Berkshire Downgraded from AAA by Moody's

And then there were four (US companies left with an AAA credit rating).

Moody's strips Berkshire Hathaway of top rating
by Karen Brettell
Wednesday April 8, 2009, 6:01 pm EDT

NEW YORK (Reuters) - Moody's Investors Service on Wednesday cut its credit ratings on Berkshire Hathaway Inc. from the top Aaa, saying the recession and investment losses at its insurance operations has reduced their ability to support Berkshire's funding needs.

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

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

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.

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

The loss of Berkshire's top rating leaves only four U.S. companies rated the top investment grade by Moody's.

The company's bond insurance arm Berkshire Hathaway Assurance 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.

The downgrade leaves Standard & Poor's as the only rating agency still ranking Berkshire AAA. S&P changed its outlook on the company to negative on March 25, indicating a cut from AAA is more likely.

Fitch ratings cut Berkshire to AA, the third highest investment grade, on March 12.

Berkshire Hathaway's Credit Rating Downgraded by Fitch

"Weep over Saul, Who clothed you luxuriously in scarlet, who put ornaments of gold on your apparel." 2 Samuel 1:24


Berkshire has sustained heavy losses in US equities as the value investing approach which Warren Buffett follows has fallen prey to this most vicious of bear markets.

The company still retains exposure to derivatives contracts that concerns Fitch.

Forbes
Buffett Loses Sterling Credit Rating
Peter C. Beller
03.12.09, 08:30 PM EDT

Fitch downgrades billionaire's Berkshire Hathaway to lowly AA because of possible stock and credit market losses.

For decades, one of the brightest banners to fly above Warren Buffett's castle was his company's AAA credit rating, one of a handful in the United States. In his annual letter to shareholders he bragged that Berkshire Hathaway's credit was "pristine." But the financial crisis is laying siege to even the mightiest balance sheets.

In the past year, shares of Berkshire Hathaway the insurance and electricity conglomerate that Buffett controls, have lost 35%. Buffett saw his personal wealth decline by $25 billion. Now Fitch Ratings has snatched away his top-notch rating, downgrading Berkshire to AA.

The full extent of the damage to Berkshire won't be clear until the other two ratings agencies--Standard and Poor's and Moody's (of which Berkshire owns more than 20%)--decide whether to follow with their own downgrades. But conservative lenders often consider the lower of a company's split ratings as the one that counts. A lower rating could hurt Berkshire's business if lenders demand higher interest rates from the company to compensate for increased risk.

Fitch said it downgraded Berkshire because of its large stakes in publicly traded companies, such as Coca-Cola and American Express, as well as huge derivatives contracts that expose it to possible losses in the credit and stock markets. Berkshire's bondholders are also behind insurance policyholders to get paid back if the company runs into trouble. Nothing about that is new; Berkshire has long had major insurance interests. But Fitch said that the financial crisis had led it to reassess the risks to financial firms across the board.

Buffett himself seems to have played a role. Fitch said that the company's success is so dependent on the Oracle of Omaha's ability to choose wise investments that it constitutes a credit risk not "consistent with an AAA rating." The agency also complained that Berkshire management has declined to meet regularly with Fitch analysts in contrast to General Reinsurance, a Berkshire subsidiary. Fitch threatened to drop the AA rating further if stock market declines and earnings shortfalls hurt the firm's capitalization.

Despite the crisis, Buffett has pursued a number of big deals designed to take advantage of lower stock prices and a lack of available capital for struggling firms. Berskhire has plowed billions into Goldman Sachs (nyse: GS - news - people ), General Electric and Swiss Re and opened a municipal bond insurance company.

While Berkshire's net profit last year fell 62.1% to $5.0 billion, Buffett has said that Berkshire will make money in the long run. (See "Buffett Bloodied But Not Bowed") "Our economic system has worked extraordinarily well over time" he wrote in his annual letter to shareholders. "It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."

Warren Buffett: "Economy Has Fallen Off a Cliff"

Warren Buffett is 'talking his book' for a portion of this interview, but he does have some unique insights into the real time economic conditions because of the position of his conglomerate in a number of key businesses that measure the pulse of economic activity.

He sees inflation ahead, and rightly so. The question however is, as always, when?

Adding debt capacity to the system now is useless. Yes, stabilizing the financial system is important. But the demand for debt is so lagging, and the prospects for profit so poor, that one wonders if only the desparate will cry for more credit while they drown.

The solution will be an improvement in the median wage, systemic reforms, and the orderly writedown of debt held by effectively insolvent banks. 'Saving the banking system' as it is constituted now is more than a fool's errand.

It is the path to a test of the fabric of our government not seen since the 1860's.

Bloomberg
Warren Buffett Says Economy Has ‘Fallen Off a Cliff’
By Erik Holm
March 9, 2009 09:29 EDT

March 9 (Bloomberg) -- Billionaire Warren Buffett, whose Berkshire Hathaway Inc. posted its worst results ever in 2008, said the economy “has fallen off a cliff” and that efforts to stimulate recovery may lead to inflation higher than the 1970s.

The American public is fearful, confused and changing their buying habits, which is showing up at Berkshire’s operating units, Buffett said during an appearance on the CNBC television network today. While the recession will end and future generations will live better than their parents, the economy “can’t turn around on a dime,” Buffett said, adding that some inflation is appropriate right now.

“We are doing things now that are potentially very inflationary,” he said. Buffett called on Congress to unite behind President Barack Obama, comparing the economic crisis to a military conflict that needs a commander-in-chief. “Patriotic Americans will realize this is a war,” he said....