Berkshire net sinks, Warren Buffett says economy in shambles

[Naveed Yaseen]

NEW YORK: Berkshire Hathaway Inc, Warren Buffett’s insurance and investment company, barely broke even in the fourth quarter because of losses on derivatives contracts tied to the stock market, which caused its net worth to tumble $10.9 billion.

Buffett also offered a gloomy outlook for the economy, saying in his annual letter to Berkshire shareholders, “The economy will be in shambles throughout 2009, and for that matter, probably well beyond.” Quarterly net income for Omaha, Nebraska-based Berkshire sank 96 per cent to $117 million, or $76 per Class A share, from $2.95 billion, or $1,904, a year earlier, based on company filings. Revenue fell 12 per cent to $24.59 billion.

Results were battered by $4.61 billion of pre-tax losses on about 251 derivative contracts largely tied to the longer-term performance of four stock market indexes and the credit-worthiness of higher-risk “junk” bonds. The losses were twice what Berkshire suffered in the prior nine months.

A deteriorating economy and tight credit led to steep declines in stock prices and an increase in junk bond defaults, resulting in losses for Berkshire. While the losses exist on paper, accounting rules require Berkshire to report them with earnings. Berkshire’s net worth fell to $109.27 billion at year end from $120.16 billion at the end of September, and $120.73 billion at the end of 2007. For all of 2008, profit at Berkshire fell 62 per cent to $4.99 billion, or $3,224 per share, from $13.21 billion, or $8,548.

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