Buffett cuts $16 billion municipal credit bet in half

NEW YORK, Tue Aug 21, 2012, Berkshire Hathaway Inc. will terminate half of its bullish $16 billion bet on the credit quality of U.S. states, cities and towns, and has also cut its exposure to high yield corporate debt, it said in a regulatory filing this month.

The move comes as many investors including Berkshire Chairman, billionaire investor Warren Buffett, foresee an uptick in U.S. municipal bankruptcies.

Buffett said last month that the bankruptcies of three California cities in as many weeks was making traditionally objectionable Chapter 9 municipal bankruptcy filings more palatable to local governments in financial crises.

Berkshire sells protection against the default of states, towns and cities using credit default swaps. In these contracts the company would be required to reimburse its counterparty for debt losses in the event of a municipal bankruptcy.

Berkshire said it reached an agreement with a counterparty to terminate $8.25 billion of these positions. The portfolio includes insurance on over 500 state and municipal debt issuers and had a weighted average maturity of 8.8 years as of the end of June, the company said.

The Wall Street Journal earlier reported the termination.

A credit default swap index based on municipal debt showed a modest deterioration in perceptions of municipal credit quality in the second quarter, widening from 150 basis points at the end of March to 176 basis points at the end of the June, according to data provider Markit.

That means it would cost $176,000 per year to insure $10 million in debt for five years. The index has since retraced to 158 basis points, Markit data show.

Berkshire also reduced its exposure to CDS backed by high yield corporate debt in the first half of the year, to $3.26 billion, from $4.57 billion at the end of 2011, it said in the filing.

The company said that it has taken no new CDS positions in 2011 and 2012.

Warren Buffett says Berkshire buying stocks amid market dip

OMAHA, Neb., Mon May 7, 2012 – Berkshire Hathaway Inc. is adding to its shareholdings of two U.S. companies amid a market dip, billionaire investor Warren Buffett said on Monday.

Buffett, Berkshire’s controlling shareholder, also forecast record results this year for Berkshire’s largest non-insurance businesses, among them the railroad BNSF and the utility MidAmerican.

In an interview on cable television network CNBC from just outside his conglomerate’s home base here, he dismissed the dip in European shares after weekend elections in France and Greece.

“It’s going to be very, very difficult to resolve their problems,” he said of the euro zone countries, but he insisted they would do so eventually.

Buffett declined to identify the two portfolio stocks Berkshire was purchasing more of. He said Berkshire spent $60 million buying stocks last Friday would buy more today. It was not clear if the $60 billion was spent on just two stocks.

Over the weekend, Berkshire held its annual shareholder meeting in Omaha, a festival-like event that draws nearly 40,000 people for an hours-long question-and-answer session with Buffett and Berkshire Vice Chairman Charlie Munger.

It was during that session that Buffett revealed he had very nearly made an acquisition of more than $22 billion recently, which would have been one of his biggest ever.

The 81-year-old Buffett, recently diagnosed with early-stage prostate cancer, spent much of the day assuring shareholders he was in good health.

While Buffett has his acolytes, not everyone was impressed with his performance. Australian hedge fund manager John Hempton, in a post on his blog on Saturday, said the day was full of the usual questions on politics, economics and the like.

“I got all this — and for the most part I got the usual homily answers. (The same questions were asked last year and the year before and the year before that. Answers can be got from meeting notes),” Hempton wrote.

During the CNBC interview, Buffett reiterated his support for Wal-Mart Stores Inc., saying a scandal over bribe payments in Mexico did not change his opinion of the stock. He is Wal-Mart’s fifth-largest shareholder.