Nov. 7 (Bloomberg) -- Billionaire investor Warren Buffett’sBerkshire Hathaway Inc. said third-quarter profit tripled on gains in derivatives tied to stocks and bonds.

Net income surged to $3.24 billion, or $2,087 a share, from $1.06 billion, or $682, in the same period a year earlier, the Omaha, Nebraska-based company said yesterday in a regulatory filing. Operating earnings, which exclude some investments and derivative results, were $1,325 a share, beating the $1,267 average estimate of three analysts surveyed by Bloomberg.

Buffett, buoyed by six months of increased profit, targeted Burlington Northern Santa Fe Corp. this week for the largest takeover in his four decades as Berkshire’s chairman. The biggest two-quarter rally in the Standard & Poor’s 500 Index since 1975 lifted Berkshire’s stock portfolio, raised the value of derivative bets and boosted investments he made last year in companies including Goldman Sachs Group Inc.

“You’re seeing the kind of gains that are built into the portfolio decisions Warren has made,” said Tom Russo, a partner at Gardner Russo & Gardner, which holds Berkshire shares. The third quarter “is the ultimate recognition in the results of so many of the investments he made in the sharp market downturn.”

The jump in the price of stocks in the portfolio helped increase book value to $126.1 billion, a 10 percent advance since June 30. Buffett typically highlights book value, the measure of assets minus liabilities, in the first sentence of his annual letter to shareholders.

Derivatives Improve

Berkshire reported $1.73 billion in profit on derivatives, compared with a loss of $1.26 billion a year earlier. Contracts tied to stock markets gained $220 million, compared with an $880 million loss. Credit-default swap contracts, in which Berkshire protects clients from bond losses, posted a $1.44 billion profit compared with a loss of $342 million.

Buffett’s firm was required to post about $50 million in collateral to trading partners on derivatives as of Sept. 30, compared with $650 million three months earlier. The company said it may have to post as much as $1.1 billion more if its ratings are cut, “depending on the degree of the downgrade.” The filing wasn’t more specific.

Standard & Poor’s and Fitch Ratings said this week they may cut Berkshire because of lower liquidity after the Burlington deal. Berkshire will curtail insurance sales to guard capital, the company said in the filing.

Berkshire, which owns National Indemnity Co., General Re Corp. and Geico Corp., said profit from underwriting insurance policies more than quadrupled to $363 million on lower catastrophe costs.

No Significant Losses

The reinsurance unit had “no significant catastrophe losses,” a year after $350 million in costs tied to Hurricanes Gustav and Ike, Berkshire said.

The stock portfolio at Berkshire’s insurance units was valued at $55.1 billion, a 20 percent increase from June 30. Buffett’s firm is the largest shareholder in American Express Co., whose stock rose 46 percent in the quarter; Wells Fargo & Co., which increased 16 percent; and Coca-Cola Co., which climbed 12 percent.

Buffett spent $2.23 billion on equities and $1.49 billion on fixed-maturity securities in the quarter. He sold $940 million in fixed maturity securities and $783 million of equity securities. The firm had $26.9 billion in cash as of Sept. 30, compared with about $24.5 billion on June 30.

Berkshire’s own shares rose 12 percent in the three months ended Sept. 30, the best quarterly performance since 2007. The stock rose $500, or 0.5 percent, to $102,400 in New York Stock Exchange composite trading yesterday. Results were posted after the close of regular trading.

NetJets Loss

The NetJets unit, which leases planes to corporate customers and individuals, posted a $183 million pretax loss on asset writedowns and other costs, Berkshire said. NetJets announced more than 750 job cuts after MidAmerican Energy Holdings Co. Chairman David Sokol replaced Richard Santulli, the CEO who sold the aviation firm to Buffett in 1998.

“Further downsizing costs will be incurred in the fourth quarter,” Berkshire said of NetJets in its filing. “NetJets is likely to operate at a modest profit in 2010.”

Buffett positioned Berkshire to weather the contraction in the U.S. economy by stockpiling $44 billion in cash. Starting in 2008, when corporate borrowing costs surged amid a credit crunch, he drew on that hoard to finance Goldman Sachs, General Electric Co., Swiss Reinsurance Co. and the Mars Inc. takeover of chewing-gum maker Wm. Wrigley Jr. Co.

Those deals boosted investment income 11 percent to $1.78 billion at its insurance and finance operations.

The economy returned to growth in the third quarter, and Buffett is taking on debt to buy Fort Worth, Texas-based Burlington in what he calls an “all-in wager” on the U.S.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

Last Updated: November 7, 2009 00:00 EST