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Berkshire May Be Spared Collateral Posting on Financial Reform

Warren Buffett, CEO of Berkshire Hathaway
Warren Buffett, chief executive officer of Berkshire Hathaway, speaks during a television interview in February. “Both deals were dumb,” Buffett told Berkshire investors May 1 in Omaha, Nebraska, where his company held its annual shareholders’ meeting. “The pizza deal was particularly dumb.” Photographer: Daniel Acker/Bloomberg

Warren Buffett’s Berkshire Hathaway Inc., which lobbied Congress to exclude its derivatives contracts from new collateral requirements, may get its way as the financial regulatory overhaul nears approval.

The new rules won’t alter previously written derivative contracts, Democratic Senators Chris Dodd of Connecticut and Arkansas’s Blanche Lincoln told Democratic Representatives Barney Frank of Massachusetts and Minnesota’s Collin Peterson in a letter. Dodd is chairman of the Senate Banking Committee.

“We provided legal certainty to those contracts currently in existence, providing that no contract could be terminated, renegotiated, modified, amended or supplemented (unless otherwise specified in the contract) based on the implementation” of the new rules, Dodd and Lincoln said in the letter, dated June 30. “It is imperative that we provide certainty to these existing contracts for the sake of our economy and financial system.”

The Senate may vote on the financial-overhaul bill after the week-long July 4 recess, following the approval yesterday by the House of Representatives. The measure would be the biggest rewrite of Wall Street rules since the Great Depression. Among the provisions is a requirement for corporations to post collateral for certain contracts, according to the International Swaps and Derivatives Association.

“It is a positive thing for Berkshire Hathaway,” said Michael Yoshikami, chief investment strategist at YCMNet Advisors. “It’s in writing from a lawmaker. It may not be over, but it’s virtually a promise.” Dodd’s letter was reported earlier today by Dow Jones Newswires.

Berkshire estimated in April that it may need to post $6 billion to $10 billion in collateral if the new rules were applied to existing derivatives. Yesterday, Jay Gelb, an analyst with Barclays Plc said Omaha, Nebraska-based Berkshire may need $6 billion to $8 billion in collateral. Gelb declined to comment today.

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