Berkshire Hathaway Inc said second quarter profit rose 74 per cent on gains from Chairman Warren Buffett’s investment in Goldman Sachs Group Inc and improved returns from derivatives.
Net income advanced to $3.42 billion, or $2,072 a Class A share, from $1.97 billion, or $1,195, a year earlier, the Omaha, Nebraska-based company said yesterday in a statement. Operating earnings, which exclude some investment results, were $1,640 a share, beating the $1,624 average estimate of three analysts surveyed by Bloomberg.
Buffett, who is also chief executive officer, is seeking deals with the cash he collects from Goldman Sachs and other firms that turned to Berkshire when traditional sources of financing dried up in 2008. The $5-billion investment in New York-based Goldman Sachs paid annual interest of 10 per cent. Repayment of the funds led to an after-tax gain of about $806 million in the second quarter.
“He was pretty smart,” said Paul Howard, director of research at Solstice Investment Research in Glastonbury, Connecticut. “When you’re willing to go against what the masses are doing, that’s when you make your money.”
Book value, a measure of assets minus liabilities, rose in the three months ended June 30 to $163 billion from $160.1 billion on March 31. Cash holdings climbed to $47.9 billion on June 30 from $41.2 billion at the end of the first quarter.
Credit-default swaps, in which Buffett bets on the solvency of borrowers, gained $142 million after posting a $320 million loss a year earlier. The loss on equity derivatives narrowed to $271 million from $1.8 billion in last year’s second quarter.
Berkshire receives coupons of at least 10 per cent on more than $7 billion that Buffett invested in 2008 in General Electric Co. and Wm. Wrigley Jr. Co. Buffett’s 2009 investment in Swiss Reinsurance Co, which was repaid in January, gave Berkshire a 12 per cent dividend.
Buffett agreed in March to buy Lubrizol Corp, an engine- additives maker, for about $9 billion. That deal, following Berkshire’s $26.5-billion takeover of railroad Burlington Northern Santa Fe last year, positioned the company to benefit from an expansion in trade inside the U.S. and internationally. Buffett has said he’ll consider acquisitions outside the US, and he visited Korea and India this year.
Burlington Northern contributed $690 million in net earnings in the second quarter, compared with $603 million a year earlier. The railroad said yesterday it will pay a $750 million dividend this month.
Berkshire has declined 11 per cent on the New York Stock Exchange this year. The company faces a sluggish US economy, declining world equity markets and reinsurance claims tied to Japan’s biggest earthquake.
Berkshire said the equity derivatives loss was due to a weakening in the US dollar. Buffett uses the contracts to place long-term bullish bets on stock indexes in the US, Europe and Asia.
Buffett’s firm spent $3.62 billion on equities and $2.78 billion on fixed-maturity securities in the quarter. He sold about $200 million of stocks and $488 million of fixed-income holdings. The stock portfolio rose to $67.6 billion at the end of the second quarter from $63.2 billion on March 31.
