Berkshire Hathaway Inc. announced Friday that its third-quarter profits fell 24 percent as its derivative bets declined in value.
Berkshire, led by famed CEO Warren Buffett, reported its net income to be $2.28 billion, or $1,380 a share, for the three month period ending Sept. 30. One year ago Berkshire reported profits of $2.99 billion, or $1,814. Total revenues slid from $36.3 billion last year to $33.7 billion this year.
According to the Associated Press, most of the losses are tied to the declining value of its equity derivative contracts, which took a beating in an up-and-down stock market. Total losses on Berkshire's derivative contracts were $1.59 billion.
"A lot of that will be reversed this quarter because the market's come back," shareholder and Buffett biographer Jeff Matthews told the AP. As the AP notes, the true value of the derivatives won't be known until 2018 or later, when the equity indexes reach maturity. Buffett, the AP says, believes the contracts will ultimately be profitable because the premiums are being invested.
Other Berkshire concerns are sound, Bloomberg News reports. “Insurance, which accounted for more than 40 percent of Berkshire’s earnings last year, posted underwriting profit of $1.7 billion pretax, up from $305 million a year earlier. Berkshire Hathaway Reinsurance Group, which specializes in large risks, had a gain of $1.38 billion, compared with a loss of $237 million. The gain at car insurer Geico narrowed to $114 million from $289 million. Gains at General Re fell to $148 million from $201 million.”
