DETTA INLÄGG ÄR ETT UTDRAG UR KVARTALSBREVET JAG SKICKADE TILL PANDIUMS ANDELSÄGARE 3 NOVEMBER 2014.
During the financial crisis in 2008 the US government invested in and bought assets from several important financial institutions. The scheme that was called Troubled Asset Relief Program (TARP) was done to stabilize the system. In return the government received shares and in some cases warrants. (A warrant is like an option to buy shares in a company at predetermined price at some point in time in the future.) Later the government sold these warrants to the public.
In general an option is nothing Pandium would buy since we could lose the full amount. But these warrants have some peculiarities that make them more interesting than most options. First, they are long-dated. Most of them expire in 2018 or later which leaves a lot of time for the thesis to develop. Second, the warrants have anti-dilution clauses. This means that if the underlying company pays a dividend the price at which we can buy the shares is lowered correspondingly.
Those factors alone would of course not make us invest. The underlying companies must also be cheap and have good prospects. The reason we started to look at this area is that investors are still a bit wary about financial firms since the subprime crisis. Our basket is trading at an average price to book value that is 43% lower than it was before the crisis. But not only are they cheaper, they are also of much higher quality. Without going into detail I would say that all important quality measures such as solvency, liquidity, asset quality and reserves are better today than they have been in a long time.
Financial institutions are complex and there are sometimes dangerous things hidden in the balance sheet that can cause serious damage. So in order to lower the company-specific risk we bought a basket of companies.