The word is out that Warren Buffett is looking to acquire the floundering U.S. bond insurance arm of a Belgian-French financial services group. Reuters’ Philip Blenkinsop wrote yesterday:

The insurance businesses of billionaire investors Warren Buffett and Wilbur Ross are close to buying all or part of the U.S. bond insurance unit of Dexia (DEXI.BR), Belgian business daily De Tijd said on Tuesday.

“The transaction is in the final stages, according to several sources,” the newspaper said on its website.

Belgian-French financial services group Dexia, which received a 6.4 billion euro ($8.3 billion) bailout from the French, Belgian and Luxembourg governments in September, has said it will present the results of a strategic review on Friday.

This could include a decision on the fate of Financial Security Assurance (FSA), the U.S. bond insurance arm that made a first-half net loss of $752 million and whose triple A credit rating is under threat.

Blenkinsop noted that the Chairman and CEO of Berkshire Hathaway is supposedly interested in a particular area of FSA’s business. He wrote:

De Tijd said insurers Berkshire Hathaway Assurance and Assured Guaranty were particularly interested in the “healthy” part of FSA — guaranteeing municipal bonds — but there were also talks about its riskier activities.

The latter might be placed in a separate holding, De Tijd said.

Buffett started Berkshire Hathaway Assurance at the start of this year, while Ross is a large shareholder in Assured Guaranty (AGO.N).

Source:

“Buffett, Ross insurers eye Dexia U.S. unit: paper”
Philip Blenkinsop
Reuters, November 11, 2008

NEW BUFFETT BOOK!

Legendary bond investor and managing director of the PIMCO family of bond funds Bill Gross made an appearance on CNBC yesterday and talked about what investors should be considering these days. According to the CNBC website:

Gross also said bond investors want to buy what the government is buying.

“The Treasury is buying agency mortgages in the secondary market as well as bank capital preferred stocks via the TARP,” he said.

The government may extend the reach to subprime mortgages and insurance and auto companies, Gross said.

Companies like Ford Motor and General Motors, for instance, are attractive, he said.

Source:

“Pimco’s Gross: Rates To Hold Steady Or Decline More”
CNBC, October 29, 2008

For those readers who follow the “Oracle of Omaha,” Warren Buffett, you’ll be pleased to know that his company, Berkshire Hathaway, has just disclosed its U.S. stock holdings as of March 31. He now owns 39 stocks for a total value of $66.5 billion, according to the website GuruFocus.com. So what’s changed?

• No new stocks are listed. However, as CNBC executive producer Alex Crippen noted yesterday afternoon in his blog “Warren Buffett Watch” (check it out!), “Remember, however, that Berkshire sometimes receives permission to hold back information about stocks it’s actively acquiring.”
• Buffett unloaded his Ameriprise Financial holdings
• In addition to Ameriprise, the legendary stock investor cut back his holdings of Iron Mountain Stake (28%) and Trane (less than 1%) from the fourth quarter.
• On the other hand, since the end of 2007 he has increased his stake in Ingersoll Rand (47%), United Health Group (6.7%), Wellpoint (6.7%), Burlington Northern Santa Fe (4.9%), US Bancorp (1.6%), Carmax (1.4%), Sanofi Aventis (0.5%), Wells Fargo (0.5%), and M&T Bank (0.1%).

Outside of U.S. equities, the richest man in the world has also been active in the municipal auction-rate bond market and is preparing to leave for Europe to see what kind of bargain businesses he can pick up there. Bloomberg’s Josh P. Hamilton and Erik Holm wrote earlier this morning:

Berkshire has spent $4 billion in the municipal auction-rate bond market, taking advantage of payouts that topped 10 percent after regular bidders fled, Buffett said at the annual meeting. Markets were so disrupted, he said, that bonds from the same issue were selling simultaneously from the same broker with yields of 6 percent and 11 percent.

“Those are extreme dislocations,” Buffett said during a question-and-answer session with shareholders on May 3. “Those are great times to make unusual amounts of money.”

Buffett will be in Europe next week meeting with owners of large family-run businesses as he looks to put $35 billion of cash to work.

Back on April 21, I noted that The Sunday Times (UK) was reporting that Warren Buffet might be acquiring a stake in two insurance businesses that belong to the Royal Bank of Scotland (RBS). However, according to CNBC’s Alex Crippen yesterday, Berkshire Hathaway won’t be participating in the bidding for the insurance unit of RBS.

Sources:

“Warren Buffett Buys Burlington Northern Santa Fe Corp., Kraft
Foods Inc., And IngersollRand Company Ltd., Sells Ameriprise
Financial Inc.”
GuruFocus.com, May 15, 2008

“Warren Buffett’s Berkshire Hathaway Eliminates Ameriprise Stake, Adds to Ingersoll, Kraft and Healthcare Holdings”
Alex Crippen
CNBC, May 15, 2008

“Buffett’s Berkshire Won’t Bid for Royal Bank of Scotland’s Insurance Unit - Dow Jones”
Alex Crippen
CNBC, May 15, 2008

“Buffett’s Berkshire Boosts Kraft, Wells Fargo Stakes (Update1)”
Josh P. Hamilton, Erik Holm
Bloomberg, May 16, 2008

Both Bloomberg and MarketWatch are reporting that Warren Buffett is sitting on a $40 billion war chest, and there is increasing speculation that the “Oracle of Omaha” may increase acquisitions through Berkshire Hathaway in light of the recent market conditions. Buffett has already taken advantage of the current climate through investments in:

• Auction-rate securities- Berkshire Hathaway built up a $4 billion position in auction-rate securities in February and March. Auction-rate debt carries yields similar to long-term debt but acts like short-term investments because investors can sell at weekly or monthly auctions, when rates reset.
• High-yield (junk) bonds- Berkshire bought junk bonds in 2002 during the depths of the dot-com bust, and made billions on the positions, according to MarketWatch.
• Derivatives- Berkshire Hathaway owns derivatives contracts that require it to pay up if certain junk bonds default. They expire from 2009 to 2013. According to the company’s latest annual report, the company collected $3.2 billion in premiums on these contracts last year and paid $472 million in losses.
• Bond insurance arm- Berkshire has started its own bond insurer, Berkshire Hathaway Assurance Corp., to participate in the lucrative municipal bond guaranty business.

Other notable investments as of late include $4.5 billion last month for a 60% stake in the Pritzker family’s Marmon Holdings Inc. Just this week, Buffett committed $6.5 billion to help finance chocolate giant Mars Inc.’s takeover of Wm. Wrigley Jr., the world’s biggest maker of chewing gum. Also included in the deal is $2.1 billion for a minority holding in Wrigley that Berkshire will get at an unspecified discount, according to Bloomberg.

Still, Buffett has been noticeably absent from the bailouts of struggling financial institutions in recent months, according to MarketWatch’s Alistair Barr yesterday. He added that the Omaha-based investor has also avoided the purchase of complex mortgage-related securities such as collateralized debt obligations (CDOs), which have been among the hardest hit investments during the credit crunch. Barr wrote:

For some Berkshire shareholders, that suggests Buffett may be waiting for markets to deteriorate further before making major acquisitions or investments.

“It’s very, very telling that he has not made any investments,” said Whitney Tilson, head of hedge fund firm T2 Partners LLC and a Berkshire investor. “Every major pool of capital in the world has made big investments in distressed financial institutions. He’s seeing every deal, so why hasn’t he done one? Maybe because he thinks things will get a lot worse.”

Barr added:

Indeed, Buffett told Fortune magazine in early April that the markets and the U.S. economy may be a long way from turning a corner.

“It seems everybody says it’ll be short and shallow, but it looks like it’s just the opposite,” he said.

In the meantime, Buffet will continue to look for bargain outfits, most notably in Europe, where he will be conducting a four-city tour starting May 19. Bloomberg’s Josh Hamilton wrote this morning:

Buffett has said in recent years that investments meeting his criteria and big enough to make a difference to Berkshire have become scarce, prompting him to look abroad. He said at last year’s annual meeting that he would welcome a $40 billion to $60 billion deal. Buffett also has said he expects the dollar to depreciate, making earnings in other currencies more important.

Photo by Ove Tøpfer, stock.xchng

Sources:

“Buffett gets a crisis to put Berkshire’s cash to work”
Alistair Barr
MartketWatch, May 1, 2008

“Buffett Plots Buying Spree as Crunch Diverts Bidders (Update1)”
Josh Hamilton
Bloomberg, May 2, 2008

Yesterday, John Waples and Iain Dey wrote in The Sunday Times (UK) that legendary investor Warren Buffet may be acquiring a stake in two insurance businesses that belong to the Royal Bank of Scotland (RBS). According to Waples and Dey:

[RBS CEO Sir Fred] Goodwin will confirm this week that the bank will raise as much as £12 billion - equivalent to a third of its current market value - to repair its capital base.

He will also announce write-offs from the exposure to American sub-prime mortgages of between £5 billion and £7 billion.

In addition, the bank intends to raise between £4 billion and £5 billion by the end of this financial year from asset sales, the biggest of which could be the sale of a 20% stake in its insurance businesses, Direct Line and Churchill. These operations, while generating a lot of cash, are no longer seen as core. If a high enough offer came in for the entire business, it is possible it would be sold.

AIG, the American insurance giant, is expected to be interested in a possible deal, along with Warren Buffett’s Berkshire Hathaway and possibly Aviva, sources said.

Source:

“Royal Bank of Scotland board to decide Sir Fred Goodwin fate”
Iain Dey, John Waples
The Sunday Times (UK), April 20, 2008

Seven years after investing in Bermuda-based White Mountains Insurance Group Ltd., Warren Buffett’s Berkshire Hathaway Inc. is selling its 16.3% stake in the insurer in a transaction valued at $836 million, Reuters is reporting today. Berkshire will exchange 1.724 million shares for about $751 million of cash plus two businesses, Commercial Casualty Insurance Co. and International American Group Inc., which have $435 million of assets and $58 million of adjusted shareholder equity.

According to Reuters’ Jonathan Stempel, the $751 million in cash Berkshire Hathaway stands to receive is more than twice the amount ($369 million) it invested in White Mountains back in 2001. Stempel noted that when the initial transaction took place, “Buffett had been a long-time friend of Jack Byrne, who was White Mountains’ chief executive at the time.” He added:

Buffett has said he would like to make a large acquisition.

Berkshire Hathaway had no immediate comment regarding these developments.

Source:

“Berkshire Sells White Mountains Stake for $836 Mln”
Jonathan Stempel
Reuters, March 10, 2008