Arohan’s investing life

Commentary on investing and events with distinct value tilt

Leucadia National bottom fishing in the credit industry ruins

January 16, 2008 By: User Image Arohan Category: ACF, LUK

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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3 Responses to “ Leucadia National bottom fishing in the credit industry ruins ”

# 1 Reynold Tung (Who am I?) Says:
January 31st, 2008 at 4:16 pm
According to the ACF conference call it seems that LUK actually used to be in the auto finance business some years ago, so they’re a very knowledgeable investor. I’ve owned LUK for over 10 years and had forgotten that.

Reynold Tung’s last blog post..Market Sentiment - Positive!?
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# 2 Arohan (Who am I?) Says:
January 31st, 2008 at 5:08 pm
I didn’t realize that. Thanks for bringing this up!
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# 3 Leucadia takes another bite off Americredit | Arohan's investing life Says:
February 8th, 2008 at 2:51 pm
[…] the credit issue is throwing up a lot of bargains! Sometime ago we wrote that Leucadia recently purchased a sizable stake in Americredit. The word is now Leucadia has boosted its stake in Americredit by a factor of 2 and currently […]