Warren Buffett Taken Down a Notch Again

Posted by: Nanette Byrnes on April 9, 2009

Moody’s downgraded Berkshire Hathaway and its marquee re-insurance business National Indemnity on April 8, more evidence that the meltdown has flummoxed even the most famous investor in America. The move follows Fitch’s downgrade a month earlier.

Warren Buffett’s long had a love affair with stocks (including owning 20% of Moody’s), and recently that market has been a cruel mistress indeed. In his write up of the decision, Moody’s lead Berkshire analyst Bruce Ballentine notes that falling stock prices have sharply reduced National Indemnity’s equity-heavy investment portfolio.

As a result, the reinsurer’s regulatory capital fell 22% during 2008 and a significant additional amount in the first two months of this year. Though its capital base is still good, National Indemnity continues to hold a large chunk of stocks and that worries Moody’s.

Still, further downgrades sound unlikely. “Berkshire’s rating is well supported at the revised level,” Ballentine argues. Its manufactured home lender Clayton Homes is still struggling, and the company’s large derivatives portfolio is volatile, but Berkshire has a number of businesses that are performing well despite the downturn too, notably utility MidAmerican Energy Holdings Company.

The downgrade leaves just four companies with Aaa ratings, Moody’s highest: Exxon Mobil, Microsoft, Johnson & Johnson and Automatic Data Processing (ADP).

Any guesses who could be the next to slip?

Reader Comments

Matthew Persico

April 9, 2009 1:31 PM

The ratings companies lied on the way up. We're supposed to trust them on the way down?

Dan

April 9, 2009 2:19 PM

J n J is next, thanks to the Obama Health Care Reform.

Dan

April 9, 2009 4:36 PM

I'm with Matthew Persico. It's time to forget about these arbitrary ratings.

For all we know, Berkshire Hathaway competitors could have slipped Moody's some loot in exchange for that degraded rating.

Madhav Bodas

April 10, 2009 7:35 AM

It's an irony that the man, who had advised long time back the perils of derivatives, has got bitten himself. This only goes to show that there is no hedging that protects against hedge for hegde for hedge.

ron_o

April 10, 2009 2:06 PM

Funny how they try to downgrade someone with tens of billions of dollars in capital and virtually no debt. These rating agencies are scraping bottom. 'Gee, look at us guys. We're doing our job now'.

Gooood Night!

R Meier

April 10, 2009 4:29 PM

The article says only 4 companies are left with Aaa ratings. But I think they're missing one: USAA (but based on AM Best and S&P) This is a fortune 200 financial services company located in San Antonio, TX. They are a member-based company so only select people are eligbile. Check here for eligibility: http://tr.im/iAvF

investorgamblereconomist.com

April 12, 2009 4:42 PM

A lowered credit rating will make it more expensive for Berkshire to borrow, but don't count Buffett out. So many times has people said that he just does't get it and that he should just expect market returns. So many times has he proven people wrong. Remember when people said he just didn't get the New Economy during the dotcom days?


On the flip side, the Berkshire shares have taken a beating the past year. Last year's event was so unusual that it caught the maestro off guard. It'll be interesting to see how well Buffett profits during a DOWN DOWN economy.

wbq

August 11, 2009 12:04 AM

hi everyone,

i'm a great fan of warren buffet and i have setup a twitter account just to broadcast his latest saying extracted from media. please follow the twitter id w_buffett_quote

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