Warren Buffett – Secrets Of Success Online

English: Berkshire Cotton Manufacturing Compan...

English: Berkshire Cotton Manufacturing Company, Adams, Massachusetts (3,750 Mason Looms, Mason Combers) (Photo credit: Wikipedia)

Another paper examining the source of Warren Buffett’s outperformance has been published. The paper, “Buffett’s Alpha,” which can be found online, published by AQR Capital Management (Andrea Frazzini, David Kabiller and Lasse H. Pedersen) says the Oracle of Omaha’s alpha is the result of a sophisticated application of leverage to a portfolio of quality, low-beta stocks.

Here is the abstract from the paper: “Berkshire Hathaway has a higher Sharpe ratio than any stock or mutual fund with a history of more than 30 years and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha become statistically insignificant when controlling for exposures to Betting-Against-Beta and quality factors. We estimate that Berkshire’s average leverage is about 1.6-to-1 and that it relies on unusually low-cost and stable sources of financing. Berkshire’s returns can thus largely be explained by the use of leverage combined with a focus on cheap, safe, quality stocks. We find that Berkshire’s portfolio of publicly-traded stocks outperform private companies, suggesting that Buffett’s returns are more due to stock selection than to a direct effect on management.”

Buffett’s low-cost insurance and reinsurance businesses has given him a significant advantage in terms of unique access to cheap, term leverage. AQR estimates that 36% of Berkshire Hathaway’s (BRK.A) liabilities consist of insurance float on average. The estimated average annual cost of
Berkshire’s insurance float is only 2.2%, more than 3 percentage points below the average T-bill rate. Berkshire Hathaway’s
Sharpe ratio is 0.76 over the period 1976-2011, nearly double the Sharpe ratio of the overall stock market – but way lower than
many investors would imagine.

The Sharpe ratio is used to show how well the return from an asset compensates an investor for the risk taken – the higher the number the better.

Has Warren Buffett A New Target ? ( Forbes )

August 15
or is he getting ready to Pass The Torch ?
WASHINGTON, DC - JUNE 05:  Warren Buffett, cha...Buffett cut long-held holdings of J&J, P&G and Kraft Foods. Why? (Image credit: Getty Images via @daylife)

Berkshire Hathaway took the ax to some of the longest-held names in its stock portfolio last quarter, sparking questions over just how much sway Warren Buffett is sharing with his recently-installed investing colleagues.

to help manage a chunk of the firm’s approximately $75 billion equity portfolio. Both managers were expected to start small and gradually manage more and more of the company’s holdings until ultimately taking over whenever Buffett steps down.

An SEC filing Tuesday detailing Berkshire’s portfolio at the close of the second quarter revealed significant cuts to holdings in Johnson & JohnsonProcter & Gamble and Kraft Foods, all stalwarts of Buffett’s portfolio.

Deal Journal’s Erik Holm says the cuts may represent a changing of the guard to some small degree, with Buffett sharing more investing responsibility with his younger colleagues:

The moves, disclosed in a regulatory filing Tuesday, reveal an uncommonly active quarter for Berkshire leader Warren Buffett and Berkshire’s new portfolio managersTodd Combs and Ted Weschler.…

Tom Russo, a longtime Berkshire shareholder who manages more than $5 billion as a partner at Gardner Russo & Gardner, theorized that Buffett was selling off the positions to allocate more capital to Combs and Weschler, who are expected to take on ever-larger slices of Berkshire’s investment portfolio in coming years.

The cuts were substantial, and did come from some of the biggest positions in the Berkshire portfolio: J&J, P&G and Kraft were three of 14 equity positions worth more than a billion dollars at the end of 2011. Positions of that size are assumed to be Buffett’s bailiwick, considering the Oracle of Omaha told  shareholders earlier this year that his two deputies each had their mandates raised by a billion dollars and manage about $2.75 billion.

At recent prices, and with the caveat that it is quite possible Berkshire’s positions have changed since June 30, Buffett holds $706 million worth of J&J, just under $4 billion in P&G and $2.4 billion in Kraft. Those positions were cut by two-thirds, a fifth and a quarter from March 31. But it is not a guarantee that the cash raised from paring those stakes found its way into the baskets of Combs and Weschler

While the logic makes sense, another longtime Berkshire shareholder, money manager and Forbes contributor Martin Sosnoff, thinks the portfolio reduction – the overall equity portfolio was trimmed to $74.3 billion from $75.3 billion — might mean Buffett is readying another big acquisition along the lines of his 2010 takeover of Burlington Northern Santa Fe.

Sosnoff, who manages $6 billion at Atalanta Sosnoff Capital writes that while Buffett may be conserving capital in the face of ”investment waters filled with riptides ,” he thinks there is just as good a chance the world’s third-richest man is readying for one last mega-play, another opportunity to step up to the plate when few others can or will. Remember, Buffett also stepped up with sorely-needed capital in 2008 for Goldman Sachs Group and General Electric — bets that paid off handsomely — and again in 2011 for Bank of America.

Warren Buffett’s U.S. Housing Portfolio Profits ( and : He Avoids Euro Zone )

President Barack Obama and Warren Buffett in t...

President Barack Obama and Warren Buffett in the Oval Office, July 14, 2010. (Photo credit: Wikipedia)

August 3

Berkshire Hathaway Inc. is benefitting after billionaire Chairman Warren Buffett increased investments tied to the U.S. housing market and sidestepped bets on Europe amid the region’s debt crisis.

Berkshire’s Class A shares rose this week to the highest in 16 months. The Omaha, Nebraska-based company, which is expected to report second-quarter earnings tomorrow, is about 3% away from the top closing price since 2008.

I don’t know if he’s lucky, smart or patriotic, but it’s worked out for him

Buffett added to holdings of Wells Fargo & Co., the largest U.S. home lender, bought real-estate brokers and bid on mortgage assets of bankrupt Residential Capital LLC as he bets on a rebound in housing in the world’s largest economy. Rather than spend his company’s cash pile on European companies after a 2008 trip to the region, he made his largest acquisitions in the U.S., including Fort Worth, Texas-based railroad Burlington Northern Santa Fe.

“I don’t know if he’s lucky, smart or patriotic, but it’s worked out for him,” Cliff Gallant, an analyst at KBW Inc., said in a phone interview. He estimates that Berkshire will post an operating profit of US$1,750 a share for the second quarter, a 6.7% increase from a year earlier.

The economy in the 17-nation euro area may contract this year as governments institute austerity measures to lower borrowing costs, according to the median estimate of 35 analysts surveyed by Bloomberg. Buffett said last month that Europe’s monetary union may fracture if its leaders can’t rewrite their rules, while U.S. housing was beginning to show signs of a rebound after the worst crash in seven decades.

Housing Improves

“For the last two years, I’ve seen everything except housing moving forward in the economy,” Buffett, 81, told Betty Liu in a July 13 interview on Bloomberg Television. “In the last few months, the rest of the economy actually has flattened out. Housing is picking up.”

The number of available U.S. homes has been declining, a trend Buffett has said was inevitable as new households form. Properties for sale fell to 2.39 million in June from an average supply of 2.93 million in 2011 and 3.22 million in 2010, data from the National Association of Realtors show.

A turn in the housing market will benefit Berkshire’s businesses tied to home building and repair, said Josh Brown, who helps oversee US$350-million at Fusion Analytics Investment Partners LLC in New York, including Berkshire shares.

“Buffett has spent the past decade amassing a portfolio of companies that are involved with home remodeling,” he said in a phone interview. “It’s got the right drivers if this housing trend continues.”

[np-relaed]

Berkshire Businesses

Berkshire’s subsidiaries include Acme Brick Co., paint maker Benjamin Moore & Co., builder Clayton Homes and carpet manufacturer Shaw Industries. The firm has stakes in some of the country’s largest mortgage lenders, including U.S. Bancorp and Bank of America Corp. The Wells Fargo stake was valued at more than US$13-billion at the end of March, making it the second- biggest holding in the company’s stock portfolio.

“When we compare Berkshire to the macro economy, there’s more exposure to housing,” Meyer Shields, an analyst at Stifel Nicolaus & Co., said in a phone interview. “That should mitigate some of the other disappointing areas of the economy.”

Gross domestic product, the value of all goods and services produced, slowed to a 1.5% annual rate in the second quarter from 2% in the first three months of the year as limited job growth prompted Americans to curb spending, U.S. Commerce Department data released July 27 showed. Federal Reserve policy makers said yesterday that “economic activity decelerated somewhat over the first half of this year.”

Buffett’s Deals

Buffett struck a deal last August to buy preferred stock and warrants for US$5-billion in Bank of America, the second- largest U.S. lender, after its shares plunged amid costs tied to soured mortgages. A month later, the billionaire said he wouldn’t come to the aid of European lenders in need of capital.

Berkshire offered to buy ResCap for US$1 before it entered bankruptcy protection in May. Buffett’s firm is set to be the lead bidder for the company’s loan portfolio in a court- supervised auction this year. Nationstar Mortgage Holdings Inc., backed by Fortress Investment Group LLC, will be the first bidder for ResCap’s mortgage servicing and underwriting business, which Berkshire had also sought.

Buffett has favored the U.S. for larger acquisitions. He hasn’t announced any deals valued at more than US$1-billion for European companies after visiting Germany, Switzerland, Spain and Italy in 2008 to scout potential targets.

U.S. Acquisitions

Berkshire’s 2010 buyout of Burlington Northern for US$26.5-billion was an “all-in wager” on the U.S. economy, Buffett has said. The firm spent about US$9-billion last year for Wickliffe, Ohio-based Lubrizol Corp.

A recession in Europe could still hurt Berkshire because it has subsidiaries that operate there as well as bullish derivative bets on equity indexes in the region, said Shields. Lubrizol has struck deals to buy at least two companies in Spain since being acquired by Berkshire in September.

European leaders are deepening their ties in response to the sovereign debt crisis by collaborating on bailouts and insisting on budget-deficit curbs. Buffett said last month that the number of nations involved has made action more difficult.

“The system that they put in place had a fundamental fatal flaw” of a common currency without a common fiscal policy, Buffett said on Bloomberg Television in July. “It can’t survive with the present rules. That’s what they’re learning. The question is: Can 17 countries get together in a way to essentially redo something?”

Still, Buffett’s company may be benefitting from a “flight to quality” as Europe’s troubles worsen, Shields said. Berkshire had a US$37.8-billion cash hoard at the end of March.

Investors may be speculating that Buffett will be able to cut deals amid market dislocations that boost shareholder returns, said Shields. Berkshire took stakes in Goldman Sachs Group Inc., General Electric Co. and Swiss Re Ltd. during the 2008 financial crisis. The securities were redeemed last year for more than US$12-billion.

Why Are Your Investing Results Mediocre ?

Are Your Investing Results Mediocre ?

Are you facing the facts ? – do you even know what your return was for the last six months ?

Do you have a written record of why you bought a particular stock , the time lines are results you expected , the review and   update of your selection(s) ?

Lack of a written plan gives you the ambiguity to mask your performance and avoid the responsibility for the results.

You can make the change :

Ask yourself the hard questions – what are my expectations/ results and what must I do to change if the results aren’t what you want.

It is true that you can’t control The Fed or the euro zone crisis – but you are the one who choses your portfolio – and to remain or change your selections each trading day.

You don’t have to have a 500 page plan like that outlined in my book – but no plan is a plan for no success ( pardon the lack of grammar.

How many books on investing did you read this year ?

What are you doing differently from last year ?

Don’t remain in denial – face your demons and move up to success .

Yes- I’d be happy to meet you and put on a one full day seminar.

The cost – $ 249 and the organizer receives his or her seat for organizing the event .

You can contact me direct by email to jackabass@gmail.com

All You Need To Succeed –

in 500 pages of Investing Strategy

and Selections

Stock Market Magic: Building Your Apprentice Millionaire Portfolio 2012: All you need to succeed in today's stock market

Available at http://www.amazon.com

Stock Market Magic: Building Your Apprentice Millionaire Portfolio 2012: All you need to succeed in today’s stock market [Paperback]

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Fairfax Financial Q2 – Canada’s Warren Buffett Doubles down On RIM

Fairfax Financial

Fairfax Financial (Photo credit: Wikipedia)

July 27

Insurance and investment giant Fairfax Financial Holdings Ltd. says second-quarter profit rose 14%, largely due to improved underwriting results and a jump in revenues from premiums written by its insurance and reinsurance businesses.

The Toronto-based financial services company, which reports in U.S. dollars, said Thursday it earned US$95-million, or US$3.85 per diluted share, up 14% from the US$83.3-million, or US$3.40 per diluted share during the year-ago quarter.

The underwriting business at the casualty and property insurer swung back to profit — US$34.8-million — from a loss of US$6.1-million during the quarter a year-ago, when it booked losses related to an influx of tornadoes in the U.S.

Net insurance premiums written increased by 14% to US$1.6-billion from US$1.37-billion in the 2011 quarter.

However, the improved results from its underwriting and premiums were offset by lower investment gains and lower interest and dividend income during the volatile quarter.

Our underwriting results continued to improve on increased premiums and we produced a small investment gain notwithstanding unrealized investment losses related to our defensive hedging strategy,” said Prem Watsa, chairman and CEO of Fairfax.

“We continue to maintain our equity hedges as we remain very concerned about the economic outlook over the next few years.”

Companies buy hedges — contracts that protect the future value of investments and other assets — during volatile stock markets. However, unexpected share price swings can lead to paper losses on the balance sheet, which must be accounted for.

Operating income in the insurance and reinsurance businesses fell to US$117.3-million from US$146.2-million in the quarter of 2011, largely due to the decrease in interest and dividend income.

Interest and dividend income slipped to US$104.9-million from US$195.1-million as the company increased its holdings in low-yielding cash and short-term investments.

The company saw lower gains from investments, coming in at US$71.5-million during the quarter, compared to a gain of US$119.6-million in the 2011 quarter.

It also booked a US$7.2-million loss from its equity hedging strategy, which compared to a US$396.6-million gain in the year-earlier quarter. That was largely offset by a US$40.9-million gain on equity investments this quarter, compared to a US$624.8-million loss during the quarter of 2011.

The company decided to hedge its exposure to equity investments in response to significantly higher stock valuations and economic uncertainty and equity hedges represented 104.2% of its equity and related holdings as of June 30.

“The market value and the liquidity of these hedges are volatile and may vary dramatically either up or down in short periods, and their ultimate value will therefore only be known over the long term,” Fairfax said in its earnings release.

During the quarter, the insurance and investment giant announced plans to buy a 77% interest in travel business Thomas Cook (India) Ltd. for about US$150-million.

And it also revealed it would acquire Brit Insurance Ltd. of London from Brit Group for about US$300-million.

Research In Motion

The company also recently doubled its stake in Research In Motion after the company announced a new chief executive and revamped board of directors. Watsa also took a seat on its board.

Earlier this month, Watsa increased his own holdings in the struggling BlackBerry maker to 9.9% — representing 51.9 million shares — a filing with the U.S. Securities and Exchange Commission showed.

Fairfax, through its subsidiaries, is involved in property and casualty insurance and reinsurance and investment management.

Shares in the company, which reported results after markets, rose $3.43 to close at $380 each on the Toronto Stock Exchange.

Progressive – discount insurer gets aggressive

Flo (Progressive Insurance)

Flo (Progressive Insurance) (Photo credit: Wikipedia)

Ok I like their adds – the settting seems to be like the foyer to Heaven

Progressive (PGR : NYSE : US$20.55)

Free Trial   – Tech device that measures your driving habits

In hopes of enticing more drivers to switch to Progressive, the Mayfield Village, Ohio-based insurer announced Monday for the first time that it is offering a “try-before-you-buy” option for its Snapshot program. The computer-mouse sized Snapshot device, which is plugged into a port into any car made after 1996, tracks the driver’s speed, braking, and distance.

 The program is uses motorists’ real-time driving behaviour and lets Progressive know whether drivers are eligible for any discounts. While previously, customers were required to be signed to Progressive in order to be eligible, non-customers are now open to try Snapshot before deciding whether to make the switch.

The insurer notes that highest-risk driving behaviour accounts for over 2.5 times the costs of drivers with the lowest-risk behaviour – suggesting that the scope of ranging insurance rates is wider than what is currently being offered. The company boasts that seven out of ten drivers who try Snapshot are qualified for a discount, which can be as high as 30%.

“The consumer was right all along,” said Glenn Renwick, Progressive’s President and CEO. “For most, the rates they’re paying are higher than the risk they actually present – and in many cases, much higher. Until now, insurers had no effective way to capture actual driving behaviour and factor that into the rates they could offer. But we have made a meaningful start toward personalized insurance pricing that’s based on measuring real-time driving behaviour – the statistics of one.” The tracker has backing from environmentalists looking to reduce accident costs and fuel consumption, but some consumers fear that as trackers become the norm from the highly aggressive auto-insurance industry, companies may usethe technology to raise rates instead.

 I predict –  or suggest – Geigo offer free little green pets to fight this battle.

 

Berkshire Links to GM and Bombardier ( NetJets)

English: Bombardier CSeries mockup Italiano: M...

English: Bombardier CSeries mockup Italiano: Modello dimostrativo del Bombardier CSeries (Photo credit: Wikipedia)

Berkshire Hathaway (BRK.A : NYSE : US$123,897.57)

General Motors (GM : NYSE : US$20.31 

Bombardier* (BBD.B : TSX : $4.04)

“She may not look like much, but she’s got it where it counts, kid.” - Star Wars -Han Solo to Luke Skywalker (on first seeing the

Millennium Falcon).

Many aircraft manufacturers have used the Farnborough International Air Show (FIA), which will take place July 9-15, as a key venue to announce major orders. In the past, based on a decade or more of trading data both before and after the air show, some investors have purchased BBD shares in late June or early July before the run-up to the show and then sold the shares during the show.

 BBD shares have tended to peak on approximately the second or third day of the show, as major aircraft orders typically have been announced by then, or investors have become increasingly concerned that large orders will fail to materialize. BBD shares have typically traded higher on average 9.1% in 10 of the last 15 years during the week before the air show and sold off every year following the show on average 8.1%. However, the average net change from five days before to five days after the show since 1997 is less than 0.5%, making no apparent long-term impact on the share price.

BBD held its Pre-Farnborough airshow briefing in late June, the company expects total business jet deliveries in 2012 to be roughly flat YoY with return to sustained growth in 2013. On commercial aircraft, there was a slight change versus prior year forecast and no change to CSeries total aircraft market of 6,900 (BBD expects a 50% market share). Europe is challenging, but emerging markets are still promising, and North America prospects have improved. Could Farnborough be a letdown?

How do you top the biggest business jet order in your history? Recently, NetJets, a private jet-sharing company owned by Warren Buffett‘s Berkshire Hathaway (BRK.A) , said it would buy up to 425 new business jets from Bombardier and from U.S. planemaker Cessna Aircraft in a $9.6 billion deal to renew its North American and European fleets. BBD’s portion of the order is worth up to $7.3 billion and includes up to 275 of the company’s Challenger business aircraft (the transaction comprises 100 firm orders on two different types of Challenger jets, and options for 175 more).

 BBD also signed a long-term service agreement with NetJets that could be worth an extra $2.3 billion if all of NetJets’ options on Bombardier aircraft are fully exercised. Farnborough holds its air show on even-numbered years in July, while Paris holds its airshow on odd-numbered years in June. Both Farnborough and Paris are important events for the aerospace industry, known particularly for the announcement of new developments and orders.

 General Motors Stake

Warren Buffett’s Berkshire Hathaway acquired its largest stake in General Motors before the automaker plummeted Friday, as the billionaire chairman hands more responsibility to deputy stock pickers.

 Berkshire accumulated about  8.47 million shares of GM through February 3 at an average price of $24.35, according to data compiled by Bloomberg. Omaha, Nebraska-based Berkshire’s full stake was reported in a separate regulatory filing in May that didn’t disclose the purchase price or date. Berkshire bought another 1.53 million GM shares through February 14 for an average of $25.46 each, the insurance filings showed.

Taken together, the holdings had lost an estimated $40 million in value from the drop in the stock, assuming no shares were sold. An analyst believes GM’s slump may provide Berkshire with another opportunity to buy shares in a company that could benefit as U.S. consumers replace aging cars. As Buffett tends to focus on the long-term development of the companies he invests in, analysts speculate that one quarter’s results would not be a cause of worry for him.

 

Bombardier Picking Up Interest from BRK Netjets Order

Bombardier Picking Up Interest from BRK Netjets Order

June 21, 2012

English: Bombardier CSeries mockup Italiano: M...English: Bombardier CSeries mockup Italiano: Modello dimostrativo del Bombardier CSeries (Photo credit: Wikipedia)

June 21, 2012

Bombardier* (BBD.B : TSX : $4.03

Berkshire Hathaway (BRK.A) , said it would buy up to 425 new business jets from Bombardier and from U.S. plane-maker Cessna Aircraft in a $9.6 billion deal to renew its North American and European fleets. BBD’s portion of the order is worth up to $7.3 billion and includes up to 275 of the company’s Challenger business aircraft (the transaction comprises 100 firm orders on two different types of Challenger jets, and options for 175 more).

BBD also signed a long-term service agreement with NetJets that could be worth an extra $2.3 billion if all of NetJets’ options on Bombardier aircraft are fully exercised.

Bombardier could become an equity of interest over the next four weeks, as historical trends have shown a trading opportunity prior to the annual Farnborough International Air show (FIA), which will take place July 9- 15. Many aircraft manufacturers use the FIA as a key venue to announce major orders. As a result of reviewing the past 15 years of trading data both before and after the air show, BBD shares should be purchased in late June or early July before the run-up to the show and be sold during the show.

BBD shares tend to peak on approximately the second or third day of the show, as major aircraft orders have typically been announced by then, or investors become increasingly concerned that large orders will fail to materialize. BBD shares have typically traded higher on average 9.1% in 10 of the last 15 years during the week before the air show and sold off every year following the show on average 8.1%. However, the average net change from five days before to five days after the show since 1997 is less than 0.5%, making no apparent long-term impact on the share price.

BBD held its Pre-Farnborough airshow briefing on Tuesday June 18, the company expects total business jet deliveries in 2012 to be roughly flat YoY with return to sustained growth in 2013. On commercial aircraft, there was a slight change versus prior year forecast and no change to CSeries total aircraft market of 6,900 (BBD expects a 50% market share).

 Europe is challenging, but emerging markets are still promising, and North America prospects have improved. Could Farnborough be a letdown? How do you top the biggest business jet order in your history?

Farnborough holds its air show on even-numbered years in July, while Paris holds its airshow on odd-numbered years in June. Both Farnborough and Paris are important events for the aerospace industry, known particularly for the announcement of new developments and orders.

Warren Buffett Moves On Real Estate Rebound With ResCap

President Barack Obama and Warren Buffett in t...

President Barack Obama and Warren Buffett in the Oval Office, July 14, 2010. (Photo credit: Wikipedia)

June 18th

Warren  Buffett whose prediction last year of a housing recovery was premature, is raising his bet on a rebound with his $3.85 billion bid for a mortgage business and loan portfolio from bankrupt Residential Capital LLC.

The offer “certainly indicates that he thinks the worst is behind us,” Jeff Matthews, author of “Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett,” said in a phone interview. “Yes, he’s been wrong about housing before. But if you look at any credit metric, if you look at any of the banks and what’s happening in their loan portfolios, it’s getting better.”

Foreclosure filings in the U.S. have fallen on an annual basis for 20 straight months, according to RealtyTrac Inc., and home prices jumped 1.8 percent in March, the biggest monthly increase in at least two decades, as record-low mortgage rates and a dwindling inventory of properties available for sale strengthened demand.

Buffett’s Berkshire Hathaway Inc. (BRK/A) has prepared for a turnaround by buying a brickmaker, expanding its real estate brokerage and wagering on commercial property through a company jointly owned with Leucadia National Corp. (LUK) The venture, called Berkadia Commercial Mortgage LLC, was formed from a loan- servicing and mortgage business purchased out of bankruptcy in 2009 and once owned by ResCap’s parent.

Auction Approval

Ally Financial Inc. (ALLY), a Detroit-based auto lender majority owned by U.S. taxpayers, put its ResCap unit into bankruptcy last month to distance itself from the mortgage lenders’ losses and help repay its 2008 bailout following the U.S. housing crash and subsequent credit crisis.

U.S. Bankruptcy Court Judge Martin Glenn is scheduled to consider approving auctions for the assets at a hearing today. Berkshire said in a June 11 court filing that it’s seeking to replace Fortress Investment Group LLC (FIG)‘s Nationstar Mortgage Holdings Inc. as the stalking-horse, or initial, bidder at an auction for ResCap’s mortgage business. Berkshire has also proposed replacing Ally as the first bidder for the Minneapolis- based lender’s loan portfolio.

The billionaire’s Omaha, Nebraska-based firm, which is a ResCap bondholder, offered to match Fortress’s price of about $2.4 billion for the mortgage operations. It’s also proposing fees that are about $60 million lower than Nationstar’s if it’s outbid. Berkshire said it’s prepared to pay $1.45 billion for the loan portfolio, compared with Ally’s $1.4 billion for a sale outside the bankruptcy plan backed by the car lender.

The judge can either accept Nationstar as the stalking horse for the mortgage unit, name Berkshire in its place, or refuse to grant any company the protections, such as the breakup fee, that come with being the initial bidder.

‘Real Offer’

Buffett has “come out with what appears to be a very real offer to buy the assets,” said John McKenna, a managing director at Miller Buckfire & Co., a New York-based financial advisory firm. “The court will ferret out whether it is a tactic or a legitimate interest in acquiring the assets.” A buyer can’t “just show up and feign interest in order to generate a better return.”

Nationstar said Berkshire’s request shouldn’t be granted because it may discourage potential investors in future bankruptcies from devoting the time and money required to be a stalking-horse, according to a June 14 court document. Susan Fitzpatrick, a ResCap spokeswoman, Fortress’s Gordon Runte and Ally’s Gina Proia declined to comment. Buffett didn’t respond to a request for comment sent to an assistant.

ResCap rejected Buffett’s offer to be the initial bidder and asked the court to approve the Nationstar and Ally proposal on June 14. Should Glenn approve ResCap’s plan, Berkshire still could bid in the auctions. It wouldn’t have the advantages given to the stalking horse, including any breakup fee.

Other Bidders

The court will probably affirm Nationstar as the initial bidder for the mortgage assets, beginning a three-month auction process, Douglas Harter, a Credit Suisse Group AG analyst, wrote in a June 13 note after meeting with the firm’s management. He said he expects other bidders to emerge.

Acquiring ResCap’s mortgage business would give Berkshire contracts to service loans, a function Berkadia provides for commercial real-estate investors. It would also give Buffett another platform to originate mortgages, which his firm already does for buyers of its Clayton unit’s pre-fabricated homes.

Berkshire, which holds the second-highest credit rating from Standard & Poor’s, can access funding cheaper than almost any company in the U.S. It sold $750 million of five-year bonds paying a 1.6 percent coupon last month.

Home Lenders

ResCap, once among the largest subprime mortgage originators, reduced its assets to $15.7 billion in the first quarter from more than $130 billion in 2006. The firm is the fifth-largest U.S. mortgage servicer, handling the billing and collections on about $369 billion mortgages in the first quarter, according to Inside Mortgage Finance, a trade journal.

Some of the largest home lenders including Bank of America Corp. (BAC) have retreated from servicing and underwriting loans as new international rules designed to avert another financial crisis force banks to raise capital. That’s creating an opportunity for investors like Buffett to scoop up assets at discounted prices and benefit from the rebound in housing, said David Lykken, the managing partner of consultant Mortgage Banking Solutions.

Since the collapse of the housing market, investors have been asking, “When’s the time to catch this falling knife?” he said. If Berkshire wins the auction for the loan portfolio, the firm may be able to increase the assets’ value by modifying some of the mortgages, he said.

Market Rebound

Buffett has said the real-estate market will rebound because a growing number of households will need properties while supply has dropped after builders retreated following the collapse. U.S. housing starts have plunged about two-thirds since 2006 and property prices are more than 35 percent below their peak that year.

“Housing will come back — you can be sure of that,” Buffett wrote in a February letter to Berkshire shareholders. “Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while ‘doubling-UNNp’ may be the initial reaction of some during a recession, living with in- laws can quickly lose its allure.”

Struck Deals

Berkshire is the largest investor in Wells Fargo & Co. (WFC), the biggest U.S. home-loan originator, and has a preferred stake in Bank of America, the fourth-largest U.S. mortgage lender. Buffett’s firm also has subsidiaries that make carpet, building insulation and roofing materials. Its subsidiary Acme Brick Co. last year bought Montgomery, Alabama-based Jenkins Brick Co.

The HomeServices of America Inc. unit has struck deals to acquire real-estate brokerages in Connecticut, Oregon and the state of Washington this year on the expectation that home sales will rebound as banks liquidate seized properties after settling foreclosure-misconduct claims. The housing market is “starting to show a pulse,” HomeServices Chief Executive Officer Ron Peltier said in an April interview.

Berkshire attempted to buy ResCap for $1 before the bankruptcy last month, the mortgage lender said in a June 14 court document. “Neither ResCap entering into bankruptcy nor a sale of ResCap’s mortgage production platform is in the best interests of Ally, the U.S. Treasury, Berkshire and other significant stakeholders in both Ally and ResCap,” Berkshire said in a May 3 letter, according to the filing.

Ally Rejected

Buffett’s firm proposed taking on ResCap’s potential liabilities, such as mounting litigation costs, according to three people familiar with the matter who requested anonymity because talks were private. Berkshire wanted to avoid a ResCap bankruptcy because it held unsecured debt, the people said. Ally rejected the proposal after deciding that a bankruptcy filing and sale better protected the company from future liabilities, the people said.

Buffett’s firm invested in ResCap’s secured and unsecured bonds more than two years ago, according to a June 4 court filing, in which Berkshire called for a probe of the mortgage lender’s pre-bankruptcy deals. Prices for three of ResCap’s unsecured bonds climbed after the document was filed, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Two days later, Berkshire had sold its unsecured debt, which had a face value of more than $500 million, according to court documents. Berkshire said in a court filing it holds more than $900 million in ResCap’s junior secured bonds. ResCap’s 9.625 percent junior secured notes, which Berkshire’s General Re unit owned as of Dec. 31, trade at 95 cents on the dollar after rising from 56.9 cents in November.

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