No. of Recommendations: 5
No. of Recommendations: 8
The deadline for converting your BN shares to BNRE.A is 1pm EST today.
I have selected (the option is provided at IB) to convert all of my BN shares to BNRE.
Note that you have the option to convert from BN to BNRE.A only as a one-off right now, however you can convert back from BNRE.A to BN at any time (BNRE can also be converted to BN at any time, but what you will own here from the offer is BNRE.A). That is why BNRE has been consistently trading above BN.
Risk worth discussing - you want that BNRE.A will continue to provide this option (BNRE.A convertible to BN) indefinitely, and indeed if they announced that they were ending those conversion rights then the investor backlash would be insane with ongoing legal battles. It would almost be pointless given that it is the design of BNRE.A to act as BN mirror (only with the different taxation treatment on dividends). I am effectively certain the conversion rights back to BN will be preserved if they want to avoid being sued to death and have their reputation hugely damaged.
Because conversion from BNRE to BN can be done at any time, understandably BNRE never trades under the quote of BN, or if it does so, it is only by a cent or so and very momentarily. On the other hand, BNRE regularly trades a little above BN and sometimes by a few percent. Just chart BN and BNRE together and compare the quotes each day - make sure you select both the NYSE (or the Canadian exchange) for both the comparable versions of BN and BNRE.
The BNRE.A shares are not presently listed, but will be listed as one of the conditions (on both the Canadian and US exchanges). In the unlikely event that they are not able to be listed, the conversion will be cancelled and you just keep your BN. In the documentation the conversion has public listing of BNRE.A as a necessary condition, in other words the public listing is guaranteed if and only if the conversion goes ahead.
If you like arbitrage trading, you can convert all your shares of BN to BNRE now, and then gradually trade them back to BN whenever BNRE.A is trading above BN. This is a slow way of gaining a percent or so for free.
Whilst I do keep that in mind, the real reason for me to hold BNRE.A over BN is that BNRE.A pays the same dividends and BN but classed as a capital return rather than a dividend, so this entirely skips the 25% Canadian withholding tax on dividends. My capital gains are increased, however where I live I pay dividend tax (by means of the 25% holding tax) but not capital gains tax.
The raw savings amounts to 25% of the 0.9% dividend, which is a 0.23% increase in equity each year by holding BNRE.A over BN. Not much, but not an irrelevant amount also - each decade you are increasing your equity by more than 2.3% (only a little more given that dividends tend to grow, and can be reinvested). In a world where it is hard to make a buck with equity yields so low, every 0.23% counts. ( More importantly, and what made me side with doing the conversion, is that there is a non-trivial chance of there being large special dividends in the future - they have not done this in the past but Flatt has talked about special dividends being possible in the future whilst discussing their expected capital accumulation. My feeling is that they enjoy to find ways to spend money on opportunities that they are ''almost too'' imaginative in finding, and there will not be large special dividends - but it is a real possibility and in that situation the tax savings would be far greater. )
For others that pay both capital gains tax, there is no significant advantage for holding BNRE.A over BN, other than the trade arbitrage. If you catch BNRE.A trading more than 2% or so above BN, take the 2% advantage right then, rather than waiting 10 years for the tax advantage to start piling up.
The disadvantage is losing voting rights whilst you own BNRE.A. You can convert from BRNE.A (class A1) to BRNE (class A) which has voting rights but I didn’t confirm those rights are equal to the BN rights. But either way even this is mitigated in the following way - hold just one share of BN, so you are kept in the loop with voted policies, and then if there is something that you feel passionate about and you hold hundreds of millions of dollars of equity in the firm, then you can swap your BNRE.A with BN just at that time to to cast your vote. No problems.
- Manlobbi
No. of Recommendations: 2
useful insight !
my understanding for the u.s. investor :
- as usual, dividends from BN will be taxed each year at a lower rate than capital GAINS; given one can utilize the foreign tax credit and the person is in a typical tax bracket.
- return OF capital lowers the cost basis until the stake in BNRE is only capital gains (or losses!) whenever sold. so this is a time deferral, but not guaranteed rate deferral (which of course are linked anyway).
so if BNRE does well and is never traded, could be great for taxes.
bottom line : possibly not worth the complexity and risk of future manipulations experienced by many brookfield subs.
No. of Recommendations: 6
bottom line : possibly not worth the complexity and risk of future manipulations experienced by many brookfield subs.
Exactly, not worth converting from BN to BNRE.A for the vast majority of investors who pay capital gains tax.
In places like Australia with capital gains tax half the dividend tax when holding more than 12 months, it becomes almost worthwhile but still not quite.
And in places like Monaco where there is zero capital gains tax and the 25% withholding tax on Canadian dividends, it is only just worthwhile or marginally so. I debated with myself back and forth but ended up making use of the offer - it seems almost designed for investors living in just a few places that includes Monaco, for whatever bizarre reason.
Astonished at the lengths Brookfield goes to in making tweaks everywhere to optimise shareholder value. They are ironically like Buffett in that, in one sense, they are crossing the t’s and dotting the i’s to squeeze everything to the max to extract just a little more value (it is even entertaining to interpret what they imaginatively come up with each year or so) whilst at the same time exactly the opposite of Buffett in being prepared to have a huge trail of complications left behind from each tweak piling up. The tweaks are innocent, and quite rational, when viewed individually .. but have the monstrous effect in aggregate that turns a lot of, possibly especially the smaller, investors off.
- Manlobbi
No. of Recommendations: 1
Manlobbi
Does the exchange which reduces the number on BN shares increase BN EPS? Wondering how all the accounting works.
Craig
No. of Recommendations: 5
Does the exchange which reduces the number on BN shares increase BN EPS? Wondering how all the accounting works.BN's share count is unchanged by the offer. The results of the offer were announced today, and answer your question here:
The Offer has significantly enhanced the equity base and market capitalization of Brookfield Reinsurance. Because Brookfield Reinsurance is a “paired entity” to Brookfield Corporation, this result was achieved without any dilution to Brookfield Corporation or Brookfield Reinsurance.https://www.stocktitan.net/news/BNRE/brookfield-re...My "BN" stock has already been replaced with a holding (non-tradable) stock, and in a few days this should be replaced with "BNRE.A" (tradable) representing the A1 shares, and those will be quoted every 5 minutes or so BN's price plus or minus a few cents. Annually my returns will be the same as BN's returns, plus about 0.23% owing to the tax advantage. Essentially dividends will arrive without the 25% withholding tax, and there is no practical difference apart from that.
If others want this advantage* keep in mind that you need not have taken the offer, as you can anyway have the same outcome by gradually selling BN and buying BNRE (you could even try to do this when BNRE is trading temporary slightly below BN) provided your trading volume is low enough - there's no rush - to not move the quote.
- Manlobbi
*There is only really an advantage if you don't pay capital gains tax. This 0.23% annual bonus will be partly cancelled, if you pay capital gains tax, because of the cost basis increasing as each dividend is paid out. But.. if you are long-term holder then the capital gains tax can be delayed until you sell - unlike the immediate cash deduction taken from your dividends every 3 months. That advantage is so small that I would keep BN, personally speaking, if I was paying capital gains tax.
