Buffett & Berkshire: Downgraded By Their Own Kin (BRK-A, MCO)

Berkshire Hathaway Inc. (NYSE: BRK-A) and its subsidiaries had already been on credit watch elsewhere, but there is a very interesting credit ratings downgrade that just took place.  Moody’s has stripped Warren Buffett’s Berkshire Hathaway of its Triple-A (Aaa) rating.  The new rating is ‘Aa2.’  The National Indemnity Company was cut to ‘Aa1’ from ‘Aaa.’   So why is this a more interesting downgrade?  Berkshire Hathaway is the largest shareholder of Moody’s Corp. (NYSE: MCO).
S&P already put Berkshire’s ratings on negative credit watch.

Moody’s also cut the IFS ratings of other major insurance subsidiaries down to ‘Aa1’ from ‘Aaa.’  Berkshire’s Prime-1 short-term issuer rating was affirmed.   The good news is that the ratings outlook for all of these entities is stable.  So at least no more downgrades are slated on the immediate horizon from Moody’s.

The reasons for the downgrade are a mere “ditto” to what was said elsewhere.  Falling equity values, capital cushion reductions, and on.  It also noted that National Indemnity’s regulatory capital fell 22% through 2008 to about $27.6 billion and by a further significant amount through early March 2009.  Other insurance subsidiaries thrown under this bus are as follows:

• Berkshire Hathaway Assurance Corporation,
• Columbia Insurance Company,
• General Reinsurance Corporation,
• and Government Employees Insurance Company.

Moody’s did note that Berkshire and Buffett have several businesses that are mostly uncorrelated to the general economy which should continue to perform well.

You can imagine the reaction Buffett had when he heard this, “Aw, Geeze!”

Jon C. Ogg