Warren Buffett's Companies Downgraded

Warren Buffett - Berkshire Hathaway Downgraded By Moody's

Stock Market News

Moody's Investors Service has downgraded Warren Buffett's Berkshire Hathaway from "AAA" to Aa2 - down two nothces - due to the damage done to its insurance business from stock market falls. Could this be a signal for the Oracle of Omaha to give up on stock picking, put up his boots and instead put his $40 billion into no load mutual funds ?

Moody's also cut the rating on Berkshire's National Indemnity Company by one notch, to "Aa1" and did the same to the company's other insurance subsidiaries, including GEICO and General Re.

Bruce Ballentine of Moody's said "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."

"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."

Berkshire was downgraded by Fitch Ratings last month to "AA" from "AAA."

Standard & Poor's, the other major ratings agency, has maintained its top rating for the company but put it on "negative" watch.

National Indemnity's regulatory capital fell by 22% during 2008, to US$ 27.6 bn at year-end.

"National Indemnity still has a robust capital base, in Moody's view, but it remains exposed to further equity market declines," 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 still showed a net profit of US$ 4.99 billion for 2008, despite the recession and the financial crisis.

Its assets have, neverthless, lost nearly 10% of their value, which is very unusual for Warren Buffett. Warren Buffett was very vocal in his decision to buy into the stock markets back in October 2008 and some people think he got it wrong. Clearly he would have done better to wait but he is a long-term investor and has never claimed to be able to pick market bottoms. He is however confident that over time his decision will prove to have been a wise one.
I suspect Warren Buffett is not overly concerned by this downgrading by the ratings agencies, given their awful track record in recent years.
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