Berkshire Hathaway had to provide more detail to regulator
Warren Buffett's Berkshire Hathaway has struggled to meet Securities and Exchange Commission (SEC) accounts demands because it underestimated the risks to its derivatives bets, Reuters reports.
In material just published, chief financial officer Marc Hamburg wrote: "We recognise that the index values of the four indexes declined between 30% and 45% at December 31, 2008 as compared to the prior year end index values."
"Even though these short-term declines are in excess of our volatility inputs, we continue to believe that our volatility inputs are reasonable given the long-term nature of our equity index put option contracts," he added.
More explanation demanded
The contracts expire between 2018 and 2028, Berkshire said last week.
According to the correspondence, Berkshire also agreed to SEC demands for more explanation on $1.8bn of write-downs on stock investments, and $2.7bn of auction-rate and other municipal debt holdings. On June 29, the SEC said it completed its review without further comment.
Reuters says this issue came up in June 2008, when the regulator demanded "a more robust disclosure" of how the firm values its derivatives. Buffett did provide some additional disclosure, in what he called "excruciating detail," in his annual shareholder letter in February.
Billions of dollars in losses
The derivatives contracts are a big reason Berkshire's earnings fell for six straight quarters. Berkshire still had $8.23bn of paper losses and $37.48bn of potential liabilities on the contracts at the end of June.
