Leucadia National bottom fishing in the credit industry ruins

It appears that Leucadia National (LUK) is acquiring a 11,316,200 share stake in AmeriCredit (ACF) which represents 9.9% of AmeriCredit’s outstanding stock. AmeriCredit Corp is an auto-financing company providing financing services to retail consumers as well as dealers. Leucadia’s cost is roughly $12.9 per share, with ACF shares now trading at $11.2 per share as of market closing on Jan 16th, 2008

This has to be viewed in the backdrop of a growing concern in the market that the credit crisis is ready to move into automotive credit sector

Leucadia National is probably one of the best investors in North America today, and for the last two decades an investment in Leucadia stock has outperformed Berkshire Hathaway stock by a wide margin. Leucadia has a propensity to take more ‘risks’ than Berkshire Hathaway and is known to buy deeply troubled companies and turn them around. While their bets may be risky, they have shown remarkable ability to make profits. I have great respect for Steinberg and Cummings, the two partners who run Leucadia National and have own the stock for a while

So does Leucadia think that the credit worries in the auto finance sector are overblown? Possibly. However, they do appear to think that now is a good entry point. ACF is currently trading close to its low for the last 3 years

Something to keep in mind. Automobiles have always been and will always be a depreciating asset and so a typical automobile lender has to consider the credit worthiness and income of the buyer. It is not solely based on the asset value. Therefore, it could be argued that auto loans on average are of much better credit quality than some of the housing loans that were made in the last few years

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