In a response to the recent report by Muddy Waters, Fairfax Financial Holdings Limited on February 12 denied and refuted all allegations and insinuations made against the company.
The 72-page report from Muddy Waters, a forensics-based activist investment firm, had raised concerns and questions about Fairfax's financial standing, prompting a review by the management, Fairfax said in its statement.
Prem Watsa, an Indian-Canadian investor and the Chairman and CEO of Fairfax, rejected all accusations presented in the report, labeling them as false and misleading. In his statement, Watsa highlighted that the company stands firmly against the claims made by Muddy Waters and expressed confidence that the market would recognize Fairfax's robust fundamentals.
"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," Watsa's statement read.
The management team criticized Muddy Waters for not engaging directly with Fairfax before releasing the report. According to Watsa, Muddy Waters had neither attended conference calls nor approached the company with any inquiries, choosing instead to make one-sided, ill-informed allegations in an attempt to profit through short selling during the company's quiet period.
Watsa's statement assured shareholders and the market that Fairfax's operating income foundation, including underwriting profit, interest and dividend income, and profit from associates, is stronger than ever and bodes well for the future.
Fairfax said it has scheduled a conference call on February 16, 2024, at 8:30 a.m. ET, where they intend to address the allegations and answer questions from stakeholders.
Prem Watsa's complete statement reads: “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 Financial Holdings faces allegations of accounting manipulation
Fairfax Financial Holdings, a company backed by Watsa, is under scrutiny following a report from Muddy Waters Research. Released on February 8, the report titled the 'GE of Canada' accuses Fairfax of engaging in questionable accounting practices.
Muddy Waters said it has taken a short position on Fairfax stock, citing concerns about accounting inconsistencies. The report alleges that Fairfax "consistently manipulated asset values and income" through "value destructive transactions" aimed at portraying accounting gains.
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