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Fitch Takes Away Berkshire's AAA Rating!


Parsad
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What does this mean.

 

Does Berkshire has to post collateral/deposit money for any of the derivatives or puts it has written ?

 

This, I think, is the big question.  It may not mean that much since the credit spreads were already going up on Berkshire's debt anyway, so I don't think they were going to be interested in issuing more.  I don't know about the financial covenants, though. 

 

Will it cause problems?  Nothing insurmountable, I'm sure, but it could hurt other opportunities.

 

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Do you remember the Fitch ratings in the Fairfax case a few years ago?

 

two agencies have to downgrade before the official rating is changed

 

 Congress should subpeona every employee at Fitch so that when an investigation is launched they'll have plenty of perjury charges to doll out.  

 

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What does this mean.

 

Does Berkshire has to post collateral/deposit money for any of the derivatives or puts it has written ?

 

Probably not.  Financing costs for businesses like Clayton Homes and Mid-American may be higher.  Although AM Best, Standard & Poors, DBRS will probably not do such a stupid thing and downgrade Berkshire, so I'm not sure exactly how much more in interest they would have to pay for any debt they issue.  Going from AAA to AA+ isn't going to be detrimental, but it does take away Buffett & Munger's ability to say they are AAA-rated by every rating agency.  I bet Munger has some choice words for Fitch...like Fitch-off!  Cheers!  

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I don't know.  I think the case could be made that nobody really deserves a AAA right now, and that could include the US govt. as well.  Whether or not you believe we are headed for a depression, one has to recognize that there is a great deal of uncertainty in the financial markets these days.   

 

How many AAAs are still out there? 

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What a joke.  They must be retarded.  In what circumstance will Berkshire not be able to pay its debt as it comes due?

 

Fitch was in bed with the bad guys a few years ago.  We all saw it. 

 

So it looks like some of them are crooked and some of them are retarded.

 

 

 

 

 

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It used to be that AAA meant 0.02% chance of default.  Of course Berkshire and hell the U.S government aren't really AAA.  They have 0 chance of default, let me rephrase that, in the event of a default there would be no one around to rate them or care.   

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The downgrade also recognizes that even the most senior obligations at the holding company level are deeply subordinated to policyholder obligations at the regulated insurance and reinsurance company subsidiaries. Fitch notes this point is not new, but rather reflects Fitch's view on appropriate weighting given to this risk in the current environment and at the current rating level.

 

Does anyone else have trouble understanding the last sentence? Is Fitch saying that their ratings mean different things at different times?

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WEB should take a page out of Prem's book, and simply ask Fitch to stop rating Berkshire.  There is no substitute for integrity, and it sometimes appears to be lacking at Fitch.

 

Maybe next we'll see an article from some two-bit analyst proclaiming that BRK is truly $80b under-reserved?

 

History doesn't repeat, but it does rhyme!

 

SJ

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WEB should take a page out of Prem's book, and simply ask Fitch to stop rating Berkshire.  There is no substitute for integrity, and it sometimes appears to be lacking at Fitch.

 

Maybe next we'll see an article from some two-bit analyst proclaiming that BRK is truly $80b under-reserved?

 

History doesn't repeat, but it does rhyme!

 

SJ

 

... truth be told ... Fitch probably has had more integrity than Moody's and S&P throughout this crisis ...

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Keep in mind that Fitch is in a lose/lose proposition, & needs to minimize damage.

 

They are not seen as credible as if you have to have a rating you go to Moodys or S&P, or you don't sell/roll the bond. A Fitch rating is an admission that you're desperate, & couldn't get what you wanted - & therefore of minimal use.

 

Realistically it is hard to see how anyone other than a sovereign could have a AAA rating.

The rating can also only set the base credit rate in that country, and a AAA rating across sovereigns is not comparable. ie: A US Fed AAA rating is clearly not the same as Chilean Central Bank AAA rating, yet they are both sovereigns, & they are both the best credit quality in each of their countries. The best public rating should really be no more than AA+

 

The best Fitch can do is come up with a new rating system,

& take some hits along the way to re-establish credibility in how they get there.

 

SD

 

 

 

 

 

   

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Probably should structure a company so it is robust enough to survive with BBB rating.  Else don't deserve A or higher.

 

Rating change should be non-event operationally to Berkshire, or there is something wrong with design of the enterprise.

 

Sure a bit higher cost on some borrowings, but nothing worse than decline in economic activity.

 

An aside ... Russel Metals is saying they are seeing 40 pct decline in demand for steel products.

That is worse than the 30 pct decline I had previously heard quoted for steel consumption.

 

So the context reallly does matter.  Nothing is AAA in current environment.

 

Not to worry.  Berkshire is among the best, maybe the best of class where it is participant.

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