Thursday, rating agency Fitch downgraded billionaire investor Warren Buffett's investment firm Berkshire Hathaway, Inc.'s (BRKa) Issuer Default Rating or IDR to 'AA+' from a top-notch credit rating of AAA and senior unsecured debt ratings to 'AA' from 'AAA'. However, Fitch has affirmed its 'AAA' Insurer Financial Strength or IFS ratings on the company's insurance and reinsurance subsidiaries. The rating outlook for all entities is "Negative". Fitch cited concerns about the potential for losses on the insurer's equity and derivatives holdings.
Global corporate credit quality deteriorated at a heightened pace in 2008 with downgrades affecting 20% of Fitch-rated corporate finance issuers, up from 8.6% in 2007, according to a new Fitch study. Rating actions turned increasingly negative as 2008 progressed and as the economic environment worsened.
In this scenario, Fitch believes that 'AAA' ratings are not appropriate at the holding company level for financial-oriented enterprises like Berkshire. Though Fitch noted that Berkshire invests in a wide variety of retail, service and manufacturing companies, it does not see the investments diversified enough to offset exposure to the equity and credit markets in order to maintain 'AAA' rating level.
Berkshire uses a reasonable amount of financial leverage in its capital structure and at the end of fiscal 2008 its consolidated debt-to-total capital ratio was 25%. Berkshire's consolidated debt is derived from three sources, debt issued or guaranteed by the holding company, debt issued by the company's finance and financial products subsidiaries, and debt issued by the company's utilities and energy subsidiaries.
Fitch underlined that its current ratings on Berkshire assume that the company is likely to continue to aggressively deploy its cash and capital as difficult economic and capital market conditions persist and companies look for investors with strong balance sheets to provide funding.
The 'AAA' IFS ratings of Berkshire's insurance subsidiaries continue to reflect their strong capitalization and competitive positions, and underlying underwriting results. Fitch notes that at their current levels, Berkshire's IFS, IDR and senior unsecured ratings continue to be among the highest in Fitch's rating.
Berkshire Hathaway, which is among the largest insurers, whose profits in recent years came heavily from selling financial services, is being shaken by the current economic scenario. Berkshire has invested billions of dollars through derivative contracts tied to the performance of stock markets and financial instruments. Fitch noted that it couldn't regard a company so heavily engaged in financial services as among the safest borrowers.
Fitch is also wary of the risk associated with Berkshire's dependence on its sole investment brain Buffett, who is now aged 78 years. However, Fitch views this risk as unrelated to Buffet's age, but to the ability to maintain his record of outstanding long-term investment results and the company's ability to identify and purchase attractive operating companies.
Speculative reports suggest that the company's reinsurance head Ajit Jain could be Buffett's successor. In a letter to shareholders recently, Buffett profusely praised Jain, which has sparked off such a talk. "Ajit came to Berkshire in 1986. Very quickly, I realized that we had acquired an extraordinary talent. So I did the logical thing: I wrote his parents in New Delhi and asked if they had another one like him at home. Of course, I knew the answer before writing. There isn't anyone like Ajit," the letter read.
Shares of Berkshire have lost about half their value since December 2007. Buffett has recently blamed himself for making certain 'dumb' investment decisions last year and also hinted that Ajit Jain might be the possible successor for his businesses.
However, Fitch stated that the Negative Outlook on Berkshire and its insurance company subsidiaries reflects the ongoing uncertainty and the anticipated ultimate effect of the current financial market conditions on Berkshire. Further equity market declines and its effect on Berkshire's vast equity portfolio and capitalization are also taken into account. The present scenario is also likely to pressure Berkshire's earnings over the next one to one-and-a-half years.
Last week, Berkshire reported a sharp plunge of about 96% in its fourth-quarter profit, while earnings for fiscal 2008 dropped 62% from last year. Buffett noted then that the economy would be in shambles throughout 2009 and probably well beyond, but expressed hope that America's best days lie ahead.
Notwithstanding Fitch's downgrade, Berkshire Hathaway retains the highest rating from both Standard & Poor's and Moody's. However, the downgrade by Fitch, which often acts faster than its larger rivals, could set the trend.
Earlier in the day, Standard & Poor's downgraded General Electric Co.'s (GE) and its finance arm General Electric Capital Corp.'s or GECC's long-term ratings to AA+ from AAA with a "stable" outlook. The single-notch cut in rating does not affect GE's and GECC's short-term funding ratings of A-1+, which was affirmed by S&P. Moody's, the other major ratings firm, has said that it is reviewing its own 'AAA' rating for GE, which dates back to 1967.
BRKa closed Thursday's regular trading session at $85,700.00, up $2,000.00 or 2.39% on volume of 1,640 shares, sharply lower than the three-month average volume of 0.13 million shares. In the past 52-week period, the stock has been trading in a broad range of $70,050 to $147,000.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.