Berkshire's Profit Rises 40 Percent on Currency Gains (Update6)
Berkshire's Profit Rises 40 Percent on Currency Gains
March 5 (Bloomberg) -- Berkshire Hathaway Inc., the investment and insurance company controlled by billionaire Warren Buffett, said fourth-quarter profit rose 40 percent on a $1.63 billion gain from betting against the U.S. dollar.
Net income climbed to $3.34 billion, or $2,171 a share, from $2.39 billion, or $1,553, a year earlier, the Omaha, Nebraska- based company said today on its Web site. Excluding the currency bet and other investment gains and losses, Berkshire's profit rose 19 percent to $1.84 billion, beating a $1.4 billion estimate by Fox-Pitt Kelton Inc. analyst Gary Ransom.
Buffett, 74, began betting against the dollar in 2002 on concern that widening U.S. trade and budget deficits would erode its value. As the dollar slumped 7.5 percent against major currencies, Buffett increased Berkshire's position in the fourth quarter to $21.4 billion of foreign currency forward contracts, or agreements to purchase an asset at a future date.
``The evidence grows that our trade policies will put unremitting pressure on the dollar for many years to come,'' Buffett said in his annual letter to shareholders today.
Berkshire's forward contracts rose from $20 billion on Sept. 30 and were spread among 12 denominations that Buffett declined to identify. He has called the purchases a ``long-term'' position.
Buffett said he ``struck out'' at finding acquisitions last year, and Berkshire's cash holdings rose to $43.4 billion at yearend from $43 billion on Sept. 30. He and Vice Chairman Charlie Munger, 81, will ``work to translate some of this hoard into more interesting assets during 2005, though we can't promise success,'' Buffett said.
`A Little Action'
``What Charlie and I would like is a little action now,'' he said.
The estimate by Fox-Pitt's Ransom for an 8.9 percent drop in net income to $913 a share was echoed by Credit Suisse First Boston analyst Charles Gates, who predicted fourth-quarter profit fell to $915 a share, excluding changes in investment value.
Berkshire's full-year net income fell 10 percent to $7.31 billion amid losses from U.S. hurricanes.
Revenue rose 0.9 percent in the fourth quarter to $20 billion. Investment income in insurance businesses, including interest and dividends, dropped 8 percent to $774 million as the cash earned ``paltry returns,'' Buffett said.
Berkshire's book value, or assets minus liabilities, rose 10.5 percent in 2004 after taxes, compared with a 10.9 percent gain in the Standard & Poor's 500 Index, before taxes.
`Get Its Chances'
On that basis, 2004 was one of only six years since 1965 when Berkshire's growth in net worth underperformed the S&P 500, Buffett said in his letter, blaming the lack of acquisition opportunities.
``The fact that he can compound net worth by 10.5 percent with $43 billion of cash on the balance sheet is a hell of an accomplishment,'' said Keith Trauner, a fund manager at Fairholme Capital Management in Short Hills, New Jersey who keeps more than a fifth of the firm's $1.4 billion of assets in Berkshire stock. ``Berkshire will get its chances to invest a lot of money.''
Buffett, who has become the world's second-richest man by buying out-of-favor assets and companies, drew about 19,000 admirers to Berkshire's annual meeting last year.
Reinsurance
He has accumulated dozens of units selling insurance, paint, carpets, and mobile homes. His stock investments have made Berkshire the largest shareholder in Coca-Cola Co., American Express Co. and Gillette Co.
A $10,000 investment in Berkshire the day Buffett took control in 1965 would be valued at about $50 million today. Buffett's own stake is worth about $42.5 billion. Berkshire's shares fell $302 to $89,300 in New York Stock Exchange composite trading yesterday.
Underwriting profit at Berkshire's Geico Corp. auto insurer jumped 90 percent to $292 million as the frequency of accidents and claims declined. Premiums and the number of clients rose, in part from Geico's decision to start selling policies in New Jersey for the first time since 1976, the company said.
Berkshire is the largest U.S. reinsurance company through General Re Corp. and businesses run by Ajit Jain, who works with about two-dozen employees in Stamford, Connecticut. General Re's underwriting profit slipped 3.6 percent to $27 million and profit at Jain's businesses increased 20 percent to $485 million.
Dispute in Australia
Insurers buy reinsurance to limit their losses from claims. Berkshire said reinsurance premiums would likely decline in 2005 as competitors dropped prices. General Re's property and casualty sales in North America tumbled 20 percent in 2004 as the reinsurer walked away from business with inadequate prices, Berkshire said.
Berkshire is one of more than nine insurers that received requests for information from New York Attorney General Eliot Spitzer and the Securities and Exchange Commission as part of a probe of insurance and reinsurance policies that may help clients smooth their earnings.
In today's report, the company said the liquidator of failed Australian insurers FAI Insurance Ltd. and HIH Insurance Ltd. advised it planned to assert claims against Berkshire.
The liquidator contended General Re contributed to the insurers' collapse by helping them improperly account for transactions as reinsurance. Berkshire said it wasn't sure whether the liquidator would pursue the claims and can't predict the outcome.
Profit from Berkshire's NetJets, which sells time-shares in corporate jets, and pilot-trainer FlightSafety International jumped eightfold in the fourth quarter to $74 million as revenue rose and the companies had fewer asset writedowns.
Berkshire's Clayton Homes earned more from offering and managing mobile-home loans, while profit at carpet-maker Shaw Industries fell as higher oil prices increased material costs.
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