Berkshire logs profit as markets pick up
Berkshire Hathaway's earnings picked up sharply in the second quarter, reversing a first-quarter loss as the company rode a wave of gains in its vast stock portfolio.
The Omaha, Nebraska, conglomerate run by Warren Buffett posted net income of $3.3bn (€2.3bn), or $2,123 per Class A share in the quarter, compared with $2.9bn, or $1,859 per share a year earlier and rebounding from a $1.5bn first-quarter loss.
Berkshire, like many companies with big financial operations, has itself been boosted by the strong stock and bond markets. Berkshire's substantial financial holdings soared during the quarter, with Bank of America gaining nearly 100% and American Express and Wells Fargo each rising more than 70%.
Separately, Buffett recently expressed interest in buying Citigroup's Phibro energy-trading unit, but the bank viewed his informal offer as being too low and turned it down, according to people familiar with the situation. It wasn't immediately known how much Buffett offered for Phibro.
Buffett approached Citigroup after receiving a personal appeal from Andrew J. Hall, the head of Phibro, whose 2009 pay package could total $100m, these people said. There haven't been discussions since the initial conversation, said one person familiar with the matter. The bank is continuing to consider options for Phibro.
Book value for Berkshire rose 11.4% from the previous quarter to $73,806 per Class A share. In 2008, Berkshire's book value per share fell 9.6%, the biggest one-year drop since Buffett took over the company in 1965. The company has $21.4bn in cash.
As the quarter started, Berkshire was on its heels. Its stock had lost about one-third of its value in a year's time. In April, Moody's Investment Services cut Berkshire's long-term issuer rating to Aa2 from its top Aaa rating, a blow to a company that relies on a sterling rating to get top rates for its insurance products.
But as the market rallied, investors' outlook for Berkshire also turned up. Shares have gained more than 40% since their March low. Berkshire's bonds also have rallied, outpacing a Moody's gauge of AAA bonds since the ratings downgrade, according to Morningstar.
While Berkshire benefited from the market rally, its diverse holdings, from insurance and energy providers to furniture retailers, continue to struggle, Buffett has said. He has repeatedly expressed concerns about the shape of the economy this year, based in part on the soft performance of Berkshire companies.
Berkshire's "operating subsidiaries were a drag in the second quarter," said Morningstar analyst Bill Bergman. "If that starts turning, that will give them a pop on the other side of the year if an economic recovery is in fact getting started."
Write to Scott Patterson at scott.patterson@wsj.com This article can be found online at www.wsj.com
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