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Swiss Re turns to Warren Buffett, shares plummet
2009-02-05
ZURICH (AFP) - The world's biggest reinsurer Swiss Re turned to Wall Street sage Warren Buffett for fresh funds Thursday after massive losses while Zurich Financial earnings plunged due to the global financial crisis . Swiss Re shares tumbled on the news, with the stock down 28.1 percent at 21.7 francs by close of trading while the overall Swiss Market Index fell by 2.3 percent. The insurance sector woes dealt another blow to Switzerland's prized status as a major world financial centre, already under pressure after colossal losses and writedowns incurred by the country's biggest banks, UBS and Credit Suisse. Swiss Re on Thursday warned of one billion Swiss francs (860 million dollars, 672 million euros) in net losses for 2008. The reinsurer said it had obtained 3.0 billion Swiss francs from Buffett's investment vehicle Berkshire Hathaway as it sought to avoid a downgrade in its credit rating -- a move which would increase its funding costs. The US billionaire investor could hold "over 20 percent" of the reinsurer under certain conditions, said Swiss Re chief financial officer George Quinn. Buffett's investment is made in the form of a convertible capital instrument issued by Swiss Re, which after three years could be turned into Swiss Re shares at a price of 25 francs per share. Berkshire Hathaway early last year took a 3.0 percent stake in Swiss Re for an undisclosed sum. Buffett, renowned for his spectacular success as a long-term stock investor and widely known as the "Sage of Omaha," also bought about 0.5 percent of the shares in German reinsurance group Munich Re last year, according to the Frankfurter Allgemeine Zeitung. Swiss Re said another two billion Swiss francs may be raised from shareholders to prevent a downgrade of the reinsurer's current credit rating. For the full year, Swiss Re said it had to take "mark-to-market" losses, a form of writedown, of 6.0 billion francs. "The group has surplus regulatory capital but it estimates that at 31 December 2008 it was between 1.5 and 2.0 billion francs below the level required to maintain its current 'AA' rating," it said in a statement. "The board of directors has concluded that it is in the best interest of the Group to seek to re-establish a strong level of capital. Based on current estimates, the total amount of capital to be raised is likely to be up to 5.0 billion francs," it added. Swiss Re has come under pressure in past weeks amid speculation that the company would post further losses and writedowns. "The worst fears have come true and once again confirms the wisdom of the stock market that 'where there is smoke...'," Bank Wegelin said in a note to investors. Zuercher Kantonalbank analysts said that "as feared, Swiss Re could not extract itself from the current negative developments in financial markets ... There are still considerable risks and could lead to further negative results." Meanwhile, general insurer Zurich Financial Services posted a near halving of full-year net profit on Thursday and signalled more cost-cutting after its investments were hit by the crisis on financial markets. For 2008, net profit fell slumped 47 percent to 3.0 billion dollars. The group said net group investments fell 42 percent to 5.83 billion dollars after allowance for a fall of 2.5 billion dollars in the value of equities and debt securities. The group said it would be taking "further cost containment actions" to save "at least 200 million dollars" in addition to its existing cost-cutting target of 200 million dollars for 2009. Zurich Financial shares closed down 3.58 percent at 207.3 francs.
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