US investor Warren Buffett shored up insurer Swiss Re with a 3 billion Swiss franc (€2.02 billion) investment today as the Swiss group wrote down twice that amount in toxic assets.
Swiss Re made the surprise investment announcement along with a 2008 net loss of around 1 billion francs. It also said it would disband its financial markets activities and consider further equity raising of up to 2 billion francs.
“The capital increase should help to reassure Swiss Re's clients - and this is the constituency that the group most cares about - and this exercise should provide some certainty about the group's financial position, at least for now,” said Tim Dawson at Swiss brokerage Helvea.
Swiss Re's share price tumbled over 14 per cent by 11.14am to 25.92 Swiss francs after earlier touching a 16 year-low of 24.80.
The stock had already lost 40 per cent in 2009 as investors worried about a lack of transparency on writedowns. Zurich dropped 3.3 per cent, compared with a 0.7 per cent weaker European insurance sector.
“Zurich is definitely a contrast to Swiss Re. Both are in a difficult environment, but Zurich has done the better job to date,” said Vontobel analyst Stefan Schuermann.
The news of Swiss Re's loss comes just a day after US insurer Prudential Financial Inc posted a $1.64 billion quarterly loss hurt by investment writedowns.
Mr Buffett's move through Berkshire Hathaway is the latest in a series of investments he has made in crisis-hit companies, including General Electric and Goldman Sachs.
Conversion of Berkshire Hathaway's investment in what the group called a “perpetual capital instrument” would take its stake in Swiss Re to over 20 per cent, the reinsurer's chief financial officer George Quinn said.
Reuters