Archive for April, 2009

Moody’s strips Berkshire Hathaway of top rating (Reuters)

Wednesday, April 8th, 2009 | Finance News

NEW YORK (Reuters) –
Moody's Investors Service cut its credit ratings on Berkshire Hathaway Inc (BRKa.N)(BRKb.N) from Aaa, the top rating, saying the recession and investment losses at insurance operations of investor Warren Buffett's holding company reduced its ability to support funding needs.

Wednesday's cut to Berkshire's rating means Moody's no longer has a Aaa rating on any company with significant financial-services operations.

Moody's cut the ratings on Omaha, Nebraska-based Berkshire to Aa2, the third-highest investment grade, and cut to Aa1, the second-highest, its ratings on Berkshire's reinsurance subsidiary National Indemnity Co and bond insurance arm Berkshire Hathaway Assurance Corp.

The downgrades come more than a month after Berkshire reported a 62 percent drop in profit, the worst year since Buffett took over 44 years ago.

The outlook for all the ratings is stable, Moody's said, indicating an additional rating change is not anticipated over the next 12 to 18 months.

A Berkshire spokeswoman was not immediately available to comment.

The cut by Moody's comes nearly four weeks after Fitch stripped Berkshire of its top rating, saying it believed "AAA ratings are not appropriate at the holding company level for financial-oriented enterprises," lowering its rating to AA.

Fitch also raised so-called "key man risk," pointing to 78-year-old Buffett's lack of a publicly named successor.

Berkshire is still clinging to its triple-A rating from Standard & Poor's. But on March 25 S&P changed its outlook on Berkshire to negative, indicating a downgrade is now more likely.

S&P on Wednesday cut the ratings on all major U.S. mortgage insurers, saying the deterioration in the residential mortgage market had translated into greater delinquency rates than it had anticipated.

Moody's cut to Berkshire's ratings leaves only four other companies with its top rating: Johnson & Johnson (JNJ.N), Exxon Mobil Corp (XOM.N), Microsoft Corp (MSFT.O) and Automatic Data Processing Inc (ADP.O).


Analysts said Berkshire's downgrade reflected what investors already knew -- that no one is immune from the worst financial crisis in decades.

"This has been the most critical financial environment of our lifetimes," said Michael Holland, head of New York-based investment firm Holland & Co, which holds Berkshire shares. "Any financial company, including Warren Buffett's, has been affected by it. Moody's is saying it is so, long after the fact."

"Moody's is taking preemptive action," said Sean Egan, managing director of Egan-Jones Ratings Co in Haverford, Pennsylvania.

"We think the Moody's downgrade is not a major move. It won't cost them a lot of business," Egan said, adding that his own ratings company would probably take Berkshire down a notch or two.

Berkshire is a large investor in Moody's.

Falling stock prices have reduced the value of National Indemnity's investment portfolio, in turn weakening its capital cushion relative to its insurance and investment exposures, Moody's said in a statement.

About half of Berkshire's results come from its insurance businesses.

The company's declines in the last year came mainly from paper losses on derivative contracts tied to stock market indexes. Berkshire's equity holdings, such as American Express Co (AXP.N) and Wells Fargo & Co (WFC.N), have also suffered big declines in value.

Other, non-insurance businesses at the company have also seen "a meaningful drop in earnings and cash flows, particularly for businesses tied to the U.S. housing market, construction, retailing or consumer finance," Moody's added.

Since taking over Berkshire in 1965, Buffett has transformed it from a failing textile maker into a sprawling insurance and investment company, with nearly 80 businesses.

Over the years, Buffett has amassed a fortune worth $37 billion and making him the world's second-richest person, according to Forbes magazine.

Berkshire products include Geico car insurance, Borsheim's Fine Jewelry and Fruit of the Loom underwear.

The company's bond insurance arm Berkshire Hathaway Assurance (BHAC) had been the only insurer of municipal bonds to have retained its top credit rating, although it has not been a major player in insuring primary deals.

BHAC insured just $3.3 billion in new debt last year, according to Thomson Reuters data. Buffett said about $15.6 billion was insured in the secondary market for munis, although 77 percent of that was on bonds that were already insured by lower-rated guarantors.

Class A shares of Berkshire closed Wednesday at $88,960 on the New York Stock Exchange, nearly 40 percent below the $147,000 year-high set September 19, according to Reuters data.

(Reporting by Karen Brettell and Lilla Zuill; Additional reporting by Dan Wilchins and Joseph Giannone; Editing by Gary Hill)


Insurers lift Wall Street; Berkshire rating cut (Reuters)

Wednesday, April 8th, 2009 | Finance News

NEW YORK (Reuters) –
Stocks snapped a two- day slide on Wednesday on news the government is shoring up life insurers and optimism about consumer spending after Bed Bath & Beyond Inc (BBBY.O) reported a better-than-expected profit.

Life insurers, whose capital base has been eroded by falling markets, have met requirements for government funds, the U.S. Treasury said. The news lifted shares of insurance companies, including Prudential Financial (PRU.N), which was up nearly 8 percent.

But in the latest sign of the economic downturn's impact, Moody's Investors Service stripped Warren Buffett's Berkshire Hathaway (BRKa.N)(BRKb.N) of its top rating of Aaa after the closing bell, citing the recession and the severe decline in stocks.

The Nasdaq surged nearly 2 percent on hopes that a recovery in business spending will boost tech profits and after Bed Bath & Beyond (BBBY.O) jumped 24.3 percent to $31.70 on sales that were not as bad as feared in the last quarter.

"The mood is improving that maybe the economy will come back sometime, and both consumer discretionary and tech are cyclical," said Al Goldman, chief market strategist at Wachovia Securities in St. Louis.

The Dow Jones industrial average (.DJI) added 47.55 points, or 0.61 percent, to 7,837.11. The Standard & Poor's 500 Index (.SPX) gained 9.61 points, or 1.18 percent, to 825.16. The Nasdaq Composite Index (.IXIC) shot up 29.05 points, or 1.86 percent, to 1,590.66.


Meager volume marked the session again, but in a sign that investors are becoming less fearful, the CBOE Volatility Index (.VIX), or VIX, closed at its lowest level since early January. The VIX fell 3.8 percent to end at 38.85.

Stocks cut gains and the Dow briefly turned negative after minutes from the Fed's most recent meeting showed the Federal Reserve's policy-makers lowered projections for real gross domestic product in the second half of the year and 2010, reviving worries about the U.S. economy's health.

In Washington, securities regulators voted to seek public comment on five proposals to curb short selling, which critics have blamed for deepening the financial crisis.

Analysts said market reaction was muted as the proposals had been expected. They noted that Wall Street remained divided over the effectiveness of potentially bringing back the uptick rule.


In the home builders' sector, Pulte Homes (PHM.N) said it would buy Centex Corp (CTX.N) for $1.3 billion in stock in a deal that would create the largest U.S. home builder. Centex jumped 18.9 percent to $9.06, while Pulte tumbled 10.5 percent to $9.64.

Among insurers, Prudential climbed 7.7 percent to $23.81 and Lincoln National (LNC.N) jumped 32.8 percent to $9.15. The Dow Jones life insurers' index (.DJUSIL) gained 6.3 percent.

On the tech front, Qualcomm (QCOM.O) was among the Nasdaq's biggest advancers, gaining 2.2 percent to $40.22, while International Business Machines (IBM.N), up 2.5 percent at $101.19, underpinned the Dow. Technology stocks have held up relatively well despite the market's drop to 12-year lows last month.

"As you look across the broader equity marketplace, one of the things we are seeing is some people trying to really chase after the so-called earlier cycle names and it's been building as the days have gone on," said Craig Peckham, equity trading strategist at Jefferies & Company in New York.

Since hitting 12-year closing lows in early March, the broad S&P 500 is up nearly 22 percent after a month-long rally that was sparked by hopes that the economic slump is moderating and positive comments from some major banks.

Volume was modest on the New York Stock Exchange, where about 1.32 billion shares changed hands, below last year's average daily volume of 1.49 billion. On the Nasdaq, about 1.86 billion shares traded, below last year's average daily volume of 2.28 billion.

Advancers outnumbered decliners on the NYSE by a ratio of about 3 to 1, while on the Nasdaq, more than two stocks rose for every one that fell.

(Additional reporting by Edward Krudy; Editing by Jan Paschal)


Researcher ranks mutual funds by carbon footprint (AP)

Wednesday, April 8th, 2009 | Finance News

NEW YORK – Quick: How green is your 401(k)? If you can't tell, you're not alone.

Mutual funds rarely provide details about the greenhouse gas emissions that are tied to their investments — an oversight that could become costly as cap-and-trade laws gain a foothold in the United States.

On Wednesday, environmental researcher Trucost published what it says is a first-ever ranking of mutual funds according to their carbon footprints. Trucost's analysis of 91 funds is meant to help investors gauge how emissions laws could affect a fund's holdings.

"Carbon emissions are a real financial issue that will soon have a real price in the U.S.," said James Salo, a Trucost researcher who wrote the report. "Investors can use this to protect their assets."

The report, which examined 75 major equity funds and 16 sustainability/socially responsible investment funds with a combined value of $1.55 trillion, will feed a growing appetite for emissions data from Wall Street.

Aside from environmental concerns, investors say they need help identifying who could be hit the most as companies start to pay for the amount of carbon they send into the atmosphere.

The U.S. hasn't established a national cap-and-trade system, though regional initiatives are set to begin in the next few years. A recent plan by Democratic lawmakers also proposes cutting greenhouse gases by a fifth over the next decade.

"Investors are keenly interested in seeing companies be more transparent" about how they'll be affected, said Mindy Lubber, president of Boston-based Ceres, a network of investors and environmental groups.

Ceres started the Global Reporting Initiative, which asks multinational companies to volunteer information about environmental sustainability. It now wants the Securities and Exchange Commission to require companies to disclose their climate risk in regulatory filings.

"When it's mandated by the government, everybody's got to do it," Lubber said.

An alliance of faith-based groups known as the Interfaith Center on Corporate Responsibility also has partnered with Trucost in compiling "climate risk profiles" of major companies.

ICCR members, who control about $100 billion in investments, use the climate profiles to judge if they've put money in the right places, said Patricia Daly, executive director for the tri-state coalition.

"Asking companies to be socially and environmentally responsible, to plan their future in a sustainable way, is a critical piece of how they're going to perform financially," Daly said.

For its ranking system, Trucost used an extensive database that included environmental information on 4,500 companies around the world. It analyzed nine greenhouse gases, and rated companies based on the number of metric tons of carbon dioxide, or equivalent emissions, relative to sales.

For each fund, Trucost adjusted carbon dioxide figures according to the amount the fund invested in a particular company. Thus, a fund that invested in a tiny percentage of an oil company would only be tagged for an equally tiny amount of carbon.

The Trucost report, which used data from 2007 and 2008, showed wide variations in the carbon footprints for leading mutual funds. The fund with the biggest footprint was 38-times more carbon intensive than the fund with the smallest footprint, the report said.

The ranking also showed that funds with the smallest carbon footprints naturally steered away from power companies and the oil industry, investing instead in financial services, banks and health care.

The Financial Select Sector SPDR Fund topped the list with the smallest footprint. Its investments, which were worth $7.8 billion at the end of 2008, emitted an equivalent of 40 tons of carbon dioxide per $1 million in revenue. It was followed by the Vanguard Heath Care Fund and PowerShares QQQ Trust.

The fund that was the most carbon intensive was the iShares FTSE/Xinhua China 25 Index Fund. Its investments, worth $5.9 billion at the end of 2008, emitted 1,549 tons of greenhouse gases per $1 million of revenue, according to Trucost.

That was roughly double the footprint of the next largest emitter, the Fidelity Capital Appreciation Fund, which had 758 tons of carbon dioxide, or equivalent gases, per $1 million in revenue.

The report also noted that Sustainability/SRI funds, which typically screen investments for ethical and environmental practices, posted a variety of carbon footprints. They filled out the middle of Trucost's ranking system with neither the best nor the worst performances when it comes to keeping low carbon emissions.

Salo said he expects some of them to re-evaluate their investments now in the future.

"This data hasn't been available before," he said. "They've been flying blind."

Trucost Chief Executive Simon Thomas said the report will be the first in a series of carbon footprint rankings. The purpose, he said, is to give investors and fund managers enough information to fine tune their investments in emerging carbon economy.

"Our hope is that investors start referring to this habitually in their investment decision making," Thomas said. "We think they should."


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