'Blow-out' quarter for Buffett

Warren Buffett

NEW YORK - Billionaire Warren Buffett's Berkshire Hathaway has seen second-quarter profit rise 62 per cent as investments benefited from higher United States interest rates and a weakening US dollar.

The Nebraska-based company said net income climbed to US$2.35 billion ($3.75 billion) from US$1.45 billion, a year earlier.

Interest and dividend income from investing policyholder premiums rose 34 per cent to US$782 million, and the company had a US$87 million gain on its foreign currency position after a loss a year earlier.

Berkshire cut its currency contracts by US$4.2 billion during the quarter to US$1.2 billion even as the US dollar index, used to measure its value against six currencies, fell the most in 18 months.

Buffett, who had as much as US$21.8 billion in contracts in 2005, told investors in March he would acquire interests in companies outside the US instead.

"If he had kept the bet at the same size he had a year ago, he would have made even more, a lot more," said Mohnish Pabrai, at Pabrai Investment Funds in Irvine, California. Still, "this is a blow-out quarter".

Proceeds from selling securities contributed the remainder of US$294 million in gains in the quarter. Profit before the gains was US$2.1 billion.

Berkshire, which relies on insurance for about half the company's profit, saw insurance units end the quarter with US$37.3 billion in short-term investments equivalent to cash. The Federal Reserve raised short-term interest rates 2 percentage points to 5.25 per cent in the year ended June 30.

"He went into short-term cash a few years ago. Now that's paying off," said Guy Spier, of New York-based hedge fund Aquamarine.

Profit from underwriting the policies fell 1.3 per cent to US$371 million as a decline at vehicle insurer Geico countered gains at reinsurer General Re, which benefited from fewer catastrophe losses outside the US.

Buffett, the company's 75-year-old chairman and the world's second-richest man after Microsoft's Bill Gates, acquired his first company outside the US last month with the US$4 billion purchase of an 80 per cent stake in Israel-based toolmaker Iscar Metalworking.

As Hizbollah fighters launch rockets within range of Iscar's plant in Tefen, Berkshire faces new risks.

"Berkshire is subject to increased risks from unstable political conditions and civil unrest in international markets," the company said.

- BLOOMBERG