Saturday, August 8, 2009

Buffett’s Berkshire Swings to Profit on Derivative Holdings (BRK.A)

Warren probably liked it better when they were heading south, BRK got a tax break and he had an opportunity to hedge around the position if he chose.
First Up, the headline story from Bloomberg:
Billionaire investor Warren Buffett’s bet on derivatives tied to world equity markets helped Berkshire Hathaway Inc. return to profitability in the second quarter.

Net income rose 14 percent to $3.3 billion, or $2,123 a share, from $2.88 billion, or $1,859, in the same period a year earlier, the Omaha, Nebraska-based company said yesterday in a regulatory filing. The results halted six straight quarters of declining profit, including a $1.53 billion loss in the first three months of 2009.

Berkshire benefited as stock markets on three continents rebounded, while preferred shares and debt in Goldman Sachs Group Inc. and General Electric Co. increased investment income. Buffett, the firm’s chairman and chief executive officer, has said Berkshire’s energy business is thriving amid the recession, while jewelry, home-building and airplane units suffered.

“It’s shocking how much the derivatives really make a difference,” said Michael Yoshikami, chief investment strategist at Walnut Creek, California-based YCMNet Advisors, which owns Berkshire shares. “If you take those out of the overall result, it doesn’t change the fact that some of the economically sensitive names are still hurting.”

Derivatives added $2.36 billion to earnings, compared with $689 million a year earlier. The firm valued the stock portfolio at its insurance units at $45.8 billion, a 22 percent increase from March 31.

Goldman Sachs

Buffett scaled back on the purchase of common stocks in the past year in favor of preferred shares in Goldman Sachs and GE, municipal bonds, and debt in firms including luxury jeweler Tiffany & Co. and motorcycle maker Harley-Davidson Inc. The shift boosted investment income 9 percent to $1.87 billion at its insurance and finance operations....MORE

From the Wall Street Journal:

Berkshire Logs Profit as Markets Pick Up

Berkshire Hathaway Inc.'s earnings picked up sharply in the second quarter, reversing a first-quarter loss as the company rode a wave of gains in its vast stock portfolio.

The Omaha, Neb., conglomerate run by Warren Buffett posted net income of $3.3 billion, or $2,123 per Class A share in the quarter, compared with $2.9 billion, or $1,859 per share a year earlier and rebounding from a $1.5 billion first-quarter loss.

Berkshire, like many companies with big financial operations, has itself been boosted by the strong stock and bond markets. Berkshire's substantial financial holdings soared during the quarter, with Bank of America gaining nearly 100% and American Express and Wells Fargo each rising more than 70%.

Separately, Mr. Buffett recently expressed interest in buying Citigroup Inc.'s Phibro energy-trading unit, but the bank viewed his informal offer as being too low and turned it down, according to people familiar with the situation. It wasn't immediately known how much Mr. Buffett offered for Phibro.

Mr. Buffett approached Citigroup after receiving a personal appeal from Andrew J. Hall, the head of Phibro, whose 2009 pay package could total $100 million, these people said. There haven't been discussions since the initial conversation, said one person familiar with the matter. The bank is continuing to consider options for Phibro.

Book value for Berkshire rose 11.4% from the previous quarter to $73,806 per Class A share. In 2008, Berkshire's book value per share fell 9.6%, the biggest one-year drop since Mr. Buffett took over the company in 1965. The company has $21.4 billion in cash....MORE

From the Omaha World-Herald:

Berkshire has robust quarter

Berkshire Hathaway Inc. on Friday reported robust second-quarter earnings, primarily on the strength of its derivative investments and rebounding stock prices.

The results, reported after the market closed, reversed a first-quarter loss that was the first since terrorist attacks of 2001.

Analysts had expected a positive report, and Class “A” shares closed at $108,100 Friday, up $1,150, or 1.1 percent.

Berkshire reported net income of $3.3 billion, or $2,123 per share. That compares with a profit of $2.88 billion posted during the same period last year.

The results beat predictions of three analysts, surveyed by Thomson Reuters, who on average expected Berkshire to report earnings per share of $1,238.38, according to the Associated Press.

Berkshire owns more than 60 subsidiaries and has major investments in companies such as Coca-Cola and Wells Fargo.

The recession had weighed on Berkshire, contributing to a loss in the first quarter of the year. That changed in the second quarter, however.

Derivative holdings added $2.36 billion to the company's earnings, compared with $689 million during the same quarter in 2008. The improved earnings from derivatives, which have been controversial investments, solidified CEO Warren Buffett's contention that they would make money for the company over the long term....MORE

Here's the 10Q via EDGAR.