Bilibala: I agree, the bad debt situation is bad, but better than before. Looks like recovery will be slow cuz in the past few years, the banker willing to lend $$ to the credit unworthy families. Everyone had and will still suffer because of this.
http://www.reuters.com/article/idUSTRE61I3EC20100219?feedType=nl&feedName=usdai
NEW YORK (Reuters) - A record proportion of U.S. mortgages were in foreclosure or at least one payment past due in the fourth quarter, according to industry data showing the fragile state of the recovery in the housing market.
The Mortgage Bankers Association said on Friday the combination of loans in foreclosure and one payment in arrears was 15.02 percent on a non-seasonally adjusted basis, the highest ever in the survey.
However, the delinquency rate for mortgages on one-to-four-unit residential properties fell to a seasonally adjusted rate of 9.47 percent of all loans outstanding as of the end of the fourth quarter of 2009, down from 9.64 percent in the third quarter but up from 7.88 percent in the same quarter a year earlier, the MBA said in its National Delinquency Survey.
"This drop in the delinquency rate is good news and shows that the problem may not get much bigger. But it is still a big problem," Jay Brinkmann, MBA chief economist told Reuters in an interview.
In particular, the 30-day delinquency rate showed a sizable drop in the fourth quarter, a strong sign that the market may be seeing the beginning of the end of the unprecedented wave of mortgage delinquencies, he said.
Brinkmann said the drop is important because 30-day delinquencies have historically been a leading indicator of serious delinquencies and foreclosures.
On a historical basis, there is usually a large spike in short-term delinquencies at the end of the year. But 30-day delinquencies fell to 3.63 percent from 3.79 percent.
Only three times before in the history of the MBA survey has the non-seasonally adjusted 30-day delinquency rate dropped between the third and fourth quarter, and never by this magnitude, Brinkmann said.
Another apparent good sign is a drop in the rate of new foreclosures started.
The percentage of loans on which foreclosure actions were started fell to 1.20 percent in the fourth quarter, down from 1.42 percent in the third quarter but up from 1.08 percent in the same quarter a year earlier, the MBA said.
"The drop in new foreclosures started may be temporary, however, because we continue to see large increases in loans 90 days or more past due," Brinkmann said.
Typically, 30-day delinquencies account for the largest share of all delinquencies. But loans 90 days or more past due now account for half of all delinquencies, the highest share in the history of the MBA survey and double the share only two years ago, he said.
Brinkmann said despite the drop in short-term delinquencies, foreclosure rates could continue to climb, however, based on the ability of borrowers 90 days or more delinquent to solve their problems.
The U.S. foreclosure inventory rate for all loans was 4.58 percent in the fourth quarter, up from 4.47 percent in the third quarter and from 3.30 percent in the fourth quarter of 2008.
A sizable number of the loans in the 90-plus day delinquent bucket are in loan modification programs. They are carried as delinquent until borrowers demonstrate they will make the payments agreed to in the plans.
The pattern of mortgage delinquencies now very much follows the pattern of unemployment, which was at 9.7 percent in January, according to the Labor Department.
"Therefore, until the issue of this large segment of long-term unemployed is resolved, many of the longer-term mortgage delinquencies will remain a problem with a strong likelihood of turning into foreclosures down the road," said Brinkmann.
President Barack Obama will use a campaign stop for Senate Majority Leader Harry Reid on Friday to announce a new initiative to help support homeowners in five states hit hardest by the U.S. housing crisis.
An administration official said Obama would announce he is designating $1.5 billion from the Troubled Asset Relief Program to fund programs at local Housing Finance Agencies in California, Florida, Nevada, Arizona, and Michigan.
The records are based on MBA data dating back to 1972.
(Additional reporting by Jeff Mason in Washington; Editing by Dan Grebler)
2.22.2010
Lowe's 4q09 results
Bilibala: Better than expected earning suggest that recession / the bottom of USA economy and house market was behind us. Even recovery will be a long journey, but Lowe's is great in terms of increase market share and cost management.
http://www.bizjournals.com/triangle/stories/2010/02/22/daily1.html
Lowe’s Cos. Inc., which operates 18 Lowe’s home improvement stores in the 13-county Triangle area, on Monday reported increased earnings for its fourth quarter, ended Jan. 29. But results for the full year were down.
In another announcement Monday, Lowe’s (NYSE:LOW) said it has authorized a $5 billion share-buyback program. The company expects to purchase the stock over the next three years.
Lowe’s shares have traded between $13 and $24.50 over the last year. The stock closed Friday at $23.13 per share.
The earnings report Monday morning showed that Lowe’s earned $205 million, or 14 cents per diluted share, in the latest quarter, up from $162 million, or 11 cents per diluted share, in the fourth quarter of 2008.
Lowe’s exceeded analysts’ consensus estimate of 12 cents per share.
Sales grew 1.8 percent, to $10.2 billion. Sales at stores in operation for more than a year dropped 1.6 percent, but that improved on the downward trend earlier in the year.
“While the psychological impact of falling home prices and an uncertain employment picture continue to weigh on consumers, improving comparable-store sales trends, including improvement in many bigger-ticket, project categories, provides an encouraging sign that consumers are gaining the confidence to take on more discretionary projects,” Chief Executive Robert Niblock said in a statement Monday morning.
For the full year, Lowe’s earnings fell 18.8 percent to $1.78 billion, or $1.21 per diluted share, from nearly $2.2 billion, or $1.49 per diluted share, the previous year.
On average, analysts had forecast that the company would earn $1.23 per share in fiscal 2009.
Revenue declined 2.1 percent, to $47.2 billion.
For its first quarter ending April 30, Lowe’s expects earnings to range between 27 cents and 29 cents per diluted share. Lowe’s earned 32 cents per diluted share in the first quarter of 2009.
Lowe’s operates more than 1,700 stores in North America. On Feb. 8, it opened its first two stores in Mexico — both in Monterrey. The company expanded into Canada in 2007 and now has 16 stores there.
http://www.bizjournals.com/triangle/stories/2010/02/22/daily1.html
Lowe’s Cos. Inc., which operates 18 Lowe’s home improvement stores in the 13-county Triangle area, on Monday reported increased earnings for its fourth quarter, ended Jan. 29. But results for the full year were down.
In another announcement Monday, Lowe’s (NYSE:LOW) said it has authorized a $5 billion share-buyback program. The company expects to purchase the stock over the next three years.
Lowe’s shares have traded between $13 and $24.50 over the last year. The stock closed Friday at $23.13 per share.
The earnings report Monday morning showed that Lowe’s earned $205 million, or 14 cents per diluted share, in the latest quarter, up from $162 million, or 11 cents per diluted share, in the fourth quarter of 2008.
Lowe’s exceeded analysts’ consensus estimate of 12 cents per share.
Sales grew 1.8 percent, to $10.2 billion. Sales at stores in operation for more than a year dropped 1.6 percent, but that improved on the downward trend earlier in the year.
“While the psychological impact of falling home prices and an uncertain employment picture continue to weigh on consumers, improving comparable-store sales trends, including improvement in many bigger-ticket, project categories, provides an encouraging sign that consumers are gaining the confidence to take on more discretionary projects,” Chief Executive Robert Niblock said in a statement Monday morning.
For the full year, Lowe’s earnings fell 18.8 percent to $1.78 billion, or $1.21 per diluted share, from nearly $2.2 billion, or $1.49 per diluted share, the previous year.
On average, analysts had forecast that the company would earn $1.23 per share in fiscal 2009.
Revenue declined 2.1 percent, to $47.2 billion.
For its first quarter ending April 30, Lowe’s expects earnings to range between 27 cents and 29 cents per diluted share. Lowe’s earned 32 cents per diluted share in the first quarter of 2009.
Lowe’s operates more than 1,700 stores in North America. On Feb. 8, it opened its first two stores in Mexico — both in Monterrey. The company expanded into Canada in 2007 and now has 16 stores there.
2.12.2010
Google Buzz
Google 推出的 Google buzz ，其實說穿了也就是 Google 覬覦社交網站所憑藉殺入此火紅戰場的工具。使用者可以使用 Google buzz 來傳輸簡要訊息、照片、網頁與影片等資訊，成為在 Twitter 、 Facebook 、 Plurk 與 MSN 之外的另類選擇。當然以 Google 在智慧型手機市場上的耕耘成果，讓 Google buzz 有著比其他社交網站具備了先天的優勢。
Google buzz 內嵌於 Gmail 內，只要使用 Gmail 帳號就可啓用。當然不可避免的，是其以目前各大社群網站的功能為師，所以在 buzz 裡面可以看到許多社群大站功能的身影，例如可以邀請好友來加入 buzz ，或可追蹤他人的訊息，也當然可以同步發布。
buzz 發佈的訊息則明確分成公開與私人兩種，也可直接貼上圖檔、影片路徑來讓多媒體影音資料直接播放。至於同步發布的功能，目前只支援 Flickr 、 Twitter 、 Picasa 、 Google Reader 、 Blogger 、Youtube...等與其他網站等。相信已經對於社交網站功能十分熟稔的朋友，面對 Google buzz 會駕輕就熟，輕鬆上手。
以下是 Google buzz 的相關影片：
2.05.2010
市場憂慮西班牙和葡萄牙陷入債務危機
今次觸發環球股市急挫，是市場憂慮歐元區內財赤嚴重的西班牙和葡萄牙會步希臘後塵陷入債務危機，拖垮歐元區經濟甚至觸發新一輪全球金融危機。
Bilibala => the financial situation in Europe is worse than in North America, not because of economy. USA debt to GDP ratio is just as high as countries in Europe. It is the regulation set up in Europe, instead of a united nation, Europian countries form a Union. In order the regulate such Union, it sets up certain the financial regulations which do not have flexibility like USA. If Europe willing to turn on its presss to print money out, the problem will solve right away.
繼希臘後，歐元區內經濟比重較大的西班牙和葡萄牙亦可能爆出財政問題，兩國政府最新拍賣的一批債券反應遠遠不及預期。如果想增加債券吸引力，西班牙和葡萄牙就要提高債券息率，但這樣做會令借貸成本增加，等同增加政府的財政赤字。
歐盟最新估計葡萄牙、希臘和西班牙的財赤原本已經很嚴重，去年的財赤佔國內生產總值接近甚至超過百分之十，如果再惡化，市場恐怕三個國家無力還債，後果可以很嚴重，最壞的情況是西班牙和葡萄牙一旦爆煲，會牽連整個歐洲甚至令歐元區瓦解，引發另一場全球金融危機。
可否避過這個最壞情況，保住西班牙是關鍵，因為西班牙的經濟規模相當大，在歐元區排第四大，差不多等如希臘、葡萄牙和愛爾蘭加起來的兩倍，但現時西班牙的失業人口高達四百萬，過去可以靠低利率去撐經濟，但金融海嘯後國家稅收減少，又不可以透過貨幣貶值去應付今次危機，如果連低息這武器都失去，的確有機會步希臘後塵爆發信貸危機。
面對種種危機，西班牙政府對國家財政和經濟復蘇仍然樂觀，聲稱有一系列政策去降低財赤。人稱「末日博士」的魯賓尼早前在達沃斯世界經濟論壇上曾經表示，一旦西班牙倒下，恐怕會對歐元區釀成災難。
而金融界對葡萄牙、愛爾蘭、希臘和西班牙四個歐元區內高負債率的計時炸彈，用她們國家英文名字頭開了個玩笑叫做PIGS，這四國曾被寄望是歐元區經濟發展的新引擎，但自金融海嘯後已變成歐洲經濟復蘇絆腳石。
Yes, cuz can't use printing press.
Bilibala => the financial situation in Europe is worse than in North America, not because of economy. USA debt to GDP ratio is just as high as countries in Europe. It is the regulation set up in Europe, instead of a united nation, Europian countries form a Union. In order the regulate such Union, it sets up certain the financial regulations which do not have flexibility like USA. If Europe willing to turn on its presss to print money out, the problem will solve right away.
繼希臘後，歐元區內經濟比重較大的西班牙和葡萄牙亦可能爆出財政問題，兩國政府最新拍賣的一批債券反應遠遠不及預期。如果想增加債券吸引力，西班牙和葡萄牙就要提高債券息率，但這樣做會令借貸成本增加，等同增加政府的財政赤字。
歐盟最新估計葡萄牙、希臘和西班牙的財赤原本已經很嚴重，去年的財赤佔國內生產總值接近甚至超過百分之十，如果再惡化，市場恐怕三個國家無力還債，後果可以很嚴重，最壞的情況是西班牙和葡萄牙一旦爆煲，會牽連整個歐洲甚至令歐元區瓦解，引發另一場全球金融危機。
可否避過這個最壞情況，保住西班牙是關鍵，因為西班牙的經濟規模相當大，在歐元區排第四大，差不多等如希臘、葡萄牙和愛爾蘭加起來的兩倍，但現時西班牙的失業人口高達四百萬，過去可以靠低利率去撐經濟，但金融海嘯後國家稅收減少，又不可以透過貨幣貶值去應付今次危機，如果連低息這武器都失去，的確有機會步希臘後塵爆發信貸危機。
面對種種危機，西班牙政府對國家財政和經濟復蘇仍然樂觀，聲稱有一系列政策去降低財赤。人稱「末日博士」的魯賓尼早前在達沃斯世界經濟論壇上曾經表示，一旦西班牙倒下，恐怕會對歐元區釀成災難。
而金融界對葡萄牙、愛爾蘭、希臘和西班牙四個歐元區內高負債率的計時炸彈，用她們國家英文名字頭開了個玩笑叫做PIGS，這四國曾被寄望是歐元區經濟發展的新引擎，但自金融海嘯後已變成歐洲經濟復蘇絆腳石。
Yes, cuz can't use printing press.
Disney 1Q EPS down
Bilibala: it is possible Disney's EPS will go down cuz advertising contact was signed in 2009 when the economy is under recession. To me, I think the EPS will be the same as last year.
LOS ANGELES (AP) - Family entertainment giant The Walt Disney Co., which just absorbed Marvel Entertainment Inc., reports earnings for its fiscal first quarter after the market closes Tuesday.
WHAT TO WATCH FOR: The advertising recovery will likely help Disney's ABC and ESPN television networks, but the question is by how much.
Disney's movie studio, which has been faltering lately, will likely cause a drag on earnings. The company overhauled management at the department in October and recently closed offices at niche label Miramax Films, which some competitors are interested in buying.
Consumer sentiment should be reflected in the performance of the company's theme parks. It is unclear how soon Disney will be able to wean itself off discounting to keep attendance up.
Also, Disney executives may discuss the possibility of entering into a deal to provide movies and TV shows to Apple Inc.'s iPad, which may help studio earnings down the road. Apple CEO Steve Jobs remains Disney's largest shareholder since the entertainment company bought Pixar in 2006.
WHY IT MATTERS: Disney is closely tethered to consumer psychology because the brand is well known around the world. It sells products ranging from movies and books to clothes and toys. A good quarter could bolster confidence in the broader economy.
WHAT'S EXPECTED: Analysts surveyed by Thomson Reuters expect Disney to post 39 cents of adjusted earnings per share on sales of $9.62 billion.
LAST YEAR'S QUARTER: Disney reported an adjusted profit of 41 cents per share on revenue of $9.60 billion.
LOS ANGELES (AP) - Family entertainment giant The Walt Disney Co., which just absorbed Marvel Entertainment Inc., reports earnings for its fiscal first quarter after the market closes Tuesday.
WHAT TO WATCH FOR: The advertising recovery will likely help Disney's ABC and ESPN television networks, but the question is by how much.
Disney's movie studio, which has been faltering lately, will likely cause a drag on earnings. The company overhauled management at the department in October and recently closed offices at niche label Miramax Films, which some competitors are interested in buying.
Consumer sentiment should be reflected in the performance of the company's theme parks. It is unclear how soon Disney will be able to wean itself off discounting to keep attendance up.
Also, Disney executives may discuss the possibility of entering into a deal to provide movies and TV shows to Apple Inc.'s iPad, which may help studio earnings down the road. Apple CEO Steve Jobs remains Disney's largest shareholder since the entertainment company bought Pixar in 2006.
WHY IT MATTERS: Disney is closely tethered to consumer psychology because the brand is well known around the world. It sells products ranging from movies and books to clothes and toys. A good quarter could bolster confidence in the broader economy.
WHAT'S EXPECTED: Analysts surveyed by Thomson Reuters expect Disney to post 39 cents of adjusted earnings per share on sales of $9.62 billion.
LAST YEAR'S QUARTER: Disney reported an adjusted profit of 41 cents per share on revenue of $9.60 billion.
2.04.2010
Buffett Loses Last AAA Rating as S&P Cuts Berkshire
Bilibala: now day, holding an AAA credit rating means nothing. With such low interest rate, if cash flow is not an issue, why not borrow and invest? This hold true to corporation and so to individual.
http://www.businessweek.com/news/2010-02-04/buffett-loses-last-aaa-rating-as-s-p-cuts-berkshire-update1-.html
(Adds shares in sixth paragraph, S&P comment in 11th.)
By Andrew Frye
Feb. 4 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. was stripped of its last AAA credit rating by Standard & Poor’s after the billionaire investor agreed to buy railroad Burlington Northern Santa Fe Corp.
Berkshire, which is taking on debt to fund the $26 billion takeover, was cut one level to AA+ from S&P’s highest grade, the ratings firm said today in a statement. The downgrade comes the same day Berkshire filed to sell $8 billion of notes to fund the Burlington Northern purchase, and concludes a review that S&P announced on Nov. 4, the day after Berkshire disclosed the deal.
“The railroad acquisition will reduce what historically has been extremely strong capital adequacy and liquidity,” S&P said. “Risk tolerances appear to have increased.”
Buffett, 79, has called the railroad takeover an “all-in wager” on the U.S. economy. Berkshire lost its top credit grades at Fitch Ratings in March and at Moody’s Investors Service in April amid a slump in the firm’s manufacturing, retail and travel units. The earlier downgrades were on concern about Buffett’s successor and the firm’s derivative bets.
The ratings firms “are hedging their bets in the event of another economic downturn,” said Michael Yoshikami, chief investment strategist at Berkshire shareholder YCMNet Advisors. Buffett’s firm is “expanding in economically sensitive businesses, like the railroads,” he said.
Berkshire’s Class A shares fell $3,250, or 2.9 percent, to $108,450 at 2:07 p.m. in New York Stock Exchange composite trading. Buffett didn’t respond to a request for comment left with an assistant.
Wounded Pride
General Electric Co. and drugmaker Pfizer Inc. are among companies that lost their top credit grades from S&P in the past year. Berkshire, which Buffett built into a $170 billion company over four decades, was raised to AAA at S&P in 1989.
Berkshire reported its first loss since 2001 in the first quarter of 2009 as Buffett’s stock bets soured. The firm returned to profit in the second and third quarters as equity indexes advanced. Still, losses at Berkshire’s NetJets subsidiary and earnings declines at Clayton Homes contributed to a pretax profit plunge of more than half at Berkshire’s manufacturing, service and retailing units in the first nine months of 2009.
Spending the Stockpile
Buffett, the second-richest American, positioned Berkshire to weather a contraction in the U.S. economy by stockpiling $44 billion in cash. Starting in 2008, when corporate borrowing costs surged, he drew on that hoard to finance Goldman Sachs Group Inc., GE, Swiss Reinsurance Co. and the Mars Inc. takeover of chewing-gum maker Wm. Wrigley Jr. Co. Berkshire had about $26.9 billion of cash as of Sept. 30.
“Albeit weakened, we view the company’s liquidity position and balance sheet as still very strong.,” S&P said.
Berkshire is using $8 billion of the cash stockpile on the purchase of Forth Worth, Texas-based Burlington Northern, and said in the debt prospectus today it plans to sell $8 billion of senior unsecured notes. The notes may be sold as soon as today, according to a person familiar with the offering. The railroad deal is expected to be completed this quarter.
Buffett, Berkshire’s chairman and chief executive officer, said in May that the loss of top credit grades from Fitch and Moody’s had “no economic impact” on Berkshire. “My pride may be wounded just a bit,” he said in a Bloomberg Television interview.
Bond Yields
Corporate debt with an AA rating yields an average of 3.72 percent, or 12 basis points more than AAA bonds, according to Bank of America Merrill Lynch data as of yesterday. That means companies ranked AA pay an average of $1.2 million a year in extra interest costs on $1 billion of debt. The spread between AAA debt and AA bonds has tightened about 59 basis points since the beginning of 2009.
Berkshire’s AA+ ranking is between S&P’s AAA and AA ratings. The company’s 4 percent notes due in 2012 fell 0.13 cents on the dollar to 105.5 cents to yield 1.42 percent, or a spread of 60 basis points more than similar-maturity Treasuries, as of 10:34 a.m. New York time, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. A basis point is 0.01 percentage point.
S&P joins Fitch in citing concern about Buffett’s eventual departure from the company. Buffett has said he’ll be replaced by three or more people: a CEO from a list he and the board of directors keep, at least one person to manage investments and his son Howard Buffett, who has been picked to be the next chairman to carry on Berkshire’s corporate culture.
‘Ongoing Concern’
“Uncertainty surrounding management succession and management structure, corporate culture, and business strategy following an eventual transition of the company’s leadership from current CEO Warren Buffett is an ongoing concern,” S&P said. “This, in our view, is only partially mitigated by a board-approved succession plan.”
Mohnish Pabrai, the founder of Irvine, California-based Pabrai Investment Funds and a Berkshire shareholder, said the ratings company cut the grade because it “doesn’t like the uncertainty.”
“There is a very clear-cut succession plan, but he hasn’t shared it with Mr. S and Mr. P,” Pabrai said. Berkshire has “a very deep bench” of potential replacements.
The ratings company lowered Berkshire’s long-term counterparty credit rating and the financial strength ratings on the company’s main insurance operations to AA+ from AAA.
Berkshire and its subsidiaries cut about 3,000 jobs since December and now employ about 222,000 people, the company said in the debt prospectus today. That’s 1.3 percent less than the figure the company reported six weeks ago, and almost 10 percent below the 246,083 disclosed in the company’s 2008 annual report.
--With assistance from John Detrixhe in New York. Editors: Erik Holm, Dan Kraut
To contact the reporter on this story: Andrew Frye in New York at +1-212-617-1869 or afrye@bloomberg.net
To contact the editor responsible for this story: Dan Kraut at +1-212-617-2432 or dkraut2@bloomberg.net
http://www.businessweek.com/news/2010-02-04/buffett-loses-last-aaa-rating-as-s-p-cuts-berkshire-update1-.html
(Adds shares in sixth paragraph, S&P comment in 11th.)
By Andrew Frye
Feb. 4 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. was stripped of its last AAA credit rating by Standard & Poor’s after the billionaire investor agreed to buy railroad Burlington Northern Santa Fe Corp.
Berkshire, which is taking on debt to fund the $26 billion takeover, was cut one level to AA+ from S&P’s highest grade, the ratings firm said today in a statement. The downgrade comes the same day Berkshire filed to sell $8 billion of notes to fund the Burlington Northern purchase, and concludes a review that S&P announced on Nov. 4, the day after Berkshire disclosed the deal.
“The railroad acquisition will reduce what historically has been extremely strong capital adequacy and liquidity,” S&P said. “Risk tolerances appear to have increased.”
Buffett, 79, has called the railroad takeover an “all-in wager” on the U.S. economy. Berkshire lost its top credit grades at Fitch Ratings in March and at Moody’s Investors Service in April amid a slump in the firm’s manufacturing, retail and travel units. The earlier downgrades were on concern about Buffett’s successor and the firm’s derivative bets.
The ratings firms “are hedging their bets in the event of another economic downturn,” said Michael Yoshikami, chief investment strategist at Berkshire shareholder YCMNet Advisors. Buffett’s firm is “expanding in economically sensitive businesses, like the railroads,” he said.
Berkshire’s Class A shares fell $3,250, or 2.9 percent, to $108,450 at 2:07 p.m. in New York Stock Exchange composite trading. Buffett didn’t respond to a request for comment left with an assistant.
Wounded Pride
General Electric Co. and drugmaker Pfizer Inc. are among companies that lost their top credit grades from S&P in the past year. Berkshire, which Buffett built into a $170 billion company over four decades, was raised to AAA at S&P in 1989.
Berkshire reported its first loss since 2001 in the first quarter of 2009 as Buffett’s stock bets soured. The firm returned to profit in the second and third quarters as equity indexes advanced. Still, losses at Berkshire’s NetJets subsidiary and earnings declines at Clayton Homes contributed to a pretax profit plunge of more than half at Berkshire’s manufacturing, service and retailing units in the first nine months of 2009.
Spending the Stockpile
Buffett, the second-richest American, positioned Berkshire to weather a contraction in the U.S. economy by stockpiling $44 billion in cash. Starting in 2008, when corporate borrowing costs surged, he drew on that hoard to finance Goldman Sachs Group Inc., GE, Swiss Reinsurance Co. and the Mars Inc. takeover of chewing-gum maker Wm. Wrigley Jr. Co. Berkshire had about $26.9 billion of cash as of Sept. 30.
“Albeit weakened, we view the company’s liquidity position and balance sheet as still very strong.,” S&P said.
Berkshire is using $8 billion of the cash stockpile on the purchase of Forth Worth, Texas-based Burlington Northern, and said in the debt prospectus today it plans to sell $8 billion of senior unsecured notes. The notes may be sold as soon as today, according to a person familiar with the offering. The railroad deal is expected to be completed this quarter.
Buffett, Berkshire’s chairman and chief executive officer, said in May that the loss of top credit grades from Fitch and Moody’s had “no economic impact” on Berkshire. “My pride may be wounded just a bit,” he said in a Bloomberg Television interview.
Bond Yields
Corporate debt with an AA rating yields an average of 3.72 percent, or 12 basis points more than AAA bonds, according to Bank of America Merrill Lynch data as of yesterday. That means companies ranked AA pay an average of $1.2 million a year in extra interest costs on $1 billion of debt. The spread between AAA debt and AA bonds has tightened about 59 basis points since the beginning of 2009.
Berkshire’s AA+ ranking is between S&P’s AAA and AA ratings. The company’s 4 percent notes due in 2012 fell 0.13 cents on the dollar to 105.5 cents to yield 1.42 percent, or a spread of 60 basis points more than similar-maturity Treasuries, as of 10:34 a.m. New York time, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. A basis point is 0.01 percentage point.
S&P joins Fitch in citing concern about Buffett’s eventual departure from the company. Buffett has said he’ll be replaced by three or more people: a CEO from a list he and the board of directors keep, at least one person to manage investments and his son Howard Buffett, who has been picked to be the next chairman to carry on Berkshire’s corporate culture.
‘Ongoing Concern’
“Uncertainty surrounding management succession and management structure, corporate culture, and business strategy following an eventual transition of the company’s leadership from current CEO Warren Buffett is an ongoing concern,” S&P said. “This, in our view, is only partially mitigated by a board-approved succession plan.”
Mohnish Pabrai, the founder of Irvine, California-based Pabrai Investment Funds and a Berkshire shareholder, said the ratings company cut the grade because it “doesn’t like the uncertainty.”
“There is a very clear-cut succession plan, but he hasn’t shared it with Mr. S and Mr. P,” Pabrai said. Berkshire has “a very deep bench” of potential replacements.
The ratings company lowered Berkshire’s long-term counterparty credit rating and the financial strength ratings on the company’s main insurance operations to AA+ from AAA.
Berkshire and its subsidiaries cut about 3,000 jobs since December and now employ about 222,000 people, the company said in the debt prospectus today. That’s 1.3 percent less than the figure the company reported six weeks ago, and almost 10 percent below the 246,083 disclosed in the company’s 2008 annual report.
--With assistance from John Detrixhe in New York. Editors: Erik Holm, Dan Kraut
To contact the reporter on this story: Andrew Frye in New York at +1-212-617-1869 or afrye@bloomberg.net
To contact the editor responsible for this story: Dan Kraut at +1-212-617-2432 or dkraut2@bloomberg.net
2.01.2010
Bilibala Finance Portfolio - Jan 10
Top 10 Holdings @ Jan 31, 10
- China Life (10.0%) M/M
- China Mobile 1.1% M/M
- Google (14.5%) M/M
- Wells Fargo 5.3% M/M
- China Cons Bank (10.3%) M/M
- Manulife 1.1% M/M
- Berkshire Hathaway 16.3% M/M
- Imperial Oil / Exxon Mobil (5.5%) M/M
- General Electric 6.3% M/M
- HSBC (6.3%) M/M
Top 5 Sectors in Holdings @ Jan 31, 10
- Insurance 34.0%
- Telecom 25.8%
- Banking 13.4%
- Info Tech 7.8%
- Conglomerate 6.1%
Top 5 subtotal to 87.2%
Performance & Market Stat @ Jan 31, 10
- Toronto down 5.5% in Jan, 05-10 average return 3.7%
- S&P500 down 3.7% in Jan, 05-10 average return (2.4%)
- Hong Kong down 8.0% in Jan, 05-10 average return 7.1%
- Shanghai down 8.8% in Jan, 05-10 average return 18.4%
- Bilibala Finance down 5.4% in Jan, 05-10 average return 24.1%
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