Bloomberg News

Buffett Favors Germany, U.K., Canada Sovereigns

February 27, 2012

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. Photographer: Tomohiro Ohsumi/Bloomberg

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. Photographer: Tomohiro Ohsumi/Bloomberg

Warren Buffett disclosed that Berkshire Hathaway Inc. (BRK)’s foreign-government debt holdings are comprised mostly of securities from Germany, the U.K., Canada, Australia and the Netherlands, indicating the portfolio has less at risk from higher yielding European sovereign issuers.

About 80 percent of its $10.8 billion in non-U.S. government-related debt are from those nations, according to the Feb. 25 annual report. A year ago Omaha, Nebraska-based Berkshire said in a filing that it had $11.9 billion of foreign government debt without identifying the countries.

European leaders have sought to contain the region’s sovereign debt crisis from spreading to nations including Portugal and Italy by shoring up the region’s banking system with cash and bailing out Greece while trying to reach an agreement with lenders to reduce the nation’s debt burden.

“If a firm is looking at government debt as a source of potential liquidity, then it’s extremely important to remain in these bulletproof nations,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview today. “The list of names is certainly on the higher end of sovereign credit.”

German 10-year bonds yield 1.8 percent, having declined from a high last year of 3.5 percent in April, as investors sought a haven in the debt of Europe’s strongest economy. That compares with 5.4 percent yields on 10-year Italian debt which climbed to a record 7.3 percent in 2011.

‘Little Bit Short’

“Any disclosure you can get on what sort of European exposure that you have, as an investor that’s important given the environment,” said Tom Lewandowski, an analyst with Edward Jones & Co. in St. Louis who has a “buy” rating on Berkshire. “I am a little bit surprised. If anything, we’re a little bit short on details when it comes to Berkshire. Any details that he can put out that can help us draw a little bit deeper on his investment story, I welcome that.”

Buffett, Berkshire’s chairman and chief executive officer, said last year in the company’s annual letter to shareholders that its strategy is to keep cash “largely in U.S. Treasury bills and avoid other short-term securities yielding a few more basis points.”

Berkshire’s fixed-maturity portfolio had $2.9 billion of Treasuries and other U.S. government debt as of Dec. 31, and the company had $37.3 billion of cash, according to a filing.

European Central Bank President Mario Draghi, who replaced Jean-Claude Trichet in November, cut the main refinancing rate by a quarter percentage point in each of his first two monthly meetings, to 1 percent, reversing increases earlier in the year. He also maintained the ECB’s bond-buying program and added money to the banking system by making three-year loans available in December.

“Clarity and transparency are paramount today, and I think it was totally appropriate and prudent for Berkshire to disclose their holdings,” Joel Levington, head of corporate credit at Brookfield Asset Management Inc. (BAM/A) in New York, said today. “It’s a matter of prudent financial management.”

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net; Dan Kraut at dkraut2@bloomberg.net


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