Berkshire has more money than it can handle

The cash is piling up faster than Warren Buffett can spend it. 'It's a high-class problem,' an analyst says.

By MSN Money Partner Nov 1, 2013 3:34PM

Warren Buffett (pictured), who aims to have $20 billion in cash at his Berkshire Hathaway (BRK.A), isn’t investing fast enough to keep money from piling up.

Berkshire will post a $4.3 billion third-quarter profit, according to an estimate from Barclays Plc, adding to a cash hoard of $35.7 billion at the end of June. Buffett also got back $4.4 billion this month that was lent to help Mars buy Wm. Wrigley Jr. Co. in 2008.


Even in a year in which the company has struck some of its largest deals and accelerated capital spending, Buffett still needs to find acquisitions. Berkshire, of Omaha, Neb., has already invested $12.3 billion on a takeover of HJ Heinz Co., committed $5.6 billion to buy a Nevada electric utility and made smaller purchases through subsidiaries since Dec. 31.


“It’s a high-class problem,” said Cliff Gallant, an analyst at Nomura Holdings Inc. “The year’s not up. I wouldn’t be surprised to see another deal of some sort.”


Buffett, Berkshire’s chairman and chief executive officer for more than four decades, has said he likes to keep $20 billion on hand should the reinsurance operations need to pay large claims. Having additional cash allows him to make big investments when others are fearful.


Buffett’s 2008 deals with companies including Mars, Dow Chemical (DOW), Goldman Sachs (GS) and General Electric (GE) allowed him to put large amounts of money to work, earn high interest rates and, in some cases, get warrants to buy equity.


'Too much'

The cash pile climbed as high as $49.1 billion on March 31, before falling in the second quarter after the Heinz deal. Berkshire had about $40 billion on hand, Buffett told CNBC on Oct. 16. He didn’t return a message seeking comment about his plans for the funds.


“It’s too much any time we have more than $20 billion,” he said in a May interview with Bloomberg Television’s Betty Liu. “But that doesn’t mean we’re going to spend it just because we have it.”


Still, keeping ample liquidity has come at a price. Most of Berkshire’s cash is in Treasuries, which have generated little interest income as the Federal Reserve kept rates low to help stimulate the economy.


“The $20 billion-plus of cash-equivalent assets that we customarily hold is earning a pittance at present,” Buffett wrote in a 2010 letter to investors. “But we sleep well.”


Barclays estimated that Berkshire’s earnings will climb about 9 percent in the three months ended Sept. 30 from a year earlier. The company will benefit from higher profit at railroad Burlington Northern Santa Fe and insurance units, analysts led by Jay Gelb wrote in an Oct. 2 report. Buffett may announce results as soon as tomorrow.


Berkshire's position

Berkshire has enough cash for a $15 billion acquisition, counting proceeds from Mars and commitments to buy businesses, the analysts wrote in a note on Oct. 4. Since then, Berkshire’s Marmon unit agreed to buy a beverage dispenser business from IMI Plc for $1.1 billion.


Buffett, 83, has passed on some opportunities to draw down his cash pile this year. Deals with Goldman Sachs and GE in 2008 enabled him to buy a combined $8 billion in the companies’ stock at below-market prices. Instead, he settled the contracts this month in cashless transactions that gave him smaller stakes.


Exercising his full option to buy Goldman Sachs shares would have made the holding one of the largest in Berkshire’s stock portfolio, which was valued at more than $100 billion at the end of June. Buffett has said he’d rather focus on his biggest equity investments: Wells Fargo & Co. (WFC), International Business Machines Corp. (IBM), American Express (AXP) and Coca-Cola (KO).


More from Bloomberg News

105Comments
Nov 1, 2013 4:44PM
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@hedonist

 

Warren Buffett believes the tax code should require that the wealthy pay a higher marginal tax rate than Buffett's secretary.  In other words, the wealthy should PAY MORE.

 

Mr. Buffett does not advocate that anyone make voluntary payments to the IRS - that would be stupid and he is not a stupid man.  However, if he had his way, ALL of the wealthy would pay more in taxes and to their companies employees and the rest of us would benefit from an economy like the 1950's and 60's when a single wage earner was enough for the average family.

 

Nice try, hedonist, but quit defending the wealthy.  The get too much deference in the United States already.

Nov 1, 2013 5:05PM
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@byron Well said. You know things are out of balance when the rich are running out of places to put their money. But still it amazes me to find how many willfully dazed poor to middle class ignorant's believe we are taxing the rich too much. In fact, Warren doesn't go far enough in his beliefs for higher taxes on the rich. Warren only goes so far as to mention the marginal tax rate when he really should be talking about the tax rate on investment income. Someone making a 50k salary pays over 30% in income tax but because Buffet is rich enough to make his salary from investments he only has to pay 15% and he's a billionaire. Where is the fairness in that? Until you idiots wake up and see this huge disparity we are all destined to live in a land where the poor can barely eat and the few at the top don't give a sh*t.   
Nov 1, 2013 5:00PM
Nov 2, 2013 9:54AM
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You could always give some back to the people, Warren. I live right down the street.
Nov 2, 2013 10:20PM
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Mr. Buffett how about helping a 74 year old father of a disabled adult son who is losing his home in our present economy?
Nov 1, 2013 4:37PM
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Buffet is a huge contributor to "The Gates Foundation," and will leave untold BILLIONS to it when he dies. He is vociferous when it comes to saying the rich should pay more and their fair share in taxes.
Nov 2, 2013 11:14AM
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Many mega-corporation CEOs have turned to reducing overhead costs (lay-offs) in order to make their companies seem more profitable while their revenues are flat (because the little people can't afford to buy their sh#t!).

Wall Street usually rewards these companies...all while the middle class worries that their job will be next! Wake up CEOs!

Nov 1, 2013 5:43PM
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He needs to thank the Fed and Ben for the free money they are giving the banks to keep wall street going.
Nov 1, 2013 4:36PM
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do you suppose Berkshire anticipates a market down turn and is keeping a cash reserve.

Nov 3, 2013 12:13AM
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Warren Buffett is simply a pragmatist, the Plutocrats have manipulated the federal tax codes to the point that our nations has become top heavy. While the 1% prosper like never before, our nation is drowning in debt and the pie is shrinking for the bottom 90%. Our economy lacks verve, because our nations wealth is pooling at the top while wages and upward mobility stagnate. Stop coddling the rich, invest those dollars in paying down are debt and infrastructure projects that provide middleclass jobs and we will see a revival in growth like the 60's, when all Americans enjoyed the fruits of our great nation, not just a chosen few.
Nov 1, 2013 4:16PM
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Even just the cash flowing in from Coca-Cola dividends on the stock Berkshire owns is more than $12 per second!
Nov 1, 2013 6:43PM
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Warren Buffet is just pleased as punch to be riding high on the socialist revolution....the rich DO get richer when they are at the top of that ride....That's why socialism doesn't work....in socialism there's only the poor and a few very powerful.        Well at least until the peasants revolt....

Nov 2, 2013 11:52PM
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At some point in Warrens life, money took on a different meaning.

 

Nov 3, 2013 6:29AM
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Any idea how many people he could make rich and still have way to much money?
Nov 1, 2013 5:31PM
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Buffett should put his money where his mouth is and donate all $20 billion to the US Treasury - it would be enough to run the federal gov for about 48 hours.
Nov 1, 2013 5:42PM
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he pulled it out of the stock market where he usually keeps it, wonder why, mabye he knows something bad is going to happen
Nov 3, 2013 1:33AM
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Research on diseases. They have not yet been solved
Nov 1, 2013 9:40PM
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If he can keep BRK's stock price (and revs and earnings) growing at a 10%, or greater, rate per year, then OK, no dividend.  Otherwise, return some of the excess cash to us--or buy a faster growing substantial-sized company or three.
Nov 3, 2013 3:31AM
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THINK ABOUT IF BUFFET OPENED UP IN A FEW STATES WHERE THE MOST UNEMPLOYED ARE STARTED A WIND OR SOLAR BUSINESS. THERE ARE MANY QUALIFIED PEOPLE TO HELP RUN THE COMPANIES. BUY THE LAND BUILD NEW FACTORY'S HIRE AND TRAIN NEW WORKERS AMERICAN THAT IS. GET THE COMPANY'S OFF THE GROUND THEN SELL THEM BACK TO EMPLOYEES TO RUN ONCE AGAIN EMPLOYEE OWNED MADE IN AMERICA PRODUCTS. START OUT WITH ONE OR TWO LOCATIONS SEE HOW IT GOES. GET RIDE OF THE CONGRESS BLOCKING ALL WAYS TO ACHIEVE SUCCESS WITH THIS AND AWAY WE GO. IT MAY AND CAN WORK IT WILL TAKE SOME TIME BUT EVERYTHING INVOLVED WITH THESE PROJECTS ALL MADE IN USA BUY AMERICAN WORKERS. SCREW THE CONGRESS AND THE SHADY DEALS THEY MAKE TO TAKE US ALL OVER. I FOR ONE WOULD LOOK FORWARD TO COME BACK FROM RETIREMENT JUST TO SEE THIS GROW TO SOMETHING WE ARE PROUD OF AGAIN. USA. CORAVETTE. WARREN I WILL BE WAITING JUST HAVE SOMEONE GET BACK TO CORAVETTE VIA THIS SITE.
Nov 2, 2013 10:41PM
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Pay your tax bill, Warren, then maybe we could believe in you.
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