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.
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.
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 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
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.
Wall Street usually rewards these companies...all while the middle class worries that their job will be next! Wake up CEOs!
do you suppose Berkshire anticipates a market down turn and is keeping a cash reserve.
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....
At some point in Warrens life, money took on a different meaning.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Only one of these troubled companies is worth owning, says Jim Cramer.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.