Berkshire Hathaway’s Buffett Considering Purchase of AIG Assets

September 24, 2008

Billionaire investor Warren Buffett said Wednesday his Berkshire Hathaway Inc. insurance and investment company would consider buying some units from American International Group Inc., the insurer bailed out by the U.S. government.

Buffett said he expressed interest in buying parts of the giant insurer over the Sept. 13-14 weekend, when regulators and financial industry executives were holding emergency talks on problems that included the fate of Lehman Brothers Holdings Inc., which filed for bankruptcy protection on Sept. 15.

Speaking on CNBC television, Buffett said he “expressed an interest in one or two” AIG units that weekend, “but the pressures were such and the hole was deep enough that they simply couldn’t get it worked out.

“Some of those units, most of those units, I believe, will be for sale over the next year or two, and we would be interested in a couple of them,” he said. Buffett did not give details.

Omaha, Nebraska-based Berkshire owns some 76 businesses and stakes in dozens of companies, but generates about one-half its business from insurance and reinsurance.

AIG, based in New York, said late Tuesday it signed a definitive agreement to borrow up to $85 billion from the U.S. Federal Reserve, the central part of a rescue that calls for the government to take a 79.9 percent stake.

Chief Executive Edward Liddy has said the company will sell assets within two years to help pay off the loan, which has a variable interest rate now about 12 percent. Liddy, a former Allstate Corp CEO, was named last week to replace Robert Willumstad at AIG’s helm.

AIG has about 240 units spread among its general insurance, life insurance and retirement services, financial services and asset management divisions.

Among the units it could sell are its International Lease Finance Corp aircraft leasing business, the world’s second largest, and its personal lines business, which analysts have said could each fetch several billion dollars.

AIG collapsed after incurring big losses on credit default swaps, whose value was tied largely to mortgages. Losses began to mount well before Willumstad took the top job in June.

“Top management did not have their minds around what was involved with those contracts,” Buffett said. “You can do a lot of damage on Wall Street with a pen and a piece of paper.”

Working with what was a year-end cash pile of $44.33 billion at Berkshire, Buffett spent $5 billion Tuesday to buy Goldman Sachs Group Inc. preferred stock.

In the CNBC interview, Buffett said he prefers acquisitions to holding cash, saying the latter is like “saving sex for your old age.” (Additional reporting by Lilla Zuill; editing by Jeffrey Benkoe)

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