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2020-05-03

Berkshire's Buffett posts almost $50 billion in losses as coronavirus causes pain

Image:- Buffett’s Berkshire Hathaway Buys

The coronavirus pandemic is hitting Warren Buffett's Berkshire Hathaway Inc, posting a record quarterly net loss of nearly $50 billion on Saturday and saying performance is suffering in several major operating companies.

Berkshire said that most of its more than 90 businesses are facing 'relatively minor to severe' negative effects from COVID-19, a disease caused by the novel coronavirus and now punishing the global economy, with revenue slowing considerably in April even among businesses deemed 'essential.' The BNSF railroad saw shipping volumes of consumer products and a fall in coal, while Geico spent money on cars. Some businesses cut wages and furloughed workers, and closed store retailers like See's Candies and the Nebraska Furniture Mart.

Buffett has also allowed Berkshire's cash stake to rise from $128 billion at the end of 2019 to a record $137.3 billion.

That reflected the inability of the 89-year-old billionaire to make large, "elephant" size acquisitions for his conglomerate in Omaha, Nebraska, and caution in buying stocks.

In the first quarter, Berkshire said it bought only a net $1.8 billion in stocks. It also said it had repurchased its own stock for $1.7 billion, but that was less than in the previous quarter.

"Historically, in times of crisis, Buffett has been so visible, encouraging investors to take advantage of market selloffs, but if he doesn't see opportunities even in his own stock, what do we think? "An analyst at Edward Jones & Co in St. Louis, Jim Shanahan said.

Shanahan said, however, that Berkshire is "as well positioned as it can be," reflecting its diverse businesses and significant liquidity and capital access. Berkshire rates "buy" from Berkshire before its annual meeting, where Buffett said Berkshire sold its "entire positions" in April on the four largest U.S. airlines: American, Delta, Southwest and United.

Buffett said Berkshire "made a mistake" investing roughly $7 billion to $8 billion in the sector, which was changed "in a very big way" as the pandemic shut down most air travel, without the airlines being responsible.

Yahoo Finance has streamed the meeting. It took place without the usual "Woodstock for Capitalists," a weekend of festivities which normally attracts tens of thousands of people to Omaha, and which Buffett canceled due to the pandemic.

BERKSHIRE STOCK

The first-quarter net loss for Berkshire was $49.75 billion, or $30,653 per Class A share, reflecting $54.52 billion in stock losses and other investments. Net earnings a year earlier had been $21.66 billion, or $13,209 per share.

An accounting rule requires Berkshire to report unrealized stock losses and net result gains, causing enormous swings that Buffett deems meaningless.

The quarterly operating profit, which Buffett considers a better performance measure, rose from $5.56 billion or about $3.624 per share of Class A, or about $3.388 per share, 6 percent to $5.87 billion.

But year-earlier results reflected an investment charge related to what prosecutors at a solar company called a Ponzi scheme that Berkshire didn't know about.

Berkshire's operating profit fell by 3 percent, with declines in BNSF, utilities and energy units, and manufacturing, service and retail operations such as Precision Castparts, which Berkshire bought for $32.1 billion in 2016.

Geico was able to post a 28 percent gain in pre-tax profit underwriting because people were driving less, leading to fewer claims for crashes. Still, like others, the insurer is offering policyholders relief on premiums.

Last month, Vice Chairman Charlie Munger told The Wall Street Journal that Berkshire could close down a couple of small companies.

Berkshire has disappointed investors. In 2020, its stock price fell 19 per cent compared to a 12 per cent drop in the Standard & Poor's 500, despite Buffett's prediction that Berkshire would outperform in down-markets.

The decline came after Berkshire stock lagged the index in 2019 by over 20 percentage points including dividends.

Many Berkshire stock investments fared worse than the S&P during the first quarter, including American Express, Bank of America, Wells Fargo and the four airlines.

In addition, falling stocks caused a pre-tax loss of $1.39 billion on derivatives contracts, where Berkshire bets stock prices will rise over the long haul.

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