Bloomberg is reporting that Warren Buffett’s company Berkshire Hathaway is at risk of making massive losses after a series of share market bets by its billionaire owner.
The cost of protecting Berkshire Hathaway debt against default has almost tripled in two months, from 140 basis points to 415, meaning insuring $10 million of debt will cost $415,000 a year.
This is more than four times that of rival insurer Travelers Cos, and worse than the median for companies rated Baa3, the worst credit rating given by Moody’s Investors Service.
According to Bloomberg, the rise in cost is due to billions of dollars of credit-default swaps by the company and a $US37 billion dollar bet against four share markets around the world including the Standard and Poor’s 500 Index.
However, Berkshire Hathaway won’t have to pay out on the bets until 2019, if it indeed does lose them. The company also has around $US4.8 billion cash to invest as a result of the credit-default swaps, despite Mr Buffett previously describing derivatives as “financial weapons of mass destruction”.
Berkshire Hathaway ( Owned by Warren Buffett) stocks dipped below $US100,000 for the first time in two years last week.
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