Why Buffett's company got a ratings cut

Berkshire Hathaway sees its second downgrade in 3 years as S&P questions its enthusiasm for stock investments and its reliance on its insurance arm for dividend income.

By Kim Peterson May 16, 2013 12:13PM
File photo of Warren Buffett on the NBC News' 'Today' show on November 27, 2012 (© Peter Kramer/NBC/NBC NewsWire via Getty Images)Berkshire Hathaway (BRK.A) for years enjoyed the highest credit rating possible, the prized "AAA" that's viewed as the gold standard in the business world. But Warren Buffett's company lost that rating in 2010 and saw a second cut Thursday.

Standard & Poor's said it has cut Berkshire's rating to "AA" from "AA+." That's the same rating the company has received from Moody's, but Fitch has taken a dimmer view and rated it one notch lower.

Buffett has long been a champion of buying stocks, but that attitude may have hurt Berkshire's credit rating. In handing down its cut, S&P cited the riskiness of Berkshire's stock holdings, according to Bloomberg. The agency also doesn't like the way the company retains less capital than its competitors to support its insurance operations.

S&P is also concerned about who will replace Buffett when he steps down as CEO. Although Buffett, 82, undoubtedly has a succession plan in place, he has not made that information public. Finally, S&P said Berkshire is too dependent on its insurance business for most of its dividend income.

Berkshire shareholders took the news in stride Thursday. The company's class-A shares fell by less than 1% to $167,906. The stock has been on a hot run, climbing 40% in the past year.

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29Comments
May 16, 2013 2:33PM
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If Moody's or S&P annoy Warren too much he'll just buy them and smile the whole time.
May 16, 2013 1:20PM
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I wish they would do a split, like maybe 5000 to 1
May 16, 2013 6:36PM
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doesn't he owe the  I R.S. like a billion dollars
May 16, 2013 6:37PM
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I read his biography...The Snowball. I LOVE this guy! And now that he has the Giving Pledge and is giving away 99%,I admire him even more...
May 16, 2013 5:02PM
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Seems to always be a lot of I-wish-I-had-bought-some sour grapes showing up after any Buffett article.

All you have to do is check the 20 or 10-year charts to see how well he has done for his investors.

Of course there's no guarantee that he will continue producing at such high return levels, but I'm sure I won't be cashing in my BRK any time soon.

 

May 16, 2013 4:26PM
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I never had money to be an investor. But growing up I read and learned that Buffet was a GOD and had sheepfollowers (people) just listening to him. Whatever he said was gold and I could not believe how his words and actions were controlling the market in some way. He played the lottery and got lucky with his fortune. Hey, good for him.

I still don't follow people who act like GOD and have worshippers.

May 16, 2013 7:42PM
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Whenever most people speak of Buffet, they seldom mention Munger; Charlie Munger..

Buffet and Munger have been partners in their business venture, for decades.

And very few people rise to stature or power, without the help of the many..

 

Munger and Buffet....Have brought on board a couple of educated and promising prospects to take over Berkshire and run the businesses...Although successors are not outright named yet..

One or both of these last two guys appear to have a good shot..

I believe their last possible selection.....Didn't pan out..??

But still believe old Warren will be watching like a mother hen, when maybe letting go of some of the reins...Munger I think has already stepped back some and has encouraged Buffet to follow.

May 16, 2013 6:32PM
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When you buy 10 million shares at a time its easy to see why you always make money.  If it goes up 1 penny you have made a lot of money.  Doesnt mean youre good.  Anyone with his cash would be a great investor in stock.
May 16, 2013 6:45PM
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They Don't make 'em like him anymore..
May 16, 2013 4:58PM
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He is falling with the President because of his lies during the campaign
May 16, 2013 4:19PM
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I thought Warren Buffett had lined-up Becky Quick as his replacement?
May 16, 2013 2:21PM
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Warren Buffet admitted in a tv interview a while back that he never made a dime during the whole internet or dotcom years because he didn't understand the internet and didn't own a computer. So, we find out today that Berkshire-Hathaway is being downgraded because he loaded up on a bunch of high risk bonds related to the insurance business and still doesn't know what to invest in during the recovery. He has chosen, as an heir apparent, a son who spends the day plowing wheat fields in Nebraska because if Warren, who has never done manual labor in his life, perceives you to not be working hard, he cuts you off financially from his fortune. Now the truth is out. Berkshire Hathaway is hype and nothing but hype. This old man doesn't have a clue what he is doing and you are missing out on tons of upside if you give this geezer your money. You can make more money reading S&P reports and investing for yourself than giving it to someone who in 2013 thinks the computer is a great gimmick to play internet Bridge with Bill Gates. Screw Berkshire-Hathaway. This is the guy we were warned about in the 1960s-the holding company. The man behind the man. Well, now we know, he's an idiot.
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