Berkshire is Said to Face Start of U.S. Systemic-Risk Scrutiny

INN Breaking News, January 23, 2014

Ian Katz, Zachary Tracer and Noah Buhayar

As Berkshire’s chairman and chief executive officer for more than four decades, Buffett, 83, built the firm from a textile maker into a company that sells insurance, hauls freight, generates electricity, manufactures chemicals and sells products from diamonds to underwear. The billionaire has used funds from insurance units including Geico to buy stocks and make acquisitions.

Buffett has been a longtime supporter of President Barack Obama and served as an informal economic adviser. Obama awarded Buffett the Presidential Medal of Freedom in 2011 and called him “one of the most respected” men in the world.

Robert Benmosche, CEO of insurer AIG, has said he welcomes Fed oversight while highlighting that Berkshire hasn’t been given the same designation. AIG received a U.S. bailout in 2008 that it repaid four years later.

“They say big companies that are in the insurance business should be regulated, but I guess somehow they’re not,” Benmosche told an investor conference in June, referring to Berkshire. “They’re pretty big, the last time I looked.”

Financial Crisis

Berkshire didn’t have the same “stresses” that AIG did during the financial crisis, Meyer Shields, an analyst at Keefe, Bruyette & Woods, said in a phone interview.

“On the other hand, when we use the basic definition of systemically important financial institutions, Berkshire I think fits that bill,” he said.

Berkshire is rated AA at Standard & Poor’s, the third- highest rating. That compares with the seventh-highest grade for AIG. Buffett’s firm had more than $40 billion in cash as of Sept. 30.

“We will never become dependent on the kindness of strangers,” Buffett wrote in the 2010 letter. “Too-big-to-fail is not a fallback position at Berkshire.”

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