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.
Any guesses who could be the next to slip?
How can you manage smarter? Bloomberg Businessweek contributors synthesize insights from the brightest business thinkers, critique the latest management trends, and comment on leaders in the news.