He will not be buying common shares.The investment may give Berkshire a stake of more than 20 percent as Swiss Re struggles to keep its AA credit rating. The Zurich-based company said today it expects to report a 2008 loss of about 1 billion francs because of credit-market writedowns. Swiss Re fell as much as 18 percent in Zurich trading after the insurer said it plans to cut its dividend, disband part of the asset- management unit, and may seek another 2 billion francs of capital.
“We are disappointed with our overall results,” Chief Executive Officer Jacques Aigrain said in a statement. “Warren Buffett’s agreement to invest in Swiss Re is a testament to the strength of our franchise.”
Swiss Re is abandoning Aigrain’s strategy of trying to increase profit by trading and selling securities such as credit- default swaps. The foray led to market writedowns of 6 billion francs last year, contributed to a depletion in shareholder equity and took two-thirds off the company’s market value in the past 12 months.
The Berkshire Hathaway investment will be in the form of a convertible instrument with a 12 percent coupon, Swiss Re said. Berkshire has the option to convert it into Swiss Re shares after three years at a price of 25 francs per share.
As we pointed out here already--rightly or wrongly--Berkshire's image of being a business partner (and a "non-flipper") probably helped him negotiate a better deal than otherwise.
