A day after losing his top spot on the Forbes global billionaires list to his friend, fellow bridge player and philanthropist, Bill Gates US investment legend Warren Buffett has seen his Berkshire Hathaway company lose its coveted triple A credit rating.
The cut was made by the Fitch ratings group, the third ranked of the raters.
The news came after trading finished on Wall Street and is considered to be something of a surprise, unlike the earlier downgrading of General Electric from Triple A to Double A-plus, by Standard & Poor’s.
Fitch said Berkshire Hathaway’s debt default rating was Double A-plus and the rating of its senior unsecured debt was Double A.
The cuts to GE and the Buffett company means there are only five Triple A rated groups left in the world.
The insurance and reinsurance businesses of Berkshire, the most important units of the Buffett empire, kept their AAA status, but Fitch warned that all the ratings are being reviewed for another possible downgrade. If the insurers lose the Triple A rating the shock could be considerable and the higher interest cost quite painful. The companies are among the biggest insurers of motor vehicles and major events such as bad weather, earthquakes through so-called catastrophe bonds.
To do this form of insurance a Triple A rating is essential. As well Buffett’s insurance companies are among the biggest reinsurers in the world and recently took a $US2.6 billion stake in Swiss Re. If the Triple A rating is lost, then the cost of writing business will rise and some groups will not be able to do deals with Berkshire.
“Fitch views this risk as unrelated to Mr. Buffett’s age, (he’s 78, like Rupert Murdoch) but rather Fitch’s belief that Berkshire’s record of outstanding long-term investment results and the company’s ability to identify and purchase attractive operating companies is intimately tied to Mr. Buffett.”
Berkshire’s shares have fallen 35% over the past year (outperforming the overall market though), but Buffett has taken investments in Goldman Sachs, GE, Tiffany’s and invested in a couple of takeovers over the past six months.
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