Shares of Warren Buffett's Berkshire Hathaway Inc sank Friday to their lowest level in 5-1/2 years amid concern the insurance and investment company could suffer big losses from bets on world stock markets and U.S. banks.

Berkshire's Class A shares fell as much as 6.2 percent to their lowest level since August 2003, before regaining some ground after the White House said it strongly believed the U.S. banking system should stay in private hands, and not be nationalized. Still, Berkshire's market value has fallen more than $115 billion in fewer than 15 months, Reuters data show.

Much of the worry over Berkshire stems from derivative contracts that could force it to make big payments if the Standard & Poor's 500 <.SPX> and three other stock indexes were to be lower at various times between 2019 and 2027. Berkshire has said it could owe as much as $37.04 billion, in the unlikely event that the indexes were to fall to zero.

Meanwhile, Berkshire revealed this week that in the fourth quarter it left intact most of its holdings in U.S. financial stocks, including Wells Fargo & Co , where it is the largest investor, and American Express Co and U.S. Bancorp . These companies' shares are down a respective 63 percent, 30 percent and 58 percent this year alone.

If we see a sell-off in banks, then a sell-off in Berkshire would be justified because of its exposure to finance, said Vahan Janjigian, author of the book Even Buffett Isn't Perfect. Investors may also be selling off when they expect derivative write-offs to be larger than expected.

While derivative losses may only exist on paper, accounting rules require Berkshire to report them with earnings. This could result in the Omaha, Nebraska-based company's fifth straight quarterly earnings decline.

Carrie Kizer, an assistant to Buffett, said fourth-quarter and year-end results, and Buffett's widely-read annual shareholder letter, may be released on February 27 or 28.

Berkshire's Class A shares closed down $1,600, or 2 percent, at $77,000. and its Class B shares fell $129.50, or 5.1 percent, to $2,387. The A shares have fallen 49 percent from their December 2007 peak, driving Berkshire's market value down to roughly $118 billion, Reuters data show.

Shares of Bank of America Corp , a small Berkshire holding, closed down 3.6 percent after earlier falling as much as 35.6 percent on nationalization fears.


Berkshire recorded a $2.21 billion pretax loss on derivative contracts in the first nine months of 2008, with more than half the decline in the third quarter.

Buffett has predicted the contracts will be profitable, and he can invest upfront payments that Berkshire got from counterparties. He distinguishes the contracts from other derivatives he calls financial weapons of mass destruction.

Janjigian said: If a Berkshire Hathaway is suffering just because of these accounting rules, perhaps we need to make some changes. It may encourage politicians to tweak the rules.

Forbes magazine in September ranked Buffett as the second-richest American, trailing Microsoft Corp co-founder and Berkshire director Bill Gates.

Buffett owns close to one-third of Berkshire's Class A shares and about 14 percent of its Class B shares, according to U.S. Securities and Exchange Commission filings.

Berkshire has about 80 businesses such as Fruit of the Loom underwear and See's Candies, and tens of billions of dollars of investments. It generates about half its results from insurance businesses, including auto insurer Geico Corp.

(Reporting by Jonathan Stempel, editing by Gerald E. McCormick and Gunna Dickson)