Billionaire investor Warren Buffett expressed confidence Saturday in embattled New York insurance company American International Group Inc., telling his stockholders at their annual meeting that it is a “great company.”
Buffett told the crowd of 19,000 shareholders that Berkshire Hathaway Inc. will have strong first quarter earnings, bolstered in part by insurance revenue, but that currency trading losses will mean an overall loss in investments.
He also said the Berkshire board will discuss the possibility of paying a dividend for the first time.
Shareholders voted Microsoft Corp. chairman Bill Gates onto the Berkshire board, marking the first time Gates, the world’s richest man, and Buffett, the world’s second richest, will serve on the same board. Gates and Buffett are friends, and both are worth more than $40 billion.
Gates was at the meeting, but did not address shareholders.
Reinsurance dealings under scrutiny
Federal regulators are investigating a reinsurance transaction between AIG and Berkshire Hathaway subsidiary General Reinsurance Corp. that appeared to boost AIG’s reserves when markets were uneasy about the company’s outstanding liabilities.
AIG has acknowledged that its accounting for the transaction with Gen Re was improper. General Re remains a part of the investigation but investigators have said Buffett is not a target of the probe.
Buffett, chairman and chief executive of Berkshire, said he could not comment on what he told regulators April 11 about AIG and Gen Re, nor could he comment on what others with Berkshire might have told federal officials.
Maurice “Hank” Greenberg, who resigned as president and CEO of New York-based AIG in March under pressure from the board, refused to answer questions about AIG’s activities at a deposition in March, invoking his Fifth Amendment right against self-incrimination.
Buffett said Greenberg had built a great company. “He became the most important figure in the property casualty business,” he said.
Charlie Munger, Berkshire’s vice chairman, added: “Whatever comes along, people are going to find that a lot of what was done over the years was right at AIG.”
General Re, which Berkshire acquired in 1998, has been the object of several recent reinsurance investigations. Reinsurance has been used to spread out risk among insurers but, in some cases, has been used for the questionable purpose of polishing a company’s financial statements.
Mixed fortunes at Berkshire
Buffett said Berkshire pretax earnings will be up about $400 million in first quarter earnings to be announced May 6 compared with the same period last year, bolstered by insurance and operating revenues. Berkshire will lose about $310 million in currency trading, however, because of a stronger dollar over the quarter, meaning investments overall will suffer about $120 million in losses, Buffett said.
Buffett’s investments include large holdings in Coca-Cola and American Express and ownership of candy, jewelry and furniture companies.
Buffett said he is holding about $45 billion in cash with no major acquisitions in sight, but said Berkshire is poised to announce one acquisition in the insurance field that will be worth nearly $1 billion.
“We’d love to have one in the $5 billion to $10 billion range,” Buffett said. “At the moment we’ve got more money than brains, and we hope to do something about that.”
Buffett said that on Monday Berkshire’s board will discuss the possibility of paying a dividend for the first time in the company’s history. It won’t happen in the near term, but if Berkshire cannot find good investments for its cash over the next few years, shareholders should have some access to that money, he said.