Saturday, March 10, 2001
Berkshire Hathaway Profit Leaps on Investment Gains
NEW YORK (Reuters) - Berkshire Hathaway Inc. (BRKa.N), the holding
company run by billionaire investor Warren Buffett, reported net profits
rose 114 percent on Saturday, as investment gains more than made up for
underwriting losses in its main insurance businesses.
The leap in profit marks a comeback for Buffett from last year -- which he
called the worst ever for the firm -- when underwriting losses and poor
returns on investments took a chunk out of profits.
"Overall, we had a decent year," said 70-year-old Buffett, in his annual
letter to shareholders, posted on Saturday on the firm's Web site
(www.berkshirehathaway.com).
Berkshire reported net profit for 2000 of $3.328 billion, or $2,185 per
share, up from $1.557 billion, or $1,025 per share, in 1999.
CASHES IN INVESTMENTS
The Omaha, Nebraska-based holding company -- whose main business is
insurance but also has subsidiaries in a range of old-economy sectors,
from furniture to jewelry to plane leasing -- made its profits from cashing
in some investments.
The 2000 figure was largely made up of realized investment gains --
which the firm notches up when its sells stocks or bonds -- of $2.392
billion. The year before, Berkshire reported similar realized gains of only
$886 million.
During last year, Berkshire sold nearly all its shares in the U.S. mortgage
finance company Freddie Mac (FRE.N), which were worth about $2.8
billion at the end of 1999. Berkshire now owns only 0.3 percent of Freddie
Mac, down from 8.6 percent at the end of 1999.
Berkshire's other major stock holdings remained largely unchanged during
2000. The firm still owns 11 percent of credit card giant American Express
Co (AXP.N), 8 percent of soft-drink maker Coca-Cola Co. (KO.N), 9 percent
of consumer goods firm Gillette Co. (G.N) and 18 percent of newspaper
publisher The Washington Post Co. (WPO.N).
These and other stock holdings were worth $37.6 billion in value at the
end of 2000, the company said. That is only slightly higher than $37.0
billion at the end of 1999, reflecting the nosedive in U.S. stocks last year.
"There are no 'bargains' among our current holdings," said Buffett in his
shareholders' letter. "We're content with what we own but far from
excited by it."
Berkshire also sold most of its shares in the U.S.'s other major mortgage
firm, Fannie Mae (FNM.N), but bought into several mid-sized companies,
Buffett said.
The firm also bought high-yield bonds of a few issuers, such as troubled
loan firm FINOVA Group Inc. (FNV.N) -- which it is planning to take over in
conjunction with another finance firm -- and upped its holdings of
high-grade, mortgage-backed securities.
INSURANCE LOSSES
Berkshire said after-tax profits excluding the realized gains from
investments were $936 million for 2000. That compares with $671 million
in 1999.
Profits were hit by a pre-tax underwriting loss of $1.4 billion at its General
Re unit, which sells reinsurance, due to a large one-off loss and the
continuing effects of too-low premiums. General Re lost $1.4 billion on
underwriting the year before.
GEICO, Berkshire's cut-price car insurer, lost $224 million on underwriting
before tax, as the unit struggled to win new accounts despite expensive
advertising. Last year GEICO made $24 million underwriting profit.
Both these losses were offset by investment returns garnered from the
premiums the firms hold before paying out claims.
The underwriting losses, however, effectively meant that Berkshire had to
pay a high price to get hold of the money it needs to fuel its investments.
Berkshire's 'float' -- the huge pile of money it holds from insurance
premiums -- cost 6 percent during 2000, Buffett said. That is a slight
increase from 5.8 percent in 1999.
When Berkshire's insurance units make underwriting profits, the cost of
the float is effectively free. Buffett's aim is to keep the cost of the float
below the cost of borrowing money from other commercial sources.
At the end of 2000, Berkshire's float stood at $27.8 billion, up from $25.3
billion at the end of 1999.
STOCK ON A ROLL
Berkshire's stock, which has never been split in Buffett's 36 years in
charge, closed at $71,100 on Friday on the New York Stock Exchange.
The stock has risen 74 percent in the past year, from its 52 week low of
$40,800 a year ago today. The stock's surge has inversely mirrored the
year-long plunge in the technology-heavy Nasdaq, as investors flocked to
70-year-old Buffett who has stood by his refusal to invest in high-tech
stocks. |
