Warren Buffett’s back – profit triples at Berkshire Hathaway

Warren Buffett is quickly putting his horror 2008 behind him, with profit at his investment company Berkshire Hathaway increasing three fold to $US3.2 billion in the three months to 30 September.

Profits at Berkshire Hathaway took a battering last year as sharemarkets and the US economy tanked, with profit in the third quarter falling to $US1 billion in 2008.

But sharp increases in the value of Berkshire’s stakes in companies such as American Express and Wells Fargo has helped Buffett bounce back strongly. The book value of Berkshire’s assets (book value measures assets minus liabilities) has jumped 10% in the last three months to an all-time high of $US126.1 billion.

Berkshire’s unlisted operating business also showed improved results, led by the company’s insurance business, where profit more than tripled during the period to $US363 million.

One weak spot however was Berkshire Hathaway’s corporate jet business NetJets, which announced it would cut 495 pilots because of falling demand.

Ironically, Berkshire’s best results came from the trading of derivates – the financial instruments that Buffett has frequently derided as “weapons of financial destruction”.

Berkshire Hathaway’s profit on derivatives during the quarter was $US1.73 billon, compared to a $US1.26 billion loss a year earlier. The company’s profit on credit default swaps was $US1.44 billion during the quarter.

The strong profit underlines the thinking behind Buffett’s decision last week to launch at $US44 billion takeover of railway company Burlington Northern – clearly, Buffett believes Berkshire has the financial strength to make the deal and then make it work.

Buffett is just one of a number of influential billionaire placing big bets on the global economic recovery at the moment and his investors will watch him closely over the next 12 months to get a gauge on the state of the market.