory services.
At December 31, 2009, we owned approximately 29% of the outstanding common shares of Jefferies for an investment of $794.4 million (the largest single investment we have ever made). The fair market value of our investment was $1.2 billion at December 31, 2009.
Jefferies is not in trouble, not a ward of the U.S. Government, not burdened by toxic assets and not overleveraged. Its employees own a substantial interest in the firm and their pay expectations are being managed with the best interests of the firm in mind.
Jefferies has successfully hired talented individuals from troubled or failing firms, acquired a municipal bond trading and underwriting business, became a Primary Dealer in U.S. Treasuries and many other governments’ bond issues and also expanded its global fixed income and commodities business. We believe that Jefferies, unscathed by the imprudent and irresponsible behavior of other investment banks, will thrive as the world’s economies improve and will increase its market share and profits. It doesn’t hurt that some of its competitors have gone out of business.
In 2007, Leucadia and Jefferies formed Jefferies High Yield Trading, LLC (JHYT) a registered broker-dealer that is engaged in the secondary market for high yield and special situation securities. Each company invested $350 million. In the midst of the financial meltdown JHYT survived reasonably well by avoiding dangerous and highly leveraged situations and by remaining very liquid. Our return for 2008 was minus 20% but happily a positive 13% in 2009.
We have known Jefferies for a very long time and are particularly fond of and hold in high regard its long time Chief Executive Officer, Richard B. Handler. We believe that over the long haul Jefferies will thrive and further enrich its shareholders.
Comments on the Future
During a crisis that was dubbed as “The Great Recession”, you would expect the masters in Leucadia would have done more deals. In reality, they have been rather quiet. Other than a joint venture with Warren Buffett’s Berkshire Hathaway to buy out assets of the bankrupt Capmark and formed Berkadia Commercial Mortgage LLC (see details in the letter), there has not been any other major movements of capital during 2009.
Cumming and Steinberg are still rather pessimistic but looking, according to their own words (emphasis mine):
Most of our assets are tied to a recovery in the world’s economy. In 2009, we have seen the baby steps of recovery. We hope the baby does not flop back on its bottom. In the current recessionary environment, earnings from our operating businesses and investments do not cover our overhead and interest. We have cash, liquid investments and securities and other assets that should carry us through these difficult times. We are energetically cutting costs. We have talented managers and employees working hard every day.
Out of prudence we take a pessimistic view as to when this recession will end. To think otherwise would be a gamble that we are unwilling to make.
In these troubled times there are sure to be opportunities for investment and we will remain on the hunt. The acquisition by Berkadia is the first fruition of that hunt. We recognize a good deal when we see one and will strive to execute.
We intend to resist what we consider “financial bets.”
Conclusion
Borrowing from Mohnish Pabrai's recent words, I would call Cumming and Steinberg "Gentleman of Leisure" based on their low investment activity during 2009.
The outstanding performance of the investments conclude another great year from Ian Cumming and Joseph steinberg. My only complaint is that they should be writing more often.
GuruFocus tracks Leucadia’s entire common stock holdings under Ian Cumming.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Ian Cumming for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
