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Muddy Waters Shorts Canada Insurer Fairfax Financial, Alleging Asset Value Manipulation *Centurion Insurance AFS*

Feb 08, 2024 (0) comment , , , , , , , , , , , ,

Short seller Muddy Waters has placed bets against the shares of Canadian insurer Fairfax Financial alleging manipulation in its asset values, sending the shares of the property and casualty insurer down 7%.

Fairfax has struggled since 2017 when they recorded huge losses due to billions of dollars in payouts on catastrophes.

“This underperformance pressured Fairfax into becoming aggressive in pulling accounting levers starting in 2018,” Muddy Waters said in a research note.

“We find that Fairfax has consistently manipulated asset values and income by engaging in often value destructive transactions to produce accounting gains,” it said.

Fairfax disagreed with the report, while assuring shareholders that it “has prepared its financial statements and reporting in accordance with all applicable accounting principles.”

Reuters was not immediately able to verify the allegations made in the report. Short sellers make money by betting that the price of a security (such as a stock) will decrease.

Fairfax was founded in 1985 by Canadian-Indian billionaire Prem Watsa, who is also its chairman and CEO. He is also known as “Canada’s Warren Buffett.”

“We see Fairfax as far more akin to GE than to Berkshire Hathaway,” the hedge fund said.

It also alleged that Fairfax carried several of its investments at “unrealistic” carrying values. According to the hedge fund, the market value of its shares in Indian outsourcing provider Quess Corp. was $477.2 million, while Fairfax continued to carry it at about $1 billion.

In 2019, Fairfax raised its stake in Quess to more than 32% after acquiring over 256,000 shares. As of Sept. 30, it carries the Indian company at a 87% premium to its market value, Muddy Waters said.

Last year, Muddy Waters bet against the credit of the Luxembourg-based commercial landlord CPI Property Group in November and Blackstone’s real estate investment trust in December.

(Reporting by Mehnaz Yasmin in Bengaluru; editing by Arun Koyyur)


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