Buffett's billions in cash turn from stock drag to Berkshire bull case with yields topping 4%

Published Mon, Nov 7 20221:32 PM ESTUpdated Mon, Nov 7 20222:34 PM EST

For years, Warren Buffett's cash fortress earned "only a pittance," but now thanks to rising rates, Berkshire Hathaway 's mountain of money is contributing meaningful earnings to the conglomerate. As of the end of September, Berkshire said its insurance and other businesses held $77.9 billion in U.S. Treasury bills, which are yielding north of 4% across maturities. For example, the 6-month Treasury bill is yielding 4.61% on Monday. "Rising rates are enabling Berkshire's still considerable cash balance (over $100 billion) to once again earn a competitive return," James Shanahan, Berkshire analyst at Edward Jones, said in a note. The Omaha, Nebraska-based conglomerate saw interest and other investment income increase $256 million in the third quarter, marking a 181.6% jump from a year ago. Berkshire's income jumped $331 million, or 72.3%, in the first nine months of 2022. "The increases were primarily due to increases in short-term interest rates," Berkshire said in a statement. "While exceptionally low interest rates prevailed in recent years, interest rates increased significantly over the first nine months of 2022." Berkshire's massive cash position reached nearly $109 billion as of the end of the third quarter, and it has exceeded $100 billion each quarter going back several years, reaching nearly $150 billion in late 2021. The contribution to earnings from cash had been very poor due to near-zero interest rates. Buffett previously expressed frustration over holding cash which had made virtually nothing. "This extraordinary liquidity earns only a pittance and is far beyond the level Charlie and I wish Berkshire to have," Buffett said in a 2017 annual letter when it had $116.0 billion in cash. "Our smiles will broaden when we have redeployed Berkshire's excess funds into more productive assets." To be sure, Berkshire is finding ways to put cash to work. During the first nine months of 2022, the conglomerate paid $66.2 billion in cash to buy stocks and received proceeds of $17.3 billion from sales of equity securities. Berkshire acquired insurer Alleghany for $11.6 billion on Oct. 19, which was funded by existing cash balances.