Berkshire's CEO succession raises interest in Buffett letter

Warren Buffett’s annual letter to Berkshire Hathaway  shareholders is coming Saturday, and it may bring more clues about the 87-year-old billionaire’s succession plans at his conglomerate.

In addition to providing an update on the company he’s been building for more than five decades, Buffett is likely to pack this year’s installment with financial wisdom and optimism about the US economy, plus the occasional risque joke.

Bloomberg’s Top Live blog will cover Berkshire’s annual report and letter starting at 7:40 am in New York.

Themes Buffett may address, along with the company’s future leadership, include the recent US tax overhaul, underwriting challenges affecting the insurance business, and the widely watched health initiative teaming Berkshire with JPMorgan Chase & Co and Amazon.com. Here is a quick look:

In January, Buffett promoted two longtime executives — Ajit Jain and Greg Abel — to vice-chairmen overseeing swaths of Berkshire’s business. Jain, 66, was put in charge of insurance operations, while Abel, 55, is responsible for all other subsidiaries. Both were also appointed to the board.

Jain and Abel were logical candidates to get expanded roles. They have built significant businesses for Buffett, winning the billionaire’s praise along the way. Jain has for decades led Berkshire’s namesake reinsurer, while Abel oversaw a major expansion of the energy business.

Buffett described the promotions as “part of a movement toward succession.” That either Abel or Jain could one day be named CEO is no shock. Both have made investors’ short lists for years. Many shareholders are betting that Abel is the likelier pick, in part because the energy executive is more than a decade younger. Abel’s promotion puts him in charge of a broader range of businesses with more employees.

Buffett has said there’s no “horse race” to succeed him. Even so, expect him to explain more about the new arrangement and what it means for Berkshire’s future.
 

The new US tax law was a windfall for Berkshire. Analysts at Barclays Plc noted that the lower corporate rate probably added $37 billion in the fourth quarter to book value, one of Buffett’s preferred yardsticks for measuring his performance as chief executive officer. The one-time increase will result from Berkshire lowering its tax liability on appreciated investments. Think: Coca-Cola Co stock bought decades ago that’s soared in value.

In the long haul, the implications of the tax law are less clear. Berkshire’s electric utilities will end up passing on any savings to ratepayers because their returns are regulated. But the conglomerate’s other businesses could see significant gains. It depends on “competitive conditions,” Buffett said at the company’s annual meeting last May. In general, businesses in cut-throat industries will end up passing more of the break on to customers than businesses with less competition. Morgan Stanley analysts estimate the tax cut could lift Berkshire’s operating earnings by 14 per cent.