U.S. billionaire Warren Buffett suffered another setback in the global financial crisis on Friday when ratings agency Fitch cut the top rating on his insurance and investment company, Berkshire Hathaway .
Fitch views the company's potential earnings and capital volatility derived from its large, unhedged market exposures as inconsistent with the stability required at the 'AAA' level, Fitch said in its statement on Berkshire.
Those exposures include Berkshire's equity investments, as well as well as its holdings of derivative contracts tied to equity and credit markets, Fitch said.
Known as the Sage of Omaha for his long history of successful investments, Buffett, 78, was caught out by the global financial crisis.
Berkshire's net worth tumbled $10.9 billion in the final quarter of 2008 and profits fell 96 percent, due mostly to losses on derivatives contracts tied to the stock market.
Fitch is the first major credit agency to cut Berkshire's AAA rating. The move comes after General Electric Co was stripped of its top rating by Standard & Poor's on Thursday.
Berkshire had $4.65 billion of net investment and derivative losses in 2008.
Buffett has defended his use of the derivatives that drove Berkshire's annual profit to a six-year low.
He also said investors should distinguish Berkshire's derivatives from others that dramatically increased financial leverage, made banks almost impossible for investors to understand, and threatened the collapse of financial services companies such as investment bank Bear Stearns Cos and mortgage financiers Fannie Mae and Freddie Mac.
Fitch also noted Berkshire remains too closely linked to Buffett to merit a AAA rating.
Fitch views this risk as unrelated to Mr. Buffet's age, but rather Fitch's belief that BRK's record of outstanding long-term investment results and the company's ability to identify and purchase attractive operating companies is intimately tied to Mr. Buffett, it said, referring to Berkshire.
Berkshire generates about half its results from insurance, including auto insurer Geico Corp, but operates more than 70 businesses that offer such things as carpeting, ice cream, paint, real estate services and underwear.
In terms of personal wealth, Buffett dropped to second place from first on the Forbes annual list of the world's richest people, with his net worth plunging to $37 billion from $68 billion in the past year.
Fitch lowered Berkshire's senior unsecured ratings by two notches to AA.
However, it affirmed its AAA insurer financial strength ratings on the company's insurance and reinsurance subsidiaries. The outlook for all of Berkshire's entities is negative.
Berkshire Class A shares closed on Thursday at $87,500 on the New York Stock Exchange. They have fallen 34 percent over the past year, while the Standard & Poor's 500 has dropped 43 percent.
(To read the full text of the ratings announcement, click on
(Reporting by Rafael Nam and Muralikumar Anantharaman; Editing by Lincoln Feast)