Berkshire Hathaway profit falls on derivative losses

Fri Aug 3, 2012 6:00pm EDT
 
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By Ben Berkowitz

(Reuters) - Warren Buffett's ice-cream-to-insurance conglomerate Berkshire Hathaway (BRKa.N: Quote) reported a smaller profit for the second quarter on Friday as losses on derivatives dragged down results, though operating income set the new records Buffett predicted.

Buffett eschews derivatives for the most part, but he does have one outstanding - and large - derivative bet tied to stock market performance. While he has said repeatedly he expects that position to be profitable over time, it generated nearly $700 million in losses in the last quarter.

Berkshire earned $3.11 billion, or $1,882 per Class A share, compared with a profit of $3.42 billion, or $2,072 per Class A share a year earlier.

Book value, Buffett's preferred measure of Berkshire's worth, rose to $107,377 per Class A share. The company's ongoing share buyback is capped at prices no higher than 110 percent of that book value.

Berkshire's cash pile as of the end of the quarter ballooned to $40.66 billion, up more than $3 billion since the year began.

Buffett has been itching to make a major acquisition; a deal of more than $20 billion fell through earlier this year, and he has said a deal larger than $30 billion could be possible next year if he does nothing substantial in 2012.

One long-term Berkshire investor brushed aside the derivatives hit and said the cash build was the thing to watch in the near term.

"Derivatives are less of an issue as investors recognize that the asset is a long-term play, not a short-term strategy. And as Buffet normally does, cash flow is piling up for more beta purchases," said Michael Yoshikami, CEO of Destination Wealth Management in California, which holds more than $12 million in Berkshire stock.   Continued...

 
Berkshire Hathaway chairman and CEO Warren Buffett attends the second day of the Allen and Company Sun Valley Conference in Sun Valley, Idaho July 7, 2011. REUTERS/Anthony Bolante