Berkshire Hathaway Profit Falls 77% By Erik Holm
Nov. 7 (Bloomberg) -- Billionaire Warren Buffett's Berkshire Hathaway Inc. posted a fourth straight profit drop, the longest streak of quarterly declines in at least 13 years, on falling returns at insurance businesses and investment losses. Third-quarter net income decreased 77 percent to $1.06 billion, or $682 a share, from $4.55 billion, or $2,942, a year earlier, the Omaha, Nebraska-based company said today in a regulatory filing. ``When you insure against hurricanes, there are going to be periods where you take a hit from a storm like Ike,'' said Frank Betz, a partner at Carret Zane Capital Management, which holds Berkshire shares, in an interview before results were released. ``It happened to all the insurers.'' Buffett, 78, is investing in nuclear power, chewing gum and Wall Street as results slump at Berkshire's insurance units and businesses tied to the U.S. housing market. He has committed at least $28 billion this year to acquire companies, finance buyouts and purchase securities as prices fall and competitors are hobbled by limited access to credit. Berkshire, which owns National Indemnity Co., General Re Corp. and Geico Corp., said profit from underwriting insurance policies fell 83 percent to $81 million as the reinsurance group, which sells catastrophe coverage to other insurers, posted a $166 million pretax loss for the quarter. Decreases in the value of some holdings and derivatives lowered earnings by $1.01 billion, compared with a $1.99 billion gain in the same period a year earlier. Catastrophe Claims Declining investments, catastrophe claims and falling property and casualty rates caused third-quarter profit declines or losses at 22 of the 23 companies in the KBW Insurance Index that reported results so far. Berkshire typically gets half its revenue from insurance. Buffett has said he likes to own insurance companies because they are able to invest money paid by policyholders for months or years until the funds are needed to pay claims. He warned shareholders in February that it was a ``certainty'' that profit margins at Berkshire's underwriting businesses would narrow this year after the U.S. avoided major hurricanes in 2006 and 2007. Hurricanes Ike and Gustav cost insurers a combined $10 billion when they struck the Gulf Coast in September, the most since the record $58.7 billion of claims in 2005 when Katrina struck, according to preliminary data from Insurance Services Office Inc. Gustav hit Louisiana on Sept. 1, sparing New Orleans a direct hit. Ike smashed into Galveston, Texas, two weeks later. Goldman Sachs Buffett in the past two months agreed to spend $5 billion of Berkshire's cash for a stake in Goldman Sachs Group Inc., betting the Wall Street firm would be among the survivors of a worldwide credit crisis, and another $5 billion in preferred shares of General Electric Co. He also agreed in July to lend $3 billion to Dow Chemical Co. to help fund that firm's takeover of Rohm & Haas Co., and committed $6.5 billion in April to help Mars Inc. buy chewing gum maker Wm. Wrigley Jr. Co. Berkshire's MidAmerican Energy Holdings Co. struck a deal in September to pay $4.7 billion for Constellation Energy Group Inc. Berkshire shares, which rose in 17 of the last 20 years, are down 20 percent since Dec. 31 as some of the firm's largest stock investments slumped. American Express Co. has plunged 51 percent this year, Coca- Cola Co. dropped 25 percent and Procter & Gamble Co. declined 12 percent. All three were among Berkshire's 10 biggest stock holdings at the end of June. Housing Slump Berkshire rose $800 to $113,000 at 4:15 p.m. in New York Stock Exchange composite trading today. Results were posted today after the close of regular trading. The worst housing slump since the Great Depression has weighed on results at Berkshire units tied to home building, including carpet manufacturer Shaw Industries, Acme Brick and Benjamin Moore paints. Construction of new single-family homes declined 32 percent in the third quarter from a year earlier, according to the U.S. Commerce Department. Housing starts reached a 26-year low in September. Buffett built Berkshire over four decades from a failing textile maker into a $175 billion company by buying out-of-favor stocks and businesses whose management he deemed superior. The firm's insurance units include car insurer Geico Corp., National Indemnity Co. and bond guarantor Berkshire Hathaway Assurance Corp., which Berkshire started in December as the largest companies in that industry, MBIA Inc. and Ambac Financial Group Inc., struggled to maintain their credit ratings. Berkshire also owns underwear manufacturer Fruit of the Loom, ice cream chain Dairy Queen and NetJets, which sells fractional ownership of private planes. To contact the reporter on this story: Erik Holm in New York at [EMAIL PROTECTED] Last Updated: November 7, 2008 17:32 EST --~--~---------~--~----~------------~-------~--~----~ Thanks for being part of "PoliticalForum" at Google Groups. For options & help see http://groups.google.com/group/PoliticalForum * Visit our other community at http://www.PoliticalForum.com/ * It's active and moderated. Register and vote in our polls. * Read the latest breaking news, and more. -~----------~----~----~----~------~----~------~--~---
