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| Buffett's Berkshire posts loss on ConocoPhillips, derivatives |
| Bloomberg / New York May 09, 2009, 22:41 IST |
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Warren Buffett’s Berkshire Hathaway Inc posted its worst loss in at least two decades as the billionaire chairman worked to recover from a “major mistake” of buying ConocoPhillips shares with oil prices near their peak.
The first-quarter net loss of $1.53 billion, or $990 a share, compares with profit of $940 million, or $607, in the same period a year earlier, the Omaha, Nebraska-based firm said yesterday in a statement. Writedowns on derivatives tied to corporate-debt indexes cost the company about $1.3 billion and Berkshire took a $1.9 billion charge on oil producer ConocoPhillips, contributing to its first net loss since 2001.
Berkshire is cutting the ConocoPhillips stake to gain a tax advantage less than a year after becoming the Houston-based firm’s largest shareholder, the company said in the statement. Buffett wrote in his annual letter to shareholders in February that buying the stock while oil was near $140 a barrel cost his firm “several billion dollars.” ConocoPhillips has fallen by half since June.
“Warren Buffett isn’t perfect,” said Michael Yoshikami, chief investment strategist at Walnut Creek, California-based YCMNet Advisors. “He’s trying to get some benefit out of that mistake, and he’s diversified enough that he can recover those losses somewhere else.”
Berkshire sold 13.7 million shares of ConocoPhillips in the first three months of the year, reducing the holding to 71.2 million shares, and divested an undisclosed number since March 31, the statement said. Berkshire said that it could recover as much as $690 million in federal taxes on capital gains from 2006 by selling investments at a loss this year.
Derivative Liabilities:Book value, a measure of assets minus liabilities, fell 5.9 per cent in three months to $102.8 billion on declines in the equity portfolio and derivatives. Berkshire’s liability on derivatives at the finance and financial products operations widened to $15.4 billion as of March 31 from $14.6 billion three months earlier, the company said in a regulatory filing.
The derivatives have weighed on Berkshire results for more than a year. Berkshire’s commitments, which cover possible losses on corporate debt, stock indexes and municipal bonds, prompted Fitch Ratings and Moody’s Investors Service to strip the firm of its top-level credit ratings this year.
Berkshire paid $675 million in the quarter to investors who bet on defaults by companies in undisclosed high-yield bond indexes and an additional $450 million since, the statement said. Until this year, the company had paid $542 million. Berkshire collected $3.4 billion in premiums on the contracts as of December 31.
Corporate Bankruptcies: The declines in Buffett’s equity-linked derivative portfolio are paper losses, and wouldn’t require payments until at least 2019.
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