Interest the company earns on its $109 billion cash pile nearly tripled from a year ago to $397 million in the third quarter, it disclosed on Saturday, noting that the gain was “mainly due to increases in short-term interest rates.” Berkshire keeps the vast majority of its cash in short-term Treasury bills, bank deposits and money market accounts, where interest rates have been rising rapidly as the Federal Reserve has tightened monetary policy. Last week, the US central bank raised interest rates to between 3.75 and 4 percent, from near zero at the start of the year, and traders expect that rate to rise to 5 percent next year. While the tightening policy has sent shockwaves through financial markets — even driving up the value of Berkshire’s stock portfolio — it’s finally starting to pay dividends for cash-strapped companies and consumers. Data from the Investment Company Institute showed that cash parked in money market mutual funds serving everyday retail investors has swelled to a high. Buffett and Berkshire Vice Chairman Charlie Munger have over the past decade presided over a major expansion of Berkshire’s cash reserves, which they believe is critical given the potentially devastating payouts the company’s insurance businesses will one day have to make. . It was a point underscored by third-quarter results that showed Berkshire took a $3.4 billion pretax loss from Hurricane Ian, which killed more than 100 people as it tore through parts of Florida. US President Joe Biden said it would take years, not months, for the region to recover. Berkshire’s insurance unit posted an operating loss of $962 million during the quarter, with Geico warning that higher prices for used auto parts and an increase in accidents weighed on its results. Buffett and Munger have long been able to incur large losses in their insurance division because of heavy “ruling”—the premiums they collect before it ultimately has to pay claims on liabilities. That spread helped fuel its equity investments and fund the company’s business acquisitions. The sell-off in financial markets has hampered Berkshire’s stock portfolio, which includes large stakes in Apple, American Express, Chevron and Bank of America. The company said its portfolio fell in value to $306.2 billion from $327.7 billion at the end of June. Those declines pushed it to a net loss of $2.7 billion in the period, or $1,832 per Class A share, from a profit of $10.3 billion a year earlier, worth $6,882 per share. Buffett has long characterized fluctuations in his investment portfolio — which he must recognize in profit and loss statements due to accounting rules — as “meaningless.” The dozens of businesses he owns, which are widely watched for signs of the health of the US industrial and business complex, have revealed the resilience of the US economy while also signaling a potential slowdown planned by the Fed. Berkshire’s results also showed the effects of inflation and battles for better wages as real living standards come under pressure from higher prices. Revenue at BNSF Railroad rose 17 percent to $6.5 billion, but profits fell as the volume of freight it shipped fell and it paid higher wages to its employees. The railroad became a flashpoint earlier this year as more than 30,000 unionized BNSF workers threatened to strike, pressing conditions and demanding higher wages. A tentative deal in September provided concessions to employees, and BNSF reported wage costs rose 27 percent in the third quarter compared with a year earlier. The energy businesses in Berkshire’s utilities division reported a 17% jump in revenue, boosted by higher energy costs. But the company’s real estate brokerage unit saw sales fall by almost a fifth and the unit’s operating profit plummeted 72% from a year earlier as the housing market cooled and sold fewer homes. Berkshire said higher mortgage rates are also expected to weigh on its minimal housing business. During the quarter, however, these businesses – including brick maker Acme and flooring group Shaw – managed to raise prices and recorded strong demand. Overall, operating profit rose to $7.8 billion from $6.5 billion last year. Results were helped by stronger earnings in the manufacturing and services sectors. Berkshire, which this year bought a 21 percent stake in energy company Occidental’s common stock, revealed that in the fourth quarter it will begin reporting earnings from the oil and gas giant as part of its results. The company also said it had spent just over $1 billion in the quarter to buy back its own stock. Berkshire’s Class A shares, which are down 4.1 percent this year, have far outperformed the broader market. The benchmark S&P 500 has fallen 20.9 percent, while one investor in U.S. Treasuries has lost 15.3 percent, according to Ice Data Services.
