Bruce Berkowitz's Fairholme Capital Starts MBIA Position, Raises AIG Stake ~ market folly

Tuesday, July 13, 2010

Bruce Berkowitz's Fairholme Capital Starts MBIA Position, Raises AIG Stake

Bruce Berkowitz's investment firm Fairholme Capital Management recently filed two 13G's with the SEC regarding two of its positions. Firstly, Fairholme has filed a 13G regarding shares of MBIA (MBI). Due to portfolio activity on June 30th, 2010, Fairholme now shows an 11.1% ownership stake in the bond insurer with 22,736,200 shares. The vast majority of these shares are owned by Berkowitz's mutual fund vehicle, the Fairholme Fund (FAIRX). This is a brand new position for his firm as it did not own shares back when we looked at Fairholme's portfolio from the first quarter.

While Berkowitz is now long MBIA, we've detailed how Whitney Tilson's hedge fund T2 Partners has been short MBIA. This is definitely somewhat of a battleground stock as there are many company naysayers still out there. In the past, hedge fund manager Bill Ackman had also been short the company. The saga surrounding his position is detailed in Christine Richard's book, Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff. Overall though, Berkowitz's stake in MBIA sticks with his contrarian bent theme.

Secondly, we see that Berkowitz's firm has disclosed a 24.3% ownership stake in the American International Group (AIG) with 32,789,000 shares. The amended 13G filing was made due to portfolio activity on June 30th, 2010. This is an increase in their position as they previously owned an 18.9% ownership stake back in May. So, over the course of the past two months, Fairholme has raised its stake in AIG by a sizable margin and you can see Berkowitz's AIG thesis here. Keep in mind that if the government were to convert its 80% ownership stake in AIG into common shares, Fairholme's ownership position would obviously be diluted. Shares of both AIG and MBIA are up sharply today after this news. In addition to these two portfolio updates, we previously covered Berkowitz's new position in Goldman Sachs (GS) as well.

Taken from Google Finance, MBIA is "provides financial guarantee insurance, as well as related reinsurance, advisory and portfolio services for the public and structured finance markets, and investment management services, including advisory services, on a global basis".

AIG is "a holding company, which through its subsidiaries, is engaged primarily in a range of insurance and insurance-related activities in the United States and abroad. AIG's four reportable segments include: General Insurance, Domestic Life Insurance & Retirement Services, Foreign Life Insurance & Retirement Services, and Financial Services".

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