Buffett loses $307m on dollar bet as associate faces SEC investigation
By Finfacts Team, Ireland Business and Finance Portal
May 8, 2005
Warren Buffett's Berkshire Hathaway, the insurance and investment group, has reported that its first-quarter profit fell 12 percent as it lost money on Buffett's $21.8 billion bet against the US dollar.
In a separate development, Berkshire Hathaway disclosed late Friday that the US Securities and Exchange Commission (SEC) plans to file a civil securities fraud complaint against a senior vice president of General Re, a Berkshire insurance unit mired in a number of investigations for possible financial manipulation.
Net income fell to $1.36 billion, or $886 a share, from $1.55 billion, or $1,008, a year earlier, the company said in a statement. Excluding the currency wager and other changes in the value of investments, profit rose 27 percent to $936 a share.
Buffett, who has been wagering against the dollar since 2002 on concerns about the US trade deficit, increased his position in the quarter and lost $307 million.
Many currency analysts had forecast a dollar/euro rate above $1.40 at the end of March but the rate was below $1.30.
Speaking at last week's shareholder meeting, Buffett said his insurance units were earning more than he'd expected.
Berkshire has a cash trove of $46.7 billion.
Investigators in both the US, Europe and Australia, have been focusing on a year 2000 reinsurance transaction between insurance giant AIG and General Re that enabled AIG to increase its reserves artificially by $500 million over two quarters. In March, AIG accepted that the deal was improper.
Berkshire disclosed that the UK's insurance regulator, the Financial Services Authority (FSA), told General Re on April 15th that it was investigating an officer of a General Re affiliate, the Faraday Group, as well as a former officer of another affiliate, Cologne Reinsurance, which is based at the International Financial Services Centre in Dublin, about non-traditional reinsurance transactions.
Berkshire also disclosed that the Irish Financial Services Regulatory Authority (IFSRA) had requested that Cologne Reinsurance provide information relating to its use of nontraditional insurance products.
The New York Times says that while none of the identities of the individuals involved in the actions of the various regulators, have been disclosed, Australian regulators barred several current and former General Re executives based in Dublin late last year. One of them, John Houldsworth, continues to work for Cologne Re, and, according to insurance industry executives and others briefed on the matter, oversaw the doctoring of paperwork relating to the questionable transaction between General Re and AIG.
The paper also reports that another General Re executive barred from Australia, Tore Ellingsen, recently resigned from Cologne Re. In December, Australian regulators barred another General Re executive, Milan Vukelic, who is now chief executive of Faraday.