Berkshire net sinks; Buffett says economy in shambles

Berkshire net sinks; Buffett says economy in shambles

NEW YORK (Reuters) - Berkshire Hathaway Inc, Warren Buffett's insurance and investment company, barely broke even in the fourth quarter because of losses on derivatives contracts tied to the stock market, which caused its net worth to tumble $10.9 billion.
Buffett also offered a gloomy outlook for the economy, saying in his annual letter to Berkshire shareholders: "The economy will be in shambles throughout 2009 -- and for that matter, probably well beyond."
Quarterly net income for Omaha, Nebraska-based Berkshire sank 96 percent to $117 million, or $76 per Class A share, from $2.95 billion, or $1,904, a year earlier, based on company filings. Revenue fell 12 percent to $24.59 billion.
Results were battered by $4.61 billion of pretax losses on about 251 derivative contracts largely tied to the longer-term performance of four stock market indexes and the creditworthiness of higher-risk "junk" bonds. The losses were twice what Berkshire suffered in the prior nine months.
A deteriorating economy and tight credit led to steep declines in stock prices and an increase in junk bond defaults, resulting in losses for Berkshire. While the losses exist on paper, accounting rules require Berkshire to report them with earnings.
Berkshire's net worth fell to $109.27 billion at year end from $120.16 billion at the end of September, and $120.73 billion at the end of 2007.
For all of 2008, profit at Berkshire fell 62 percent to $4.99 billion, or $3,224 per share, from $13.21 billion, or $8,548. Earnings were the lowest since 2002. Revenue fell 9 percent to $107.8 billion.

Warren Buffett loses billions
Berkshire Hathaway drops $10.9bn in investor's worst year since 1965.

(Source The Telegraph.co.uk)
Mr Buffett described derivatives as "dangerous", but he remained convinced that they were a good bet. "I believe each contract we own was mispriced at inception, sometimes dramatically so. If we lose money on our derivatives, it will be my fault," he wrote.
Nineteen of top 20 stocks in Berkshire's US portfolio, valued at $51.9bn, fell last year. Coca-Cola, its top holding, dropped 26pc and American Express plunged 64pc.
Mr Buffett, 78, said he would maintain Berkshire's "Gibraltar-like financial position" during 2009 by retaining "huge amounts of excess liquidity, near-term obligations that are modest and dozens of sources of earnings".
But he offered a gloomy outlook, saying: "The [US] economy will be in shambles throughout 2009 – and probably well beyond."
He also upped his attack of the US government's bail-out of his insurance and banking rivals. "Though Berkshire's credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing," he wrote. "At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one."

Warren Buffett's Letters to Berkshire Shareholders
Updated February 28, 2009
BERKSHIRE HATHAWAY INC. SHAREHOLDER LETTERS (Link Download PDF)

Buffett prefers to release the annual report and shareholder letter on Saturdays, when markets are closed and investors can digest his thoughts slowly and in peace.

Companies turning to Warren Buffet for financing

Buffett to buy $250M Tiffany debt
Jewelry maker becomes the latest company to turn to Berkshire Hathaway for financing.

(Source CNN Money)
NEW YORK (Reuters) -- Warren Buffett's Berkshire Hathaway Inc. has agreed to buy $250 million of debt from luxury jewelry maker Tiffany & Co., the latest in a string of high-yielding investments by the billionaire investor.
New York-based Tiffany said it sold Berkshire $125 million of eight-year notes and $125 million of 10-year notes, all yielding 10%. It said it will use the proceeds to refinance debt and for general corporate purposes.
The investment marks at least the seventh time since September that Berkshire has gotten at least a 10% payout by buying company bonds, preferred stock or convertible securities.
Many companies are turning to Berkshire for financing as the global credit crisis makes it too difficult or costly to raise money from institutional investors.

Berkshire Hathaway quarterly net income falls 77%

Marketwatch Nov 7 News . Operating earnings, which exclude net realized investment gains and losses, were $2.07 billion, or $1,335 per Class A share, down 19% from the same period in 2007.

Berkshire's large insurance businesses generated an underwriting profit of $81 million in the latest third quarter, down from $486 million last year.

Hurricanes Gustav and Ike left Berkshire's insurance businesses with estimated losses of roughly $1.05 billion in the third quarter, the company said. Price competition, which has steadily increased in insurance markets in the past two years, also dented profit, it added.

Berkshire, run by Warren Buffett, incurred $296 million of net investment losses in the quarter, versus net investment gains of more than $3 billion a year earlier.