Rating for billionaire Warren Buffett's Berkshire cut by S&P

NEW YORK: Warren Buffett's Berkshire Hathaway Inc had its credit rating cut one notch by Standard & Poor's,
which cited a new methodology for evaluating insurers and Berkshire's
dependence on its insurance business for dividend income.
The
rating was cut to "AA" from "AA-plus," and S&P assigned a
"negative" outlook, suggesting another cut could occur within a few
years. S&P left its credit and financial strength ratings for
Berkshire's insurance operating units at "AA-plus."
Thursday's
downgrade brings S&P's rating in line with the "Aa2" rating that
Berkshire holds from Moody's Investors Service. Those ratings are the
agencies' third-highest.
"The lower credit rating on Berkshire
better reflects our view of Berkshire's dependence on its core
insurance operations for most of its dividend income," S&P analyst
John Iten wrote.
Jeff Matthews, a Berkshire shareholder who has
written books about the company, said S&P's concerns appeared
overblown, citing the insurance units' profitability and the $73
billion of "float," or money held between when policyholders make
payments and claims are paid, they provide to help Berkshire invest.
"Which
would S&P rather have, a lousy insurance underwriter with
'non-volatile' investments, or a world-class insurance underwriter with
world-class, if sometimes 'volatile,' investments?" he asked.
Berkshire
was rated "triple-A" by Moody's and S&P as recently as 2009. It
lost the ratings after the global financial crisis boosted potential
liabilities, and Buffett bought the railroad Burlington Northern Santa Fe Corp for $26.5 billion.
S&P
said that while Berkshire retains a "very strong financial risk
profile," with noninsurance operations generating a majority of
operating profit, only Burlington Northern provides a significant
portion of total dividends paid by those operating companies to the
parent holding company.
Other negative factors cited by S&P
include Berkshire's "high tolerance" for equity investments, which
totaled $95.9 billion as of March 31 and can add capital volatility,
and Berkshire's eventual need to replace the 82-year-old Buffett.
At
Berkshire's annual meeting on May 4, Buffett said the company's board
was "solidly in agreement" on an unnamed internal executive to step in
as chief executive if needed.
Berkshire has said it plans to
install other people as chief investment officer, and Buffett's son
Howard as non-executive chairman. Warren Buffett holds the CIO and
chairman roles.
S&P's outlook stems from a ratings cap for
financial companies linked to the United States' "AA-plus" rating, as
well as capital risks at the insurance units, especially if they were
to add investment risk exposure or fund a large acquisition.
The
S&P downgrade had no effect on Berkshire's bond prices. The 4.3
percent bonds maturing in 2043 that a finance unit sold last week rose
1.2 cents on the dollar to 99.7 cents, according to bond pricing
service Trace.
In Thursday trading, Berkshire Class A shares
closed down $1,637 at $167,303, and Class B shares fell $1.23 to
$111.54. - Reuters