Fairfax hits back at Muddy Waters’ allegations of asset manipulation

Fairfax Financial Holdings has denied allegations and insinuations by Muddy Waters Research, which accused the Canadian insurer of income and asset value manipulation. The company dismissed the short-seller’s report as “false and misleading”.

After examining Muddy Waters’ 72-page critique, Fairfax’s management dismissed the allegations from the US-based firm as baseless. “We categorically deny and refute all of them, without exception, as false and misleading,” management stated on Monday (February 12).

In a report last week, Muddy Waters had accused the Canadian insurer of consistently manipulating asset values and income by engaging in often value destructive transactions to produce accounting gains. 

“We believe a conservative adjustment to book value should be ~-$4.5 billion or ~-18% lower than reported. We see Fairfax as far more akin to GE than to Berkshire Hathaway,” Muddy Waters wrote in its report.

In defence, Fairfax highlighted Muddy Waters’ lack of direct engagement with the company. “To the best of our knowledge, Muddy Waters has never attended our conference calls and never asked a question, called us or written to us, but instead went to CNBC during our quiet period with these one-sided, ill-informed allegations and insinuations in a transparent attempt to profit by short selling our stock," management said. 

“They may have successfully done this with other companies, but they have woefully misjudged the strength of Fairfax’s financials and prospects and we are confident the marketplace will reflect our strong fundamentals,” Fairfax management stated.

Prem Watsa, chairman and CEO of Fairfax, said: “We are neither Berkshire Hathaway, nor GE, as Muddy Waters suggests. We are Fairfax, a strong and enduring company built over 38 years, committed to integrity, customer service, employee welfare and the communities we operate in. We have a unique Fair and Friendly culture throughout our organization. We strive to provide excellent returns to shareholders, and are committed to providing full disclosure in our annual report, highlighting both our pluses and minuses.

“We have always been focused on building for the long term and have never given any quarterly guidance.

“Over 38 years, our book value per share has compounded by 18.9% per year and our stock price at 18.0% per year. Out of 6,000 companies listed in the U.S. in 1985, when we began, less than 20 companies have a similar record. We have discussed repeatedly in our annual reports that we have not achieved our 15% objective in the last 5 to 10 years. However, we have more than achieved our 15% return over the last several years. Moreover, as those following Fairfax more closely are aware, the foundation of our operating income (underwriting profit, interest and dividend income, and profit from associates) is stronger than ever, and bodes well for the future.

“Our company is very strong and the best is yet to come. We look forward to answering any questions in our conference call on Friday, February 16, 2024 at 8:30 a.m. ET.”

Fairfax is a holding company which, through its subsidiaries, is primarily engaged in property and casualty insurance and reinsurance and the associated investment management. 

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