“Berkshire Hathaway Inc. (BRK/A) said fourth- quarter profit fell 30 percent on smaller gains from Warren Buffett’s portfolio of derivatives.
Net income declined to $3.05 billion, or $1,846 a share, from $4.38 billion, or $2,656, a year earlier, Omaha, Nebraska- based Berkshire said today in its annual report.
Buffett, Berkshire’s chairman and chief executive officer, is investing in stocks and acquisitions as operating units generate cash. Derivatives bets, made in prior years on long- term gains in stocks and the solvency of borrowers, produced more than $2 billion of profit in the fourth quarter of 2010.
“These are contracts that don’t expire for another 10 or 15 years and might fluctuate a lot every quarter,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. Buffett is “not really bothered by the volatility short term,” said Kass, in an interview before results were released.
Berkshire has slumped 4 percent in New York in the last 12 months, compared with a gain of 4.6 percent for the Standard & Poor’s 500 Index.
The gain from equity index puts dropped to $350 million in the last three months of 2011 from $2.49 billion a year earlier. The contracts are tied to four stock indexes including the S&P 500, which rose 11 percent in the period, and the Nikkei 225 Stock Average, which fell 2.8 percent. Liabilities narrow when equity benchmarks rise, and the fluctuations are recorded each quarter in Berkshire’s income statement.
Credit-Default Contracts
Losses from credit-default contracts, in which Buffett bets on the ability of borrowers to repay debt, widened to $216 million from $157 million a year earlier. Some fourth-quarter results were calculated by subtracting figures for the first nine months from the full-year data provided today….”
If you enjoy the content at iBankCoin, please follow us on Twitter
