Friday, March 13, 2009 0 comments

Fitch downgrades Berkshire Hathaway from AAA to AA+

Well, in yesterday's post I was saying that AAA-rated companies are becoming an endangered species. Well, they are in worse shape than I thought. They are actually close to extinct. Bloomberg reports that Berkshire Hathaway was downgraded by Fith to AA+ from AAA. Although many only look at S&P and Moody's, it is possible that the other two will also downgrade Berkshire. The insurance subsidiaries retain their AAA which is quite bizarre given how the rating agencies were saying the opposite with the bond insurers (i.e. if holding company downgraded, it's likely the insurance company will be as well.)

Fitch Ratings yesterday stripped Berkshire of its AAA grade, citing risks stemming from derivatives holdings and Buffett’s role as chief investment officer.

...


Buffett’s role as chief investment officer puts the company at risk if he becomes unable to do the job, Fitch said in a statement. Fitch cut the so-called issuer default rating on Berkshire to AA+, and senior unsecured debt to AA. The insurance and reinsurance units kept their AAA status, with a negative outlook for all entities, Fitch said.

“Fitch views this risk as unrelated to Mr. Buffett’s age, but rather Fitch’s belief that Berkshire’s record of outstanding long-term investment results and the company’s ability to identify and purchase attractive operating companies is intimately tied to Mr. Buffett,” Fitch said. Buffett is 78.


LOL Talk about doublespeak. It's supposedly not related to age but then the reason given is all about age and the inability of Buffett to run the firm for the next few decades. Well, it has become fashionable to beat up Warren Buffett these days and rating agencies are following the trend. My opinion is that investors and rating agencies should factor in Buffett's age and the possibility that he may not be running Berkshire Hathaway in 10 or 20 years. However, this is something that everyone should have been factoring in for many years. Yet it seems many are only starting to discount this right now.

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