Buffett Says He’ll Stay Away from Risky Side of Bond Insurance Business
Although Warren Buffett has entered the business of bond insurance with the formation of his new company, Berkshire Hathaway Assurance, he is clear about not getting involved in the type of rsky products that have lead to widespread trouble for the industry of late.
In an interview with Canadian paper "Financial Post" on Wednesday, the billionaire investor stated, "There's a place for bond insurance in this world, but it can be dangerous. "Look at the people who are in it now. They've brought up some dangers we didn't think were dangers. we will be pretty plain vanilla. We'll find out how big a market it is for us."
Bond insurers are at the center of recent capital markets turmoil because they provided financial guarantees to banks and others that invested in sub-prime mortgage related credit derivatives. The insurers, also known as mono-line insurers, were originally set up to provide financial guarantees on municipal bonds.
In recent years they were able to make bigger profits by also guaranteeing credit derivatives, and lately their exposure to the sub-prime market has put pressure on their credit ratings.
Some of the biggest banks in the United States and around the world have taken multi-billion write-downs related to their exposure to the mono-lines.
Mr. Buffett also said that he existing mono-lines made the mistake of moving into areas beyond their area of expertize, something his company will avoid.
"We will not stray," said Mr.Buffet. "I think it was Mae West who said, 'I was Snow White, and I drifted.' Well we're not going to drift."
Mr. Buffett also said he has no interest in investing in any of the troubled mono-lines. "I do not think I want to put a bunch of money in people who have assessed risk the way they have assessed risk in the past."
Published on February 7, 2008
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