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Berkowitz: We're Entering a Constructive Period

The Fairholme manager on looking forward to the next decade; plus, comments on the fund's CIT and Winthrop stakes.

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Michael Breen: Perhaps you can enlighten us on some positions you just added in a various set of bonds with a CIT group?

Bruce Berkowitz: Right. CIT has come out of bankruptcy, and from our last report we were buying bonds in the bankruptcy. CIT has been purified in bankruptcy; they now have good tangible book value with money good. So we bought high-yield securities, which by now have either become new bonds or equity, a combination of new bonds and equity in the company. I think on our last report you're seeing the beginning of that process.

CIT is now out of bankruptcy and still looking for a new CEO and new management team. But they have been cleansed, their balance sheet is strong, they have a good foundation, they're the number one lender in small business loans. And this is exactly what the country needs now. CIT and other banks now have great incentive for the U.S. or the U.S. government to make a lot of loans. And these loans are going to be good.

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Breen: Great. And keeping up on this sort of vulture theme, you've also been buying some real estate-related firms. You bought a REIT, Winthrop Realty Trust, that I believe back in the day you were on their board or directors, no longer are.

Maybe you can let us know the thesis on that? I think they are a well-known firm in real estate circles for doing some distressed investing and things like that.

Berkowitz: When I was on the board I got to know the CEO, Michael Ashner, reasonably well. And executive selling, I believe, is the right guy in the right place at the right time to take advantage of distresses in the commercial real estate market. This is exactly what he did last time when he was working in conjunction with Vornado and with the Apollo Group. He did quite well for them and I expect him to do quite well for our shareholders.

Breen: OK, great. Anything else you're seeing out there, or major areas where you can't find anything?

Berkowitz: I think over time we'll continue to help companies rebuild their balance sheets from the crisis that we've gone through. There's still enough fear out there that makes me feel reasonably good that we're going through a constructive period, and what we do now will determine the shareholders' profitability in the next few years to come.

We've made a lot of changes for this new decade, and I think we're placed very well, and I look forward to reporting good news in the years to come.

Breen: All right. Thank you for your time. Congratulations on the past decade, and we'll forget about that now and move into the new one.

Berkowitz: In my business the one thing we're remembering is there's nothing like a little success to create failure. We're very focused on continuing to take the right course of action for our shareholders, because we have a great group of shareholders who stood with us in the most difficult of times, and without our shareholders sticking with us, we would have nothing. We would not have a fund; we would not have a business. We are quite appreciative and we know what we have to do in the next decade.

Breen: All right, thank you. We'll end on that note. Thanks for your time, Bruce.

Michael Breen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.