Omaha: Warren Buffett's Berkshire Hathaway said second-quarter profit declined 40 per cent as derivative bets on equity indexes by the billionaire chairman slid amid the retreat of global stocks.
Net income fell to $1.97 billion (Dh7.2 billion) or $1,195 a share, from $3.3 billion, or $2,123, in the same period a year earlier, the Omaha, Nebraska-based company said yesterday in a statement.
Operating earnings, which exclude some investment results, were $1,866 per Class A share, beating the $1,456 average estimate of four analysts surveyed by Bloomberg.
Buffett, whose career of stock picking helped him amass the world's third-largest personal fortune, has accumulated losses for Berkshire on equity derivatives since the 2008 financial crisis.
The contracts, which mature starting in 2018, lose value when equity indexes decline.
"On the derivatives, we had a problem there in the second quarter," Bill Bergman, an analyst with Morningstar, said in an interview. "That's clearly reflected in the bottom line."
The Standard & Poor's 500 Index fell 12 per cent in the three months ended June 30, the first quarterly decline in more than a year. Berkshire slipped 1.5 per cent on the New York Stock Exchange over the same period.
The Class A shares declined $785 to $120,600 in regular New York Stock Exchange trading Friday, and have risen about 22 per cent this year.
Credit -default swaps
The equity derivative bets produced a loss of $1.8 billion in the period, compared with a gain of $1.96 billion in the same quarter a year ago.
Credit-default swaps, in which Buffett bet on the solvency of borrowers, lost $320 million, compared with a gain of $391 million in last year's second quarter.
Buffett, 79, bought railroad Burlington Northern Santa Fe for $27 billion in February to add freight hauling to a portfolio of businesses that spans insurance, energy and luxury travel.
Buffett, Berkshire's chief executive officer, told shareholders in May that the economy was improving and his company started hiring again after cutting about 20,000 jobs last year.
Burlington Northern contributed $603 million in net earnings in the second quarter.
Insurance underwriting profit climbed to $462 million from $66 million a year earlier.
Profit from Berkshire's manufacturing, service and retailing businesses more than doubled to $671 million on gains at recreational- vehicle maker Forest River and toolmaker Iscar Metalworking.
