Source: USA TODAY
Standard & Poor’s downgraded the debt of Berkshire Hathaway, run by investing superstar Warren Buffett, to AA from AA+ Thursday, with a negative outlook.
Downgrading anything Buffett touches borders on heresy on Wall Street: The company’s annual meeting in Omaha has been called the Woodstock of capitalism.
But S&P dings Berkshire for its reliance on GEICO, an insurance company, for most of its dividend income.
And, the ratings company says, Berkshire’s stock holdings make the company risky, as does its practice of keeping less capital to protect against losses than its competitors do.
Management succession at Berkshire is also an offsetting factor. Although Buffett said in his 2012 letter that there was a successor and a plan for a seamless transition, Buffett’s successor as CEO hasn’t been revealed.
S&P’s downgrade of United States debt has also dragged Berkshire Hathaway’s rating down. U.S. Treasury debt has an AA+ rating, and Geico, like many insurers, holds U.S. Treasury debt. Currently, no U.S. insurer has an AAA rating from S&P.
And, S&P says, Berkshire remains one of the nation’s strongest companies, despite the downgrade.
Berkshire lost its coveted AAA rating in 2009. S&P’s move brings its rating inline with the two other major debt raters, Moody’s and Fitch.
Berkshire Hathaway Class A shares were down about 0.6% in early trading.