The credit crisis is thinning the ranks of AAA companies, after General Electric Co and Warren Buffett’s Berkshire Hathaway Inc lost top-level debt ratings on concern about losses on financial instruments.
Fitch Ratings on Thursday stripped Berkshire of its AAA grade, citing risks stemming from derivatives holdings and Buffett’s role as chief investment officer. Hours earlier, GE lost the top rating at Standard & Poor’s that it held since 1956. S&P and Moody’s still rate Berkshire triple-A, with a “stable” outlook.
The downgrades underscore how the credit seizure is hurting perceptions of even the strongest companies, said Michael Yoshikami, chief investment strategist at YCMNet Advisors.
Five non-financial US firms, including Microsoft Corp, now hold S&P’s AAA grade, down from more than 60 in 1982, the ratings firm said.
“Triple-A in the end is probably going to be left for the Treasury when it’s all said and done,” said Yoshikami, whose Walnut Creek, California-based firm oversees US$800 million and owns Berkshire Hathaway shares. “You’re seeing the rating agencies taking an abundance of caution at this point.”
US companies aren’t alone in losing triple-A status, as the weakest world economy in six decades strip them of sales.
Toyota Motor Corp, the Japanese company that ended General Motors Corp’s 77-year reign as the world’s largest carmaker last year, had its credit rating cut to Aa1 from Aaa on Feb. 6. Toyota is forecasting its first loss in 59 years as auto sales slump.
Berkshire has outperformed the S&P 500 Index in 38 of the 44 years Buffett has run the firm and handled its investments, according to the Omaha, Nebraska-based company’s annual report last year.
Buffett’s stock-picking acumen has gained him a following among investors worldwide and the moniker “Oracle of Omaha.” Forbes magazine ranks him the world’s second-richest person after Microsoft founder Bill Gates, with US$37 billion.
Berkshire stock fell 35 percent in 12 months on concern that Buffett’s bets on derivatives — instruments he has called “financial weapons of mass destruction” — will crush profit at the firm. The performance still beat the 43 percent drop in the S&P 500.
Buffett’s role as chief investment officer puts the company at risk if he becomes unable to do the job, Fitch said in a statement. Fitch cut the issuer default rating on Berkshire to AA+, and senior unsecured debt to AA. The insurance and reinsurance units kept their AAA status, with a negative outlook for all entities, Fitch said.
“Fitch views this risk as unrelated to Mr Buffett’s age, but rather Fitch’s belief that Berkshire’s record of outstanding long-term investment results and the company’s ability to identify and purchase attractive operating companies is intimately tied to Mr Buffett,” Fitch said.
Buffett is 78.
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