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S&P Cuts Berkshire Hathaway's Rating

S&P Cuts Berkshire Hathaway's Rating
Reuters
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Credit-rating agency Standard & Poor's on Thursday cut its rating on Berkshire Hathaway Inc , the insurance and industrial conglomerate controlled by billionaire investor Warren Buffett, one notch, citing the company's reliance on its insurance operations for dividend income.

S&P cut the counterparty rating on Berkshire to "AA" from "AA+," but the agency left Berkshire's insurance units' financial strength ratings intact at "AA+."

"The lower credit rating on BRK better reflects our view of BRK's dependence on its core insurance operations for most of its dividend income," said Standard & Poor's analyst John Iten.

The outlook on all ratings is negative, S&P said in a statement, and cited two reasons: a ratings cap for financial companies linked to the U.S. sovereign rating; and capital risks at the insurance unit.

Specifically, the agency said, there is the concern that if the insurance unit takes on more investment risk or funds a large acquisition, it could hurt capital adequacy for the insurance business.

S&P noted Berkshire's high appetite for equity investments has made the insurance unit's capital volatile and has resulted in "capital adequacy of the insurance operations being less than what we typically expect for the rating category."

Before You Go

The Most Outrageous Corporate Tax Loopholes
Domestic Manufacturing Activities(01 of08)
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Big fan: StarbucksStarbucks is among the companies that have successfully lobbied to qualify for a tax break that rewards U.S. manufacturing. As a result, activities like roasting coffee beans count as domestic manufacturing and are eligible for tax breaks. (credit:AP)
Excess Stock Options(02 of08)
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Big fan: FacebookAbout 280 Fortune 500 companies have taken home a total of $27.3 billion over the past three years thanks to a tax break that allows corporations to treat executive stock awards like cash compensation -- meaning the money can be written off like a business expense -- according to a recent report from the Citizens for Tax Justice. Critics argue that this defies "common sense," given stock options aren't a cost to the company like cash compensation is. Facebook used this single loophole to wipe out its entire tax liability last year. (credit:AP)
Accelerated Depreciation(03 of08)
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Big fan: Duke EnergyAccelerated depreciation accounted for $76 billion in revenue loss in 2011, the most of any corporate tax break, according to the Government Accountability Office. The tax break allows businesses to write off the costs of ostensibly deteriorating machinery before the equipment even wears out. A Citizens for Tax Justice study found that Duke Energy managed to reduce its tax liability largely by using this tax break. Duke called the study misleading. (credit:AP)
Deferral On Overseas Profits(04 of08)
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Big fan: AppleFortune 500 companies, including Apple, have more than $1.6 trillion in profits parked offshore, according to multiple recent studies. By keeping that money overseas, companies are able to avoid paying U.S. taxes on the profits. (credit:AP)
Exclusion Of Interest On State And Municipal Bonds(05 of08)
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Big fan: Goldman SachsWhen companies invest in state and municipal bonds, they are exempt from taxes on the interest they earn from those bonds. This is one corporate tax break that individuals can take advantage of as well, though it largely benefits the wealthy. As a result of the loophole, the government has lost $58 billion over the past five years, according to the Fiscal Times. Companies including Goldman Sachs have benefitted from the exemption by using the tax exempt bonds to build new offices, according to The New York Times. (credit:AP)
Fossil Fuel Subsidies(06 of08)
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Big fan: Continental ResourcesOil and gas companies currently benefit from tax breaks that they say encourage innovation by subsidizing hunts for oil and gas that may not turn out to be fruitful. The result: Continental Resources paid an effective tax rate of 2.2 percent over the past 5 years. Chevron and Exxon Mobil paid tax rates at 4 percent and 2 percent, respectively. Pictured is Harold Hamm, Continental Resources' CEO. (credit:AP)
Free Lunch(07 of08)
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Big fan: GoogleThose famous free lunches in the Google cafeteria are currently offered tax-free, according to the Wall Street Journal. Right now, the lunches aren't treated as taxable compensation, so employees are benefitting from the free food, but don't have to pay taxes on it. (credit:AP)
Corporate Jet Owners Tax Break(08 of08)
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Big fan: The aviation industry, specifically companies like Cessna, Beechcraft and LearjetThis tax break, which allows companies to deduct the cost of a corporate jet from their tax bill like they would any other business expense, got its moment in the spotlight when President Barack Obama highlighted it as an unfair perk for the rich. The president's 2011 budget pushed for an increase in the per-flight fee for private jets from $60 to $100, yet the break remains in effect today. Companies that make jets, like Cessna, Beechcraft and Learjet, benefit from the subsidy as it supports the aviation industry, according to proponents of the subsidy. (credit:Shutterstock)
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