Derivatives Fuel Berkshire Hathaway's 14% Q2 Earnings Rise

Even Berkshire Hathaway Chairman and Chief Executive Warren Buffett has taken his lumps this recession, but Friday he announced his company's best quarterly results for nearly two years.

A rising stock market boosted the value of Berkshire's ( BRK - news - people ) equity investments and derivatives bets, more than offsetting the continuing recession-induced softness in many of the group's underlying businesses, notably the Geico auto insurance unit and some industrial units.

The company reported Friday a net income of $3.3 billion, or $2,123 a Class A share, for the three months to June 30, compared with $2.88 billion, or $1,859 a share, for the same period a year earlier. Earnings had previously fallen for six consecutive quarters. Earnings release.

Revenue fell 1.6% to $29.6 billion, with Berkshire's insurance businesses down 6.1% and utilities 13%. Finance and financial products businesses were up 72%.

Investment losses shrank to $30 million from $429 million. But gains on derivatives, of which Buffet has publicly spoken with scorn on occasion, rose to $2.4 billion from $689 million. Berkshire's are primarily long duration equity index put option contracts. The four underlying equity indexes rose during the quarter in a range of 8% to 23%.

After adjusting for taxes and non-controlling interests, investment losses and derivatives gains represent a net $1.5 billion gain, up from $610 million a year earlier. link.....