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Berkshire Hathaway profit plunges 48 percent

Berkshire Hathaway Inc., the investment company run by billionaire Warren Buffett, Friday said quarterly profit fell 48 percent to the lowest level in nearly four years, hurt by nearly $3 billion of losses from Hurricanes Katrina and Rita.
/ Source: Reuters

Berkshire Hathaway Inc., the investment company run by billionaire Warren Buffett, Friday said quarterly profit fell 48 percent to the lowest level in nearly four years, hurt by nearly $3 billion of losses from Hurricanes Katrina and Rita.

The company also reduced its stake in foreign currency contracts to $16.5 billion on Sept. 30 from $21.5 billion three months earlier. Buffett has bet against the dollar since 2002 amid concern that high U.S. trade and budget deficits might cause non-U.S. investors to pull money from the country.

Third-quarter net income for Omaha, Nebraska-based Berkshire, whose largest business is insurance, fell to $586 million, or $381 per Class A share, from $1.14 billion, or $739 per share, a year earlier. Per-share figures are high because Berkshire has few shares outstanding.

Profit for Berkshire was the lowest since $95 million in the fourth quarter of 2001, following the Sept. 11 attacks.

Revenue rose 7 percent to $20.53 billion. Expenses increased 15 percent to $19.84 billion, including a 40 percent jump in insurance losses and related expenses.

An estimated $2.99 billion of losses from Katrina and Rita, which struck the U.S. Gulf Coast in August and September respectively, hurt results. This included $118 million at auto insurer Geico, $602 million at General Re Corp., and $2.27 billion within the company’s reinsurance group.

Gillette gains
Berkshire’s cash stake rose 7 percent to $46.03 billion, but fell from the second quarter’s $47.76 billion. The company will use some cash for the $5.1 billion purchase by its MidAmerican Energy Holdings Co. unit of the PacifiCorp utility from Scottish Power Plc.

It also invests in such companies as Coca-Cola Co. and Procter & Gamble Co., which acquired longtime Buffett favorite Gillette Co. on Oct. 1. Berkshire said it expects to recognize a $5 billion pretax investment gain from that acquisition, but will hold onto its Procter shares.

Berkshire’s many other companies include Dairy Queen and Fruit of the Loom.

Berkshire posted a pretax gain of $29 million from foreign currency contracts, compared with a $619 million second-quarter loss. The U.S. Dollar Index, which measures the dollar’s value against six currencies, rose 0.5 percent in the quarter.

Buffett has said his wager against the dollar is likely to be long-term. Berkshire said the four-year bet has resulted in $2.1 billion of recognized pre-tax gains.

With a $40 billion net worth, Buffett is the world’s second richest person according to Forbes magazine, after Microsoft Corp. Chairman and Berkshire director Bill Gates.