Monday, October 22, 2007

Buffett held Brazilian real on current account surplus

Buffett Avoids Bear Stearns, Countrywide Financial (Update3)
By Josh P. Hamilton

Oct. 18 (Bloomberg) -- Billionaire Warren Buffett said his Berkshire Hathaway Inc. won't buy a stake in Bear Stearns Cos. and that he ``never came close'' to acquiring shares of mortgage lender Countrywide Financial Corp., which fell 61 percent this year.

Buffett also said Berkshire sold all its stock in PetroChina Co., a company that has been the target of a divestment campaign by human rights groups.

Buffett denied a New York Times report published last month that said he might buy as much as 20 percent of New York-based Bear Stearns, the fifth-largest U.S. securities firm, during an interview on News Corp.'s Fox Business Network.

``That was an incorrect story,'' he said. ``We were not taking a stake. That one had no basis.''

Shares of Bear Stearns fell as much as 37 percent this year after the collapse of the subprime mortgage market pushed two of its hedge funds into bankruptcy and eroded fixed-income revenue. The stock remains the worst performer this year among the five biggest U.S. investment banks, even after rallying 7.7 percent on Sept. 26 when the New York Times story was published.

Buffett, 77, over four decades transformed Omaha, Nebraska- based Berkshire from a failing textile maker into a $200 billion investment and holding company with businesses ranging from ice cream to insurance and corporate jet leasing. His investment decisions are followed worldwide.

Didn't Buy Hovnanian

The Berkshire chairman said he was in contact with Calabasas, California-based Countrywide as the company's stock fell in August amid a cash shortage brought on by the worst housing slump in 16 years. The company lacked a comprehensive plan that might have interested Berkshire, Buffett said.

He never bought any shares of Countrywide or Hovnanian Enterprises Inc., the largest U.S. luxury homebuilder and the subject of takeover speculation. The Red Bank, New Jersey-based company has dropped 70 percent this year. Neither stock is undervalued, he said.

Buffett said he was skeptical about the U.S. Treasury's plan to create an $80 billion fund to buy distressed assets from structured investment vehicles linked to home lending.

``I don't see any way that pooling a bunch of mortgages, changing the ownership, is going to change the viability of the mortgage instrument itself -- whether people can make the payments,'' he said. ``It would be better to have them on the balance sheets so everyone would know what's going on''

PetroChina Stake

Buffett's decision to sell PetroChina was ``100 percent'' based on the share price, he told anchor Liz Claman. Human rights groups have been calling on him to sell the stake.

The company's Chinese parent is the largest foreign developer of oil fields in Sudan, accused by the U.S. of supporting genocide in the African nation's western Darfur region. Buffett rejected a Berkshire shareholder's proposal calling for divestment, and it was voted down at the annual meeting in May.

The most recent disclosures showed Berkshire's PetroChina investment was down to 3.1 percent of the publicly held shares as of Sept. 30, from 5.44 percent five days earlier and more than 10 percent at the end of last year. Berkshire paid $488 million for the stake, valued at $3.3 billion at the end of 2006, according to Berkshire's annual report.

Buffett identified the Brazilian real as the unnamed currency he said in May that he owned, noting it has doubled against the U.S. dollar in the past five years.

``During much of that time, the Brazilian government has in effect been supporting the U.S. dollar,'' Buffett said. ``They have been buying dollars in the market, they have been building up their own reserves. Their current account has turned into a good surplus,'' while the U.S. is behaving like ``the Brazilians or the Argentinians 10 or 20 years ago.''

Buffett said he wasn't suggesting anyone buy reais. ``We may be cashing out. This is not a huge position. We'll make $100 million,'' he said.

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