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<TABLE border=0 cellSpacing=0 cellPadding=0 width=452><TBODY><TR><TD vAlign=top width=452 colSpan=2>Despite the butch having LOST HUNDREDS OF BILLIONS!
Published March 2, 2010
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Buffett closes the book on credit card 'fiasco'
(NEW YORK) Billionaire Warren Buffett shut a Berkshire Hathaway credit-card business and sold bad loans at 55 cents on the dollar in what he called a 'very expensive business fiasco.'
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>Mr Buffett: 'Geico's managers were never enthusiastic about my idea. They warned me. I subtly indicated that I was older and wiser. I was just older.' </TD></TR></TBODY></TABLE>'I finally woke up,' Mr Buffett said in his annual letter to Berkshire shareholders at the weekend.
Berkshire lost US$44 million selling its US$98 million portfolio of 'troubled receivables,' Mr Buffett said. The company also had US$6.3 million of losses from operations before Mr Buffett 'closed the book' on the business, he wrote.
The 79-year-old chairman said the cards, issued by Berkshire's car-insurance specialist Geico, were his idea and popular with clients. 'We got business all right - but of the wrong type,' Mr Buffett wrote.
The retreat narrows Berkshire's product offering to Geico policyholders, who provide a growing source of revenue. Mr Buffett said the idea to issue credit cards came after 'many years' of brainstorming about how to best serve the millions of drivers that Geico accumulated with the help of its caveman and talking-gecko ads. Its implementation was resisted by the insurer.
'Geico's managers, it should be emphasised, were never enthusiastic about my idea. They warned me,' said Mr Buffett, who is also Berkshire's chief executive. 'I subtly indicated that I was older and wiser. I was just older.'
=> Old Fart leh?
Geico, which Berkshire bought in 1996, added 2 million customers in the last three years, and Mr Buffett said in his previous letter that the firm's business prospects made him and the unit's CEO, Tony Nicely, 'feel like two hungry mosquitoes in a nudist camp.'
Mr Buffett describes Geico as a 'low-cost' provider, and his decision to issue credit cards to the insurer's customers contrasts with the strategy espoused by American Express, one of Berkshire's biggest and oldest investments.
AmEx, led by CEO Kenneth I Chenault, remained profitable throughout the recession by dominating the market for affluent consumers.
AmEx is performing well because it targets consumers with high credit scores who spend a lot, according to Scott Valentin, an analyst at FBR Capital Markets.
In his 2005 and 2006 letters, Mr Buffett encouraged shareholders to sign up for the Geico card, saying it was the one he used.
A link on Geico's website leads to a notice from South Jordan, Utah-based Merrick Bank, saying the lender acquired the MasterCard accounts.
Merrick's MasterCard portfolio grew 273 per cent last year to 89,000 credit cards, according to the Nilson Report, an industry newsletter. Geico was Berkshire's most profitable underwriter last year, ahead of reinsurance units General Re and Berkshire Hathaway Reinsurance Group.
Berkshire, which reported 2009 net income of US$8.06 billion along with Mr Buffett's letter, usually gets about half its profits from insurance units.
Mr Buffett rarely interferes in the operations of Berkshire's operating units. Berkshire owns more than a hundred units that employ about 257,000 workers.
'That's a departure from what he has long held to be his operating practice' of not interfering, said Tom Russo, partner at Gardner Russo & Gardner.
The credit card mistake 'is sort of a small stumble that may keep us as investors more well protected because the lesson is once again learned and reinforced.'
Mr Buffett built Berkshire over four decades from a struggling textile maker into a company valued at almost US$200 billion with businesses ranging from ice cream to energy production. -- Bloomberg
</TD></TR></TBODY></TABLE>
Published March 2, 2010
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Buffett closes the book on credit card 'fiasco'
(NEW YORK) Billionaire Warren Buffett shut a Berkshire Hathaway credit-card business and sold bad loans at 55 cents on the dollar in what he called a 'very expensive business fiasco.'
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>Mr Buffett: 'Geico's managers were never enthusiastic about my idea. They warned me. I subtly indicated that I was older and wiser. I was just older.' </TD></TR></TBODY></TABLE>'I finally woke up,' Mr Buffett said in his annual letter to Berkshire shareholders at the weekend. Berkshire lost US$44 million selling its US$98 million portfolio of 'troubled receivables,' Mr Buffett said. The company also had US$6.3 million of losses from operations before Mr Buffett 'closed the book' on the business, he wrote.
The 79-year-old chairman said the cards, issued by Berkshire's car-insurance specialist Geico, were his idea and popular with clients. 'We got business all right - but of the wrong type,' Mr Buffett wrote.
The retreat narrows Berkshire's product offering to Geico policyholders, who provide a growing source of revenue. Mr Buffett said the idea to issue credit cards came after 'many years' of brainstorming about how to best serve the millions of drivers that Geico accumulated with the help of its caveman and talking-gecko ads. Its implementation was resisted by the insurer.
'Geico's managers, it should be emphasised, were never enthusiastic about my idea. They warned me,' said Mr Buffett, who is also Berkshire's chief executive. 'I subtly indicated that I was older and wiser. I was just older.'
=> Old Fart leh?
Geico, which Berkshire bought in 1996, added 2 million customers in the last three years, and Mr Buffett said in his previous letter that the firm's business prospects made him and the unit's CEO, Tony Nicely, 'feel like two hungry mosquitoes in a nudist camp.'
Mr Buffett describes Geico as a 'low-cost' provider, and his decision to issue credit cards to the insurer's customers contrasts with the strategy espoused by American Express, one of Berkshire's biggest and oldest investments.
AmEx, led by CEO Kenneth I Chenault, remained profitable throughout the recession by dominating the market for affluent consumers.
AmEx is performing well because it targets consumers with high credit scores who spend a lot, according to Scott Valentin, an analyst at FBR Capital Markets.
In his 2005 and 2006 letters, Mr Buffett encouraged shareholders to sign up for the Geico card, saying it was the one he used.
A link on Geico's website leads to a notice from South Jordan, Utah-based Merrick Bank, saying the lender acquired the MasterCard accounts.
Merrick's MasterCard portfolio grew 273 per cent last year to 89,000 credit cards, according to the Nilson Report, an industry newsletter. Geico was Berkshire's most profitable underwriter last year, ahead of reinsurance units General Re and Berkshire Hathaway Reinsurance Group.
Berkshire, which reported 2009 net income of US$8.06 billion along with Mr Buffett's letter, usually gets about half its profits from insurance units.
Mr Buffett rarely interferes in the operations of Berkshire's operating units. Berkshire owns more than a hundred units that employ about 257,000 workers.
'That's a departure from what he has long held to be his operating practice' of not interfering, said Tom Russo, partner at Gardner Russo & Gardner.
The credit card mistake 'is sort of a small stumble that may keep us as investors more well protected because the lesson is once again learned and reinforced.'
Mr Buffett built Berkshire over four decades from a struggling textile maker into a company valued at almost US$200 billion with businesses ranging from ice cream to energy production. -- Bloomberg
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