Just Thursday, 8/4, news broke that Berkshire has been probed by federal agencies including the Federal Reserve as to how much banks can lend to entities owned or controlled by a major stake holder (“Regulation O”). As Berkshire owns a 10% stake in Wells Fargo and a 16% stake in American Express, a concern of potential violation of Regulation O has been raised regarding the funding relationships among Berkshire, Wells Fargo, and American Express.
Berkshire is expected to convince the regulators that they exert no control over American Express which has done business with Wells Fargo since the 1800.
Though Berkshire missed Q1 earnings and three of the last four quarters, Q2 earnings report indicates better performance from utilities, energy, service and retail, and finance segments. In particular, revenue from Burlington Northern Santa Fe led the top-line growth, while low interest rates hurt the insurance segment and higher expenses from rail road operations to hurt the margins. The acquisitions of Precision Castparts and Duracell, the main drivers for Q1 revenue growth, continue to contribute the major part of Berkshire’s Q2’s revenue and earnings growth.
Berkshire is also moving away from reinsurance business to direct insurance business. After the recent acquisition of Medical Liability Mutual Insurance, Berkshire now controls 14% of the medical malpractice insurance market.
One bright spot in Berkshire’s stock portfolio is Kraft Heinz’s 12%, Wal-Mart’s 6.7%, and IBM’s 2.6% stock gains in Q2.