Berkshire Hathaway suffered a $US1.1 billion first quarter loss thanks to an accounting law change on the value of its investment portfolio which overshadowed a sharp improvement across much of Buffett empire.
Warren Buffett said new accounting rules meant the group now had to include unrealised gains and losses on its equity and derivatives portfolio as part of its earnings.
“The amount of investment gains [and] losses in any given quarter is usually meaningless,” the company said in a statement (http://www.berkshirehathaway.com/qtrly/1stqtr18.pdf). Buffett repeats these remarks at Saturday’s annual meeting in Omaha and told shareholders to look at Berkshire’s operating income figures for more accuracy.
The accounting change required Berkshire to report $US6.2 billion of unrealised losses in its marketable stock portfolio, which totalled $US170.5 billion at the end of March, regardless of whether it planned to sell those stocks, as falls in the value of Wells Fargo and Coca Cola shares especially offset rises in the value of Bank America and Apple holdings.
Wells Fargo shares fell more than 13% in the first quarter and Coke shares were down more than 5%.
Operating earnings — which strips out those investment gains and losses — jumped 49% from the March 2017 quarter (when the insurance operations incurred big losses, depressing the operating result) to a record $US5.3 billion.
The turnaround in the insurance underwriting arms (especially reinsurance) will be a feature of this year going forward, especially in the final two quarters as huge losses were taken on fires and hurricanes in the same period of 2017.
The group’s insurance underwriting business returned to a profit from a loss in the first three months of 2017 (which was no thanks in part to Cyclone Debbie in Queensland), while operating earnings in the railroad, energy and utility arm improved noticeably.
The insurance underwriting business reported a $US407 million profit, up from a loss of $US267 million a year ago. The company’s BNSF railroad business earned more than $US1.7 billion, up from $US1.3 billion while ‘other businesses’ earned nearly $US2.2 billion against $US1.6 billion a year ago. Insurance investment income topped a billion dollars, up from $US908 billion.
The Trump tax cuts played a part in the improved profits with Berkshire acknowledging the favourable contribution of the fall in the company tax rate to 21% from 35%. That will also be a recurring factor over the rest of 2018
The Geico insurance unit reported a jump in insurance premiums earned in the first three months of the year, as the company increased rates after years of accelerating losses, especially in motor vehicle and other property and casualty lines The pre-tax underwriting gain from the division more than tripled from a year to $US677 million.
Meanwhile the Berkshire Hathaway annual meeting was dominated by questions about succession and what a post-Buffett Berkshire would look like – queries given impetus by Warren Buffett’s decision to stand down from the board of part owned associate, Kraft Heinz and to limit other activities.
Mr Trump did not take part in one of his signature events at the annual meeting festivities in Omaha, – the 35 foot newspaper throwing competition (Buffett was a newspaper delivery boy in his youth).
Reuters has a good list of Buffet’s comments (and some from Berkshire vice chair, Charlie Munger) here (https://www.reuters.com/article/us-berkshire-buffett-highlights/buffett-oracle-of-omaha-comments-on-berkshire-results-idUSKBN1I60JS).
Besides the $US170 billion investment portfolio, Berkshire has amassed a massive $US116 billion float of which consists of cash from premiums received, and claims waiting to be paid out. That was $US116 billion at March 31, up from $US114 billion at the end of December, 2017.
