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Moody’s strips Berkshire Hathaway of top rating

  Moody’s Investors Service cut its credit ratings on Berkshire Hathaway Inc from ‘Aaa’, the top rating, saying the recession and investment losses at insurance operations of investor Warren Buffett’s holding company reduced its ability to support funding needs.

Wednesday’s cut to Berkshire’s rating means Moody’s no longer has an ‘Aaa’ rating on any company with significant financial-services operations.

Moody’s cut the ratings on Omaha, Nebraska-based Berkshire to ‘Aa2’, the third-highest investment grade, and cut to ‘Aa1’, the second-highest, its ratings on Berkshire’s reinsurance subsidiary National Indemnity Co and bond insurance arm Berkshire Hathaway Assurance Corp.

The outlook for all the ratings is stable, indicating an additional rating change is not anticipated over the next 12 to 18 months. A Berkshire spokeswoman was not immediately available to comment.

The downgrade leaves Standard & Poor’s as the only rating agency still ranking Berkshire ‘AAA’. S&P changed its outlook on the company to negative on March 25, indicating a cut from ‘AAA’ is more likely.

S&P on Wednesday cut the ratings on all major US mortgage insurers, saying the deterioration in the residential mortgage market had translated into greater delinquency rates than it had anticipated.

Moody’s cut to Berkshire’s ratings leaves only four other companies with its top rating: Johnson & Johnson, Exxon Mobil Corp, Microsoft Corp and Automatic Data Processing Inc.

FINANCIAL FALLOUT

Analysts said Berkshire’s downgrade reflected what investors already knew -- that no one is immune from the worst financial crisis in decades.

“This has been the most critical financial environment of our lifetimes,” said Michael Holland, head of New York-based investment firm Holland & Co, which holds Berkshire shares. “Any financial company, including Warren Buffett’s, has been affected by it. Moody’s is saying it is so, long after the fact.”

“Moody’s is taking preemptive action,” said Sean Egan, managing director of Egan-Jones Ratings Co in Haverford, Pennsylvania. “We think the Moody’s downgrade is not a major move. It won’t cost them a lot of business,” Egan said, adding that his own ratings company would probably take Berkshire down a notch or two.

Berkshire is a large investor in Moody’s. Falling stock prices have reduced the value of National Indemnity’s investment portfolio, in turn weakening its capital cushion relative to its insurance and investment exposures, Moody’s said in a statement.

Other, non-insurance businesses at the company have also seen “a meaningful drop in earnings and cash flows, particularly for businesses tied to the US housing market, construction, retailing or consumer finance,” Moody’s added.

Since taking over Berkshire in 1965, Buffett has transformed it from a failing textile maker into a sprawling insurance and investment company, with more than 70 businesses.

Berkshire products include Geico car insurance, Borsheim’s Fine Jewelry and Fruit of the Loom underwear. Its investments include American Express Co and Wells Fargo & Co.

The company’s bond insurance arm Berkshire Hathaway Assurance had been the only insurer of municipal bonds to have retained its top credit rating, although it has not been a major player in insuring primary deals.

Fitch ratings cut Berkshire to ‘AA’, the third-highest investment grade, on March 12. (Reuters)