Friday, 4 November 2011

Derivatives Affect Berkshire Hathaway’s Q3 Earnings

Berkshire Hathaway (NYSE: BRK) lost more than $2 million on derivatives related to stock market performance and ended up posting a smaller third quarter profit on Friday. The conglomerate run by Warren E. Buffett had lost on the same instruments a year ago also, but this year the loss was three times greater.

Although Buffett is highly critical of derivatives in general, he has defended these particular contracts saying that they were secure and that they would ultimately prove to be lucrative. However, in the present situation Berkshire has been hit hard by sharp declines in a wide range of market values like other insurance companies. Berkshire has in its quarterly report to the Securities and Exchange Commission said that the indexes under the contracts went down 11 to 23 percent in the quarter.

Berkshire’s net profit for Q3 declined to $2.28 billion or $1,380 for each Class A share from a year-earlier net profit of $2.99 billion, or $1,814 a share. Cash at the end of the quarter was $34.78 billion as compared to $47.89 billion at the end of June. The decline was mainly due to financing the purchase of chemical maker Lubrizol and investing $5 billion in Bank of America.

Except for its finance business where there was a slight drop, operating income of the company went up across segments.

Read More :  Derivatives Affect Berkshire Hathaway’s Q3 Earnings

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