Buffett says Berkshire hit by derivatives

City A.M. Reporter
WARREN Buffett’s conglomerate Berkshire Hathaway reported a smaller third-quarter profit over the weekend, after losing more than $2bn (£1.24bn) on derivatives related to stock market performance.

That was nearly three times what Berkshire lost on the same instruments a year ago. Buffett has criticised derivatives in general, but said these particular contracts were safe and would ultimately be lucrative.

But Berkshire was hurt, like many other insurance companies in particular, by sharp declines in a broad range of market values. In a quarterly report to the US Securities and Exchange Commission, Berkshire said the indexes covered by the contracts fell anywhere from 11 per cent to 23 per cent in the quarter.

Berkshire reported a net profit of $2.28bn compared with a year-earlier profit of $2.99bn.

Cash at the end of the quarter was $34.78bn, down from $47.89bn at the end of June. During the third quarter Berkshire funded the purchase of chemical maker Lubrizol and a $5bn investment in Bank of America.

Operating income rose across segments, except for the company’s finance business, where it fell slightly.

Profits in the insurance business rose as a rebound in reinsurance offset sharp declines at auto insurer Geico. Reinsurance benefitted from a reduction in liabilities, while Geico’s profits fell on higher catastrophe losses.

Earnings were also nearly 10 per cent higher at Berkshire’s next-biggest unit, the Burlington Northern railroad, as revenue per car rose by double digits.