Buffett struck by $1.7 billion worth of financial WMD losses

Posted May 2nd 2008 9:04PM by Peter Cohan
Filed under: Earnings Reports, Berkshire Hathaway (BRK.A)

Just days after the fifth anniversary of George W. Bush's landing on an aircraft carrier in front of a "Mission Accomplished" banner, the Weapons of Mass Destruction (WMDs) have finally been located. But not in Iraq or Iran or Syria.

These WMDs are of the financial variety. The ones against which Berkshire Hathaway Inc.'s (NYSE: BRK.A) CEO Warren Buffett railed in his 2003 annual report. There he called derivatives "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." And Reuters reports that these are the very financial WMDs that cost Berkshire $1.7 billion in charges in the first quarter of 2008.

This proves that George W. Bush was right and so was Warren Buffett. But Berkshire shareholders are also smarting due to a 64% drop in its net income and a 24% tumble in its revenues.

Berkshire's financial WMDs cost it $1.7 billion. Its pretax derivatives losses included a $1.2 billion loss on put options it wrote on the Standard & Poor's 500 and three foreign stock indexes and a $490 million loss on contracts that require payouts if some high-yield bonds default between now and 2013.

Worst of all, Berkshire's cash fell almost $9 billion to $35.57 billion -- down from $44.33 billion at year end.

Times must be tough indeed if George W. Bush is finally proved right about WMDs -- although the wrong kind in the wrong place -- and Warren Buffett is hoisted on his own petard.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Berkshire Hathaway securities.

Tags: Berkshire Hathaway, BRK, inthenews, Warren Buffett, WMD

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Reader Comments (Page 1 of 1)

5-03-2008 @ 12:34AM

james said...

why would anyone buy his stock when you can baskets and be safer? I am a trader and I certainly wouldn't buy into a propped up low volume non split stock. WEB has had his glory........Frankly. I don't lke socialist humanist.

5-03-2008 @ 8:16AM

Dan Barnett said...

I'd be more worried if Buffett was talking about "making progress" on the derivitives issue & assuring us that everything will be fine in another 6 months.

5-04-2008 @ 2:58AM

m3 said...

there is a huuuge difference between stock index options and credit derivatives.

the WMD he was talking about had to do with swaps, not bread and butter index options.

5-05-2008 @ 6:14PM

Deacon said...

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What Warren and the rest don't realize is that this financial collapse of the West isn't by mismanagement but BY DESIGN:

Planned Destruction of America
http://planneddestructionofamerica.blogspot.com/

Corporate America: What Went Wrong?
http://corporateamericawhatwentwrong.blogspot.com/

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5-05-2008 @ 11:44PM

Ricky whitten said...

Bush said everything is doing fine.

5-06-2008 @ 9:12AM

Mark said...

The Great Tribulation Is About To Begin.

Warnings Have Been Given To Get Away From Coastlines And Out Of Major Cities.

www.hismailroom.dot.com

5-06-2008 @ 9:14AM

Mark said...

www.hismailroom.com

5-06-2008 @ 10:30AM

Jon Carlson said...

The 9/11 elephant in the living room has many effects

Keystone Cops 9/11: Fifteen Views Of The ST Fake Flight 175 Engine

http://home.att.net/~south.tower/911SouthTowerStreetEngine1.htm