{"id":370325,"date":"2010-02-27T08:51:00","date_gmt":"2010-02-27T13:51:00","guid":{"rendered":"tag:blogger.com,1999:blog-3087194156628161158.post-1435408050689436802"},"modified":"2010-02-27T08:54:33","modified_gmt":"2010-02-27T13:54:33","slug":"businessweek-berkshire-profit-jumps-to-3-1-billion-on-derivatives","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/370325","title":{"rendered":"BUSINESSWEEK: Berkshire Profit Jumps to $3.1 Billion on Derivatives"},"content":{"rendered":"

<\/span><\/a>By Andrew Frye and Jamie McGee<\/p>\n

Download the 2009 Warren Buffett Letter & 2009 Annual Report to Berkshire Hathaway Shareholders<\/span><\/a><\/p>\n

Feb. 27 (Bloomberg) — Warren Buffett\u2019s Berkshire Hathaway Inc. said fourth-quarter profit jumped on the recovery of derivative bets tied to the world\u2019s stock markets.<\/p>\n

Net income rose to $3.06 billion, or $1,969 a share, from $117 million, or $76, in the same period a year earlier, the Omaha, Nebraska-based company said today in its annual report.<\/p>\n

The profit increase, Berkshire\u2019s third straight, helps rebuild a cash pile that diminished since 2007 as Buffett invested in financial firms bruised by the recession. Companies including Goldman Sachs Group Inc. that turned to Buffett for funding are now paying Berkshire interest of 10 percent or more. The shopping spree culminated with the November agreement to buy railroad Burlington Northern Santa Fe for $27 billion.<\/p>\n

\u201cWe\u2019ve put a lot of money to work during the chaos of the last two years,\u201d Buffett said in his annual letter to shareholders today. \u201cIt\u2019s been an ideal period for investors: A climate of fear is their best friend.\u201d<\/p>\n

Berkshire had net income of $8.06 billion for all of 2009, a 61 percent increase from the year before. Rising stock prices helped boost book value to $131.1 billion, a 4 percent increase since Sept. 30. The figure gained about 20 percent from the end of 2008.<\/p>\n

Buffett typically highlights book value, the measure of assets minus liabilities, in the first sentence of his annual letter to shareholders. In his \u201cowner\u2019s manual\u201d for Berkshire shareholders, Buffett says he considers the figure to be the best objective measure of a company\u2019s success.<\/p>\n

Derivative Gains<\/p>\n

Derivatives added $1.05 billion to earnings in the quarter, compared with a loss of $4.61 billion a year earlier after the collapse of Lehman Brothers Holdings Inc. Liabilities on Buffett\u2019s so-called equity-index puts narrow when four stock indexes, including the Standard & Poor\u2019s 500, climb closer to the levels they were at when Buffett made the deals near the market\u2019s peak in 2006 and 2007.<\/p>\n

Berkshire\u2019s own stock has gained 52 percent in the past year as derivatives rebounded and the value of the firm\u2019s top stocks rose. The Class A shares closed yesterday at $119,800, their highest since Oct. 21, 2008.<\/p>\n

The 20 largest holdings in its U.S. portfolio all increased in the past 12 months. Coca-Cola Co., Berkshire\u2019s top holding, climbed 29 percent. Wells Fargo & Co. doubled and American Express Co. tripled. The U.S. portfolio was valued at $57.9 billion at Dec. 31, a 12 percent rise from a year earlier.<\/p>\n

NetJets Loss<\/p>\n

The NetJets unit, which leases planes to corporate customers and individuals, posted a $180 million pretax loss for the quarter, bringing the full-year deficit to $711 million on asset writedowns and the cost of cutting staff.<\/p>\n

\u201cNetJets is likely to operate at a profit in 2010, assuming there is no further deterioration in the U.S. economy or negative actions directed at the ownership of private aircraft,\u201d Berkshire said in today\u2019s report. The unit earned $213 million in 2008.<\/p>\n

Buffett added a $2.6 billion investment in Swiss Reinsurance Co., completed in March, to a portfolio of financing deals that he struck during the credit freeze as other investors were withholding funds. The Swiss Re transaction pays a 12 percent coupon, while Berkshire gets 10 percent annually on its $5 billion injection in Goldman Sachs and its $3 billion of preferred shares in General Electric Co.<\/p>\n

Railroad Replacement<\/p>\n

Berkshire joined the S&P this month after completing the takeover of Fort Worth, Texas-based Burlington Northern. The move prompted managers of funds that attempt to recreate the returns of the index to add Buffett\u2019s company to their portfolios.<\/p>\n

Buffett cut jobs and reshuffled managers at Berkshire\u2019s operating companies last year as retail and industrial demand suffered in the recession. He replaced the CEOs of NetJets, the luxury flight provider, and jeweler Helzberg Diamond Shops Inc. This month, Berkshire reported its workforce fell by 9.8 percent since the end of 2008 to 222,000 employees.<\/p>\n

Buffett was stripped of his final AAA credit grade from a major rating firm this month when Standard & Poor\u2019s downgraded Berkshire. The cut, which followed reductions last year by Fitch Ratings and Moody\u2019s Investors Service, came as Berkshire neared the completion of the Burlington Northern takeover.<\/p>\n

–Editors: Erik Holm, Dan Kraut<\/p>\n

<\/p>\n

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