JEF - Jefferies Group

[no_free_lunch]

Thanks!

[greenwave]

Thanks!

-------------

Allan Meachun  the 400 % man    Allan Mecham - Arlington Value Capital 

 

Added just under 700,000 shares of LUK in 3 rd qtr 2014

 

greenwave

[WhoIsWarren]

Phil Falcone resigns as Chairman / CEO of Harbinger Group.  Steinberg named as new Chairman and the group is looking for a new CEO.

 

Anyone any views on what's going on here and whether it's a good thing?

 

Thanks

[Guest ajc]

 

Phil Falcone resigns as Chairman / CEO of Harbinger Group.  Steinberg named as new Chairman and the group is looking for a new CEO.

 

Anyone any views on what's going on here and whether it's a good thing?

 

Thanks

 

 

My initial reaction based on very little to no information is that I'm fine with it. Whether that opinion's really worth anything at this stage is a different question.

 

Assuming that there's no fraud or illegal activity that's been uncovered, I'd say I'm happier having Steinberg as chairman instead of having Falcone in charge.

I'm assuming that between Steinberg, Handler and Friedman (or whoever leads the process), Leucadia will be able to find a competent person to run Harbinger Group and my guess is that the new person they find will not have a history of bending or overstepping the rules like Falcone did.

 

So given those few factors, I like it as much as a person can like something where there's really not many details to go on.

 

 

 

[gfp]

Is the timing of this just because his 5 year ban from hedge fund management is over?  I certainly wasn't too pleased to see HC2 mentioned in the wall street journal this morning in the story.  Secrets out on that one now, I guess.

 

Edit:  I guess it hasn't been anywhere close to 5 years, so he's still banned from the hedge fund.  he's allowed to "help"

[scorpioncapital]

I believe HC2 holdings is 40% owned by Harbinger Group. So Harbinger (HRG) stands to benefit from anything he does at HC2. Could Harbinger merge with LUK at some point in the future as did Jefferies when a large passive position was initially taken to get comfortable with the company?

 

(Seems they own 25% as per their website)

 

 

[Grenville]

In the old LUK days, I would say that could be a real possibility, but the current team has telegraphed that they wouldn't do anything above a certain % of book (~20%, from what I remember). They stated some rules/metrics when they took over from Steinberg & Cumming.

[scorpioncapital]

http://www.bloomberg.com/news/2014-11-25/leucadia-said-to-boost-harbinger-stake-to-22-as-falcone-leaves.html

 

"Some Harbinger investors, including Leucadia, felt that the value of Harbinger’s underlying assets weren’t fully reflected in its share price and that replacing Falcone may lift the stock, according to a person familiar with the company"

 

"Mr. Steinberg, the incoming Board Chairman, commented that, "During Mr. Falcone's tenure as Chairman and Chief Executive Officer, the Company experienced significant growth and success, beginning as a company with approximately $140 million market capitalization in 2009 rising to today's market capitalization of approximately $2.6 billion. We thank Phil for his many years of hard work and leading HGI."

 

Interesting developments indeed!

[leeway]

WSJ discusses some of the headwinds Jefferies is encountering as it looks to grow and compete against the bulge bracket firms; some long-time Jefferies clients

are giving their business to firms such as Merrill when they grow large.

 

http://online.wsj.com/articles/jefferies-bumps-up-against-big-rivals-as-it-looks-to-expand-1416959832?mod=wsj_nview_latest

[gfp]

LUK bought another block of HRG at 12.9

 

http://www.sec.gov/Archives/edgar/data/96223/000121465914007991/xslF345X03/marketforms-27470.xml

[WhoIsWarren]

WSJ discusses some of the headwinds Jefferies is encountering as it looks to grow and compete against the bulge bracket firms; some long-time Jefferies clients

are giving their business to firms such as Merrill when they grow large.

 

http://online.wsj.com/articles/jefferies-bumps-up-against-big-rivals-as-it-looks-to-expand-1416959832?mod=wsj_nview_latest

 

The headline is somewhat negative, but actually it reads quite positively for me.  Yes there's competition, but 10 years ago Jefferies wasn't on the same platform as them.

 

And the "competitive advantage has never been stronger" line given by Handler fits in with the restrictions being placed on all the bulge bracket firms.  Put another way, their competitors have pulled back or out of many lines of business, giving Jefferies a runway to grow revenues and profits over the years to come.

[Sportgamma]

http://www.bloomberg.com/news/2014-11-28/hc2-falls-as-harbinger-group-limits-ties-with-falcone-firms.html?cmpid=yhoo

[AzCactus]

Based on when Meacham (Arlington Value) added his shares it seems like we would be paying less than he did.  Is anyone else remotely intrigued by this company at these prices?

[thepupil]

it's my largest net exposure (YHOO and SWY are bigger in $ but are hedged with puts/ short BABA), so I'm remotely interested. LUK is undergoing an asset value --> recurring earnings transition not unlike Berkshire circa 2010. It's not as cheap and not nearly as high quality in terms of business mix, but I still think it's a cheap safe growing 70-80 cent dollar.

[LowIQinvestor]

I too am starting to get tempted as it looks as though it is trading at a 20% discount to book?

 

However, I can't get a specific comment that I believe the CEO made about a year ago on a conference call. He stated that if you don't think we are due for significant inflation than I would sell your stock (referring to LUK). So I did!

 

 

[benhacker]

I'm long.  One of my larger positions, I think it should do very well.

 

He stated that if you don't think we are due for significant inflation than I would sell your stock (referring to LUK). So I did

 

He said the opposite... if you think we are due for "de"flation, you should sell your stock... Ian & Joe said the same thing 4-5 years back.  They  are more levered to inflation than deflation.

[scorpioncapital]

I'd be weary of measuring book value that includes a large amount of goodwill & intangibles since it's a financial company and earning power is not presently that high in relation to tangible equity. However, even if it were trading at 1x tangible equity, it is well diversified and has a solid balance sheet with about 50 billion in assets. This could do well in a slightly higher interest rate environment. They aren't overly aggressive and don't seem to be making bet the company decisions - which may be a good thing. Only issue I have is the diversification is mostly in energy, commodity, real estate, and investment banking. A recent study was published showing investment banks have earned less than commercial banks over the last decade (Jefferies seems to have done above average on this front) but only marginally, most of these are average businesses at best so I'm not sure what sort of returns they are expecting and if a valuation higher than 1x book is presently warranted.

 

 

 

 

[adesigar]

I'm long.  One of my larger positions, I think it should do very well.

 

He stated that if you don't think we are due for significant inflation than I would sell your stock (referring to LUK). So I did

 

He said the opposite... if you think we are due for "de"flation, you should sell your stock... Ian & Joe said the same thing 4-5 years back.  They  are more levered to inflation than deflation.

 

Arent both of you saying the same thing ?

[Parsad]

I'm long.  One of my larger positions, I think it should do very well.

 

He stated that if you don't think we are due for significant inflation than I would sell your stock (referring to LUK). So I did

 

He said the opposite... if you think we are due for "de"flation, you should sell your stock... Ian & Joe said the same thing 4-5 years back.  They  are more levered to inflation than deflation.

 

Arent both of you saying the same thing ?

 

Yes, they are!  :)  They just haven't figured it out yet.  Cheers!

[thepupil]

I'd be weary of measuring book value that includes a large amount of goodwill & intangibles since it's a financial company and earning power is not presently that high in relation to tangible equity. However, even if it were trading at 1x tangible equity, it is well diversified and has a solid balance sheet with about 50 billion in assets. This could do well in a slightly higher interest rate environment. They aren't overly aggressive and don't seem to be making bet the company decisions - which may be a good thing. Only issue I have is the diversification is mostly in energy, commodity, real estate, and investment banking. A recent study was published showing investment banks have earned less than commercial banks over the last decade (Jefferies seems to have done above average on this front) but only marginally, most of these are average businesses at best so I'm not sure what sort of returns they are expecting and if a valuation higher than 1x book is presently warranted.

 

agreed, we shouldn't take the book on faith. Instead, I think of a reasonable range of values with a very basic spreadsheet; it's not quite doomsday but not overly optimistic either.  there are a lot of OTM options w/i LUK, that could be big, but it ain't no 50 cent dollar

Leucadia.xlsx

[benhacker]

LOL.

 

Yes, they are!  :)  They just haven't figured it out yet.  Cheers!

 

My bad on reading comprehension guys. ;-)

[thepupil]

an indisputably disgusting Q for JEF with some bad accounts receivables, markdowns on the inventory of distressed debt desk, goodwill writedowns, etc.

 

https://www.bamsec.com/filing/115752314004815?cik=96223

[scorpioncapital]

Yikes! It's one thing to have a bad result, but it seems LUK's results are consistently worse than everybody else's on every metric with a surprise every couple of quarters, ROE, ROI, net income after capex, comp expense, consistency of earnings, etc.. Last quarter it was paying 70 million to shareholders legal case who claimed they bought Jefferies too cheap! Perhaps their risk taking and operating efficiency model should be questioned?

[thepupil]

Yikes! It's one thing to have a bad result, but it seems LUK's results are consistently worse than everybody else's on every metric with a surprise every couple of quarters, ROE, ROI, net income after capex, comp expense, consistency of earnings, etc.. Last quarter it was paying 70 million to shareholders legal case who claimed they bought Jefferies too cheap! Perhaps their risk taking and operating efficiency model should be questioned?

 

you don't grow and take share like they have/are doing for free.

 

there have been and will be pains and I'm generally tolerant of the odd trading loss or this or that (probably more than most), but there is no way in getting around that this year's $312MM pre-tax is terrible.

 

When you combine that with the four hundo LUK dropped on Bakken/Oil acquisitions earlier in the year, and their large portion of the balance sheet that doesn't earn anything (undiscounted tax asset, cash, bonds, Homefed) etc. you could argue the value growth this year was pretty minimal and not deserving of any kind of re-rating, particularly as other things sell off.

 

I'm waiting  to see LUK's full year results to pass judgment but this work in progress is still very much in progress.

 

[scorpioncapital]

Guess my sentiments are two-fold.

 

1. LUK is like a black box BDC. How many shareholders knew the Bache division was having problems or what junk bonds and fixed income they owned?

 

2. They sold a casino and a winery making good money to buy a commodity broker below tangible book and still had to write it down. I wonder what capital allocation acumen was involved in assessing that this broker was a better use of 400m than the businesses they already owned and actually sold something. The house usually wins in a casino, not so much in financial markets apparently.