Buffett Watch

Berkshire Hathaway Reports $1.5B Net Loss For Q1 As It Sells ConocoPhillips Shares


Warren Buffett's Berkshire Hathaway took a $1.9 billion after-tax charge at the end of the first quarter, as it sharply cut its stake in ConocoPhillips by selling shares at a loss.

As a result, the company's net loss reached $1.5 billion during the quarter, compared to a net profit of $940 million in the same three months last year.

It is Berkshire's first quarterly loss since 2001.

In a news release, Berkshire says it sold 13.7 million ConocoPhillips shares during the first quarter and has sold more since then.

Berkshire reports holding 71.2 million ConocoPhillips shares at the end of the first quarter.  Its $3 billion pre-tax charge ($1.9 billion after-tax) is the difference between the cost of those shares and their market value on March 31. 

While it expects ConocoPhillips shares to "increase over time to levels that exceed our original cost," Berkshire says it will probably sell more shares before that happens to "generate additional capital losses that we can carry back to prior tax years when we generated net capital gains."

The company notes that back in 2006 it paid about $690 million in federal tax on capital gains.  Berkshire says the payment can only be fully recovered "if capital losses of at least $1.98 billion are taken in 2009."

Back in November, Berkshire revealed that it had sharply increased its stake in ConocoPhillips during the second and third quarters of 2008, reaching 84 million shares as of September 30.

In his mid-February letter to shareholders, Buffett calls his decision to buy ConocoPhillips shares last year as energy prices were peaking a "major mistake."

The stock is down 9.4 percent year-to-date and 47.6 percent over the past 12 months, although it has rebounded from its 52-week low in March of $34.12 to close today (Friday) at $46.91.  Current price:


Berkshire's first quarter operating earnings per share came in at $1,100. 

That's a decline of almost 12 percent from $1,247 in the first quarter of last year.

Operating earnings before investment and derivative gains or losses fell almost 11 percent to $1.705 billion from $1.931 billion.

Buffett had given us a rough preview of the first quarter operating earnings during Saturday's question-and-answer session with shareholders in Omaha.  (Berkshire filed a transcript of those comments early Monday morning.)

There was no mention at that time of a writedown or net loss during the quarter.

Losses from investments and derivatives totaled $3.239 billion in the quarter, substantially larger than the $991 million loss last year.  This quarter's figure includes $2.012 billion of writedowns, almost all of it from ConocoPhillips.

Derivative losses declined a bit from last year: $986 million vs $1.067 billion in 2008's Q1.

Berkshire says the derivative losses "primarily relate to an increase in our potential loss under our high yield credit default contracts" due to bankruptcy filings that resulted in Berkshire paying losses of about $675 million.

Additional details are included in Berkshire's 10-Q filing with the SEC.

Among them: Berkshire says it currently has a $13.3 billion liability for the equity put option contracts it has written, based on where the four global stock indexes involved ended the quarter.  Since those contracts won't be settled until between 2019 and 2028, their ultimate gain or loss won't "be known for many years."

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