Something Weird Is Going On With The Financials And Berkshire Hathaway
Courtesy of Joe Weisenthal at Clusterstock
The big story of the day in the world of financial stocks is that they’re all getting hammered, and the idea is that it might have something to do with the fact that strong derivatives reform seems to be coming down the pike.
Now there was a report earlier in the day that perhaps Berkshire Hathaway might somehow get a fat exemption, but now according to WSJ that’s not the case. The Democrats have killed that provision.
So you’d think that Berkshire might be getting pelted, but it’s not.
It’s actually up about 0.4%.
That’s not a huge move, except in comparison to other financials, in which case it’s significant?
So what’s going on?
The markets are probably figuring that the hit to Berkshire will be one-timey in nature — basically that it will cause the company to post collateral, but that derivatives aren’t central to how it makes money.
With the financial firms getting whacked, strong regulations may go at the heart of what they do, and actually hurt future profitability, thus the falling shares and blowout in CDS.
Previously today:
Surprise! Buffett Set To Get A Big Fat Gift In Financial Regulation Bill
Courtesy of Joe Weisenthal
Berkshire Hathaway (BRK) CEO Warren Buffett has generally maintained a sterling reputation (as far as financiers go), but longtime observers know that he’s as good as any at taking advantage of public policy to suit his needs.
(Ever wondered why he loves the estate tax so much? Maybe because it makes it easier for him to buy family-owned businesses?)
Anyway, WSJ reports that while the Democrats are making real progress on derivatives reform, the bill could contain a big pro-Berkshire loophole.
And of course, the loophole was placed by Nebraska Senator Ben Nelson.
Here’s the nut of it:
The provision, sought by Berkshire and pushed by Nebraska Sen. Ben Nelson in the Senate Agriculture Committee, would largely exempt existing derivatives contracts from the proposed rules. Previously, the legislation could have allowed regulators to require that companies such as Nebraska-based Berkshire put aside large sums to cover potential losses. The change thus would aid Berkshire, which has a $63 billion derivatives portfolio, according to Barclays Capital.
Apparently The White House is strongly opposed to the loophole.
Berkshire aside, the big story is that derivatives reform is definitely going to make it into the bill. Some combination of added daylight (clearinghouses or exchanges, etc.) and as noted, higher required collateral are in the cards.
Don’t miss: The six key battle-lines of financial reform >
