Warren Buffett’s Berkshire Hathaway saw its second-quarter profit fall 40% as derivative bets on stock indexes declined during the global equity downturn.
Berkshire's net income fell to $1.97bn in Q2, down from $3.3bn in the corresponding period last year. However, operating profit soared 73%, helped by the February takeover of railroad Burlington Northern Santa Fe, which Buffett paid $26.5bn for the 77.5% Berkshire did not already own.
Buffett's derivative contracts, which start to mature in 2018, lose value when equity indexes decline.
The derivative bets produced a loss of $1.8bn in the period, compared with a $1.96bn gain a year ago. Credit-default swaps lost $320m compared with a $391m rise in Q2 last year.
Berkshire got $4.9bn in derivatives premiums to protect companies against falls in four indices, the S&P 500, FTSE 100, Nikkei 225 and the Euro Stoxx 50. Buffett must pay out if, on specific dates starting in 2018, the four indices are below the level on the date of the transaction.
Buffett spent $2.56bn on bonds and $1.64bn on equities in the quarter. He sold about $2bn of fixed income holdings and $427m of stocks.
