Tags: buffett | berkshire | reform | collateral

Barclays: Financial Reform Bill May Cost Berkshire $8 Billion in Collateral

By Dan Weil   |   Friday, 02 Jul 2010 10:54 AM

Berkshire Hathaway may have to post $6 billion to $8 billion in additional collateral for its derivative contracts if Congress passes the financial reform bill, says Barclays Capital analyst Jay Gelb.

Berkshire, of course, is led by investment legend Warren Buffett. It has $62 billion of derivatives contracts.

The Dodd-Frank bill exempts some types of companies from the new collateral requirements on certain types of derivatives. But Berkshire wouldn’t qualify, Gelb wrote in a note to investors obtained by Dow Jones.

The bill represents "a negative development for Berkshire Hathaway," he said.

Buffett has complained about the collateral rule, saying it shouldn’t apply to existing derivative contracts.

"If the restaurant only gets paid for an 8-ounce steak, they don't want to give you the 12-ounce one," he told the Omaha World-Herald in April.

Buffett later said Berkshire can use its investment portfolio as additional collateral to avoid having to sell securities to raise cash.

The company’s derivative holdings include $37 billion of equity-index puts with Goldman Sachs and Lehman Brothers, among others.

The Dodd-Frank bill has sparked some intense opposition.

“The sheer complexity of the ... bill is certainly a threat to future economic growth,” Stanford University economist John Taylor wrote in The Wall Street Journal.

“The main problem with the bill is that it is based on a misdiagnosis of the causes of the financial crisis.”

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Berkshire Hathaway may have to post $6 billion to $8 billion in additional collateral for its derivative contracts if Congress passes the financial reform bill, says Barclays Capital analyst Jay Gelb. Berkshire, of course, is led by investment legend Warren Buffett. It has...
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