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Business

Warren Buffett's investment firm downgraded again

Latest update : 2009-04-09

Investment tycoon Warren Buffett's investment firm, Berkshire Hathaway, was downgraded by credit ratings agency Moody's to "Aa2" from "AAA", the highest rating. The firm had already been downgraded by the ratings agency Fitch.

AFP - Ratings agency Moody's Investors Service downgraded Wednesday the "AAA" rating on US billionaire investor Warren Buffett's Berkshire Hathaway, citing damage from falling stocks on its insurance business.

Moody's lowered parent holding company Berkshire Hathaway's rating two notches to "Aa2" from "AAA."

It cut the rating on Berkshire's flagship insurance subsidiary National Indemnity Company by one notch, to "Aa1" from "AAA," and took the same action with the company's other major insurance subsidiaries, including GEICO and General Re.

"Today's rating actions reflect the impact on Berkshire's key businesses of the severe decline in equity markets over the past year, as well as the protracted economic recession," said Bruce Ballentine, Moody's lead analyst for Berkshire.

"These extraordinary market pressures have reduced the excess cushion available from National Indemnity and the other affected operations to support potential funding needs of the parent company."

Last month, rival Fitch Ratings downgraded Berkshire to "AA" from "AAA."

The third major ratings agency, Standard & Poor's, has maintained the company's top rating but put it on "negative" watch for a possible downgrade.

Ballentine said that falling stock prices had reduced the value of National Indemnity's investment portfolio and subsequently its capital cushion against insurance and investment exposures.

National Indemnity's regulatory capital fell by 22 percent during 2008, to 27.6 billion dollars as of year-end, and by a significant additional amount through early March 2009.

"National Indemnity still has a robust capital base, in Moody's view, but it remains exposed to further equity market declines," he said.

Some of Berkshire's non-insurance businesses have not been spared in the 16-month-old recession "which has caused a meaningful drop in earnings and cash flows, particularly for businesses tied to the US housing market, construction, retailing or consumer finance," he said.

"The downgrade of the parent company rating to Aa2 from AAA reflects the potential for further declines in the support available from these dual sources" of insurance and non-insurance businesses.

Berkshire Hathaway posted a net profit of 4.99 billion dollars for 2008, despite a deepening US recession and a global economic and financial crisis.

Its assets, however, have lost nearly 10 percent of their value, a performance unusually weak for Buffett, known as the "Oracle of Omaha" for his astute investment decisions.

Date created : 2009-04-09

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