Interest rate rises boost Warren Buffett’s Berkshire Hathaway results

Warren Buffett’s Berkshire Hathaway is quickly becoming one of the principal beneficiaries from the sharp increase in interest rates in the US, as its fortress-like balance sheet begins to generate hundreds of millions of dollars in income for the sprawling conglomerate.

The interest the company earns on its $109bn cash pile nearly tripled from a year before to $397mn in the third quarter, it disclosed on Saturday, noting the gain was “primarily due to increases in short-term interest rates”.

Berkshire holds the vast majority of its cash in short-term Treasury bills, deposits at banks and in money market accounts, where interest rates have been rapidly rising as the Federal Reserve has tightened monetary policy. Last week the US central bank lifted rates to between 3.75 and 4 per cent, up from near zero at the year’s start, and traders expect that rate to top 5 per cent next year.

While tighter policy has sent shockwaves through financial markets — even bludgeoning the value Berkshire’s mammoth stock portfolio — it is finally beginning to pay dividends for companies and consumers holding cash.

Data from the Investment Company Institute showed that cash parked in money market funds that cater to everyday retail investors has swelled to a record high.

Buffett and Berkshire vice chair Charlie Munger have over the past decade presided over a significant expansion in Berkshire’s cash holdings, which they believe is critical given the potential catastrophic…

Read more…