- Warren Buffett says the unusually quick sale of Berkshire Hathaway’s TSMC stake was driven by geopolitical tensions Yahoo Finance
- Buffett’s Japanese stock purchases could indicate a bigger plan, says Mobius Capital’s Mark Mobius CNBC Television
- Berkshire Set to Pay More for Yen Debt Amid BOJ Tightening Bets Bloomberg
- Warren Buffett has his eyes on this one country when it comes to his future investments—and he already owns 6% of its top 5 companies Yahoo Finance
- Cramer’s First Take: Warren Buffett doesn’t invest like us CNBC Television
- View Full Coverage on Google News
Tag Archives: Berkshire
Warren Buffett calls stock buyback critics ‘economic illiterate’ in Berkshire Hathaway annual letter – CNBC
- Warren Buffett calls stock buyback critics ‘economic illiterate’ in Berkshire Hathaway annual letter CNBC
- Warren Buffett’s most important lessons on investing and portfolio growth, according to Lee Munson Yahoo Finance
- Warren Buffett’s Berkshire Hathaway Posts Big 2022 Loss in Rocky Market The Wall Street Journal
- Berkshire Hathaway fourth-quarter operating earnings fall 8%, cash hoard swells to nearly $130 billion CNBC
- Buffett touts benefits of buybacks in his shareholder letter The Associated Press – en Español
- View Full Coverage on Google News
How Warren Buffett’s Berkshire Hathaway came to own 20% of American Express
American Express (AXP), one of the world’s top credit card companies, has also long been a favorite of Berkshire Hathaway (BRK-A, BRK-B) CEO Warren Buffett.
“You can’t create another American Express,” Buffett told Bloomberg in December. “I could create another shoe store. I could create another business publication. I could do all kinds of things with hundreds of billions of dollars. But I can’t put in the minds of people what is in their minds about American Express.”
As of September 29, 2022, Berkshire held 151,610,700 AmEx shares, or 20.29% of the total. At the end of 2021, AmEx was Berkshire’s largest securities holding by weight and third-largest holding by market cap, with its stake valued at $24.8 billion — which grew to $26.1 billion by September 29, 2022.
In 2022, Berkshire built a stake of at least 20.2% of Occidental Petrleum (OXY) and obtained regulatory approval to buy up to 50% of the oil giant’s common stock. So while AmEx may no longer be Berkshire’s largest holding by weight, the company’s value to Berkshire is clear.
“It’s sort of like a Good Housekeeping seal of approval,” American Express CEO Stephen Squeri told Yahoo Finance recently. “Warren and Berkshire are iconic investors, and to have him speak about the brand and speak about the company, and to speak about the direction that we’re going so enthusiastically [is important].”
In 2020, when the pandemic hit, AmEx stock declined to as low as $66 as lockdowns and travel bans dragged down profits by 39%. But Buffett retained his stake in the company, even as he sold airline and bank stocks.
AmEx was able to rebound after enduring the COVID-induced economic downturn and reached its highest price in decades at $196 a share in 2022.
That momentum has carried over into 2023: AmEx’s latest quarterly results showed a slight miss for its fourth quarter, but the company indicated it remains positive on its outlook for the remainder of the year.
How Buffett acquired his stake in AmEx
Although AmEx’s brand emerged from the pandemic in a position of strength, that hasn’t always been the case.
Buffett’s interest in AmEx began in the 1960s, during the first wave of consumer credit via banks. For American Express, it wasn’t without a bit of controversy.
In 1963, Anthony De Angelis, the founder of Allied Crude Vegetable Oil Company, used his company’s inventory as collateral for loans from more than 50 companies, including AmEx. De Angelis used these loans to drive up prices in the soybean oil market and increase the value of Allied.
Eventually, a whistleblower came forward claiming that Allied was misleading AmEx to get more loans by filling up oil tanks with water. This was proven to be true and De Angelis filed for bankruptcy and went to prison for seven years. The impropriety became known as the “salad-oil scandal” and mounted concerns on Wall Street as AmEx now had to pay Allied’s bill.
“Every trust department in the United States panicked,” Buffett said about the scandal. “I remember the Continental Bank held over 5% of the company and all of a sudden not only do they see that the trust accounts were going to have stock worth zero, but it could get assessed. The stock just poured out, of course, and the market got slightly inefficient for a short period of time.”
Buffett used the opportunity to acquire 5% of AmEx for roughly $20 million.
The credit card boom of the ’70s and ’80s made AmEx a top player in the market. By the late ’90s, two-thirds of American households had a credit card. Buffett could now go all out and make his first large stake in the company in 1991 with $300 million.
Within seven years, Buffett owned more than 50 million shares of the company. Berkshire Hathaway hasn’t purchased any American Express stock since the late 1990s, but its stake in AmEx has continued to increase as a result of stock buybacks.
Between 1998 and 2005, Berkshire’s stake climbed from 11.2% to 12%. In 2020, AXP became Berkshire’s largest holding by percentage.
And even though AmEx had a rough start to 2016 financially, Buffett stood by his investment.
“Now we own 20% of American Express,” Buffett said at the 2022 Annual Berkshire Hathaway Shareholders Meeting. “That happens to have worked out extremely well. If they overpaid for the stock and all that — it doesn’t solve every problem — but it’s a wonderful thing if you’ve got an asset you like and they take your ownership interest up.”
AmEx’s pandemic revamp
One of American Express’s greatest assets has been its perception as a status symbol, which has endured after undergoing a series of rebranding efforts.
The company has a simple revenue model: Most of its revenue is generated from interest from balances and fees from cardholders and from merchants. Merchants are charged more than AmEx competitors such as Visa (V) or Mastercard (MA) because AmEx cardholders tend to be wealthier and spend more, which benefits merchants down the line.
AmEx also collects revenue from the data it gathers on cardholder spending, which is used to target marketing and provide offers to customers. That has, in turn, helped AmEx capture the interest of millennial and Gen Z consumers in recent years as the company has evolved from being a traditional luxury credit card provider to a digital payment provider.
AmEx rebranded its Platinum card as a “lifestyle card” by increasing its fees and at-home perks and dove into e-commerce and food delivery services with by increasing rewards. Since the strategic changes went into effect, the company doubled its number of Platinum cardholders, with millennials and Gen Z customers making up roughly 60% of all new consumer cardholder growth.
And as pandemic restrictions were lifted, AmEx grew its global reach with new travel benefits. They offered more rewards, points, and a new Centurion airport luxury lounge. AmEx’s payment method is now accepted on most websites in over 178 countries, according to Statista.
“This whole concept of generational relevance is huge for us,” Squeri told Yahoo Finance. “We’ll continue to modify our products and add value to our products that not only speaks to millennials but speaks to Gen Xers and speaks to Boomers. Millennials and Gen Zers are the fastest-growing segment that we have.”
The AmEx CEO also stressed that Buffett “gets it right” as AmEx’s largest shareholder.
“He gets that the AmEx brand is special,” he said. “He tells me that all the time. We both agree the customer base is special. Anybody that has Warren as their largest shareholder would be pretty happy.”
—
Tanya is a data reporter at Yahoo Finance. Follow her on Twitter. @tanyakaushal00.
Click here for the latest trending stock tickers of the Yahoo Finance platform
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube
Buffett gives more than $750M in Berkshire shares to charities
FOX Business host Charles Payne provides insight on investing in the stock market on ‘Making Money with Charles Payne.’
Warren Buffett certainly sees this as the season of giving.
The billionaire investor donated more than $750 million in Berkshire Hathaway stock on Wednesday to the four foundations run by his family.
Wednesday’s donations mark the first time the 92-year-old has made a second major gift within the same year.
Buffett gives annual gifts to five charities each summer, but this extra round of giving didn’t include the Bill & Melinda Gates Foundation.
WARREN BUFFETT PORTRAIT: HIGH-TECH ART RAISES $75K FOR CHARITY
Billionaire investor and philanthropist Warren Buffett (Daniel Zuchnik/WireImage / Getty Images)
Buffett started giving annual donations to the same five charities in 2006 when he unveiled a plan to give away his fortune over time, with the Gates Foundation receiving the biggest donations.
A filing with the Securities and Exchange Commission showed Buffett gave 1.5 million Class B shares to the Susan Thompson Buffett Foundation, named for his first wife.
He also gave 300,000 Class B shares apiece to the three foundations run by his children: the Sherwood Foundation, the Howard G. Buffett Foundation and the NoVo Foundation.
In June, he gave 11 million Class B shares to the Gates Foundation, 1.1 million B shares to the Susan Thompson Buffett Foundation and 770,218 shares apiece to his children’s three foundations.
WARREN BUFFETT’S FINAL CHARITY LUNCH SETS EBAY RECORD
Warren Buffett (C) poses for a picture with his children Peter Buffett and Susie Buffett. ( (Photo by Bennett Raglin/WireImage) / Getty Images)
It wasn’t immediately clear what prompted the new donations this week.
The Susan Thompson Buffett Foundation has been a major supporter of abortion rights, making large gifts to Planned Parenthood and other groups.
Buffett hasn’t announced any changes in his giving plans since the U.S. Supreme Court overturned Roe v. Wade earlier this year.
Susie Buffett, 69, uses her Sherwood Foundation to strengthen early childhood education and support a number of projects around Buffett’s hometown of Omaha where she also lives.
BUFFETT GIVES $4.1B TO CHARITY, STEPS DOWN FROM GATES FOUNDATION’S BOARD
Howard Buffett, 67, is helping farmers in impoverished nations produce more and working to end world hunger with his namesake foundation.
Howard G. Buffett, chairman and chief executive officer of the Howard G. Buffett Foundation and son of billionaire Warren Buffett. (Victor J. Blue/Bloomberg via Getty Images / Getty Images)
Peter Buffett, 64, has dedicated his NoVo Foundation to empowering women and girls worldwide through education, collaboration and economic development to end violence against women.
Even after these latest gifts, Buffett still controls more than 31% of Berkshire’s voting power.
The Associated Press contributed to this report.
Buffett’s Berkshire discloses $4.1 bln TSMC stake
Nov 14 (Reuters) – Berkshire Hathaway Inc (BRKa.N) said it bought more than $4.1 billion of stock in Taiwan Semiconductor Manufacturing (2330.TW), , a rare significant foray into the technology sector by billionaire Warren Buffett’s conglomerate.
The news sent shares in TSMC up more than 6% in Taiwan on Tuesday, as it boosted investor sentiment for the world’s largest contract chipmaker, which saw its shares hit a two-year low last month due to a sharp slowdown in global chip demand.
In a Monday regulatory filing describing its U.S.-listed equity investments as of Sept. 30, Berkshire said it owned about 60.1 million American depositary shares of TSMC.
Berkshire also disclosed new stakes of $297 million in building materials company Louisiana-Pacific Corp (LPX.N) and $13 million in Jefferies Financial Group Inc (JEF.N). It exited an investment in Store Capital Corp (STOR.N), a real estate company that agreed in September to be taken private.
The filing did not specify whether Buffett or his portfolio managers Todd Combs and Ted Weschler made specific purchases and sales. Investors often try to piggy back on what Berkshire buys. Larger investments are normally Buffett’s.
While Berkshire does not normally make big technology bets, it often prefers companies it perceives to have competitive advantages, often through their size.
TSMC, which makes chips for the likes of Apple Inc (AAPL.O), Qulacomm (QCOM.O) and Nvidia Corp (NVDA.O), posted an 80% jump in quarterly profit last month, but struck a more cautious note than usual on upcoming demand.
“I suspect Berkshire has a belief that the world cannot do without the products manufactured by Taiwan Semi,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, which owns Berkshire shares.
“Only a small number of companies that can amass the capital to deliver semiconductors, which are increasingly central to people’s lives,” he added.
Berkshire has had mixed success in technology.
Its more than six-year wager during the last decade in IBM Corp (IBM.N) did not pan out, but Berkshire is sitting on huge unrealized gains on its $126.5 billion stake in Apple, which Buffett views more as a consumer products company.
Apple is by far the largest investment in Berkshire’s $306.2 billion equity portfolio.
Berkshire disclosed the TSMC stake about 2-1/2 months after it began reducing a decade-old, multi-billion dollar stake in BYD Co (002594.SZ), China’s largest electric car company.
In the third quarter, Berkshire added to its stakes in Chevron Corp (CVX.N), Occidental Petroleum Corp (OXY.N), Celanese Corp (CE.N), Paramount Global (PARA.O) and RH (RH.N).
It also sold shares of Activision Blizzard Inc (ATVI.O), Bank of New York Mellon Corp (BK.N), General Motors Co (GM.N), Kroger Co (KR.N) and US Bancorp (USB.N).
Buffett, 92, has run Berkshire since 1965. The Omaha, Nebraska-based company also owns dozens of businesses such as the BNSF railroad, the Geico auto insurer, several energy and industrial companies, Fruit of the Loom and Dairy Queen.
Reporting by Jonathan Stempel in New York; Editing by David Gregorio and Bradley Perrett
Our Standards: The Thomson Reuters Trust Principles.
Buffett’s Berkshire Lifts Chevron Bet, Profits From Rate Hikes, Dollar
- Warren Buffett’s Berkshire Hathaway reported third-quarter earnings on Saturday.
- The investor’s company appears to have boosted its Chevron stake, and ramped up stock buybacks.
- Berkshire benefited from higher interest rates and a stronger US dollar.
Warren Buffett’s Berkshire Hathaway published third-quarter earnings on Saturday that teased fresh purchases of Chevron stock, and signaled a faster pace of share buybacks this quarter.
Berkshire confirmed it will treat a chunk of Occidental Petroleum’s profits as its own from now on. It also revealed the billion-dollar hit to its insurance business from Hurricane Ian, and the positive impact of higher interest rates and a stronger US dollar on its operations.
Here are 6 key insights from Berkshire’s Q3 earnings:
1. Stocking up
Berkshire appears to have bolstered its Chevron stake last quarter.
It disclosed the value of its position in the oil-and-gas major was $24.4 billion at the end of September. It held 161 million shares at the end of June, which would have been worth $23.2 billion at Chevron’s stock price of about $144 on September 30.
The discrepancy suggests it raised its stake to about 170 million shares last quarter.
Moreover, Berkshire may have boosted its number-one holding, Apple. It owned about 908 million shares of the iPhone maker at the end of December, and purchased nearly 4 million more shares in the second quarter of this year.
That stake would have been worth $126 billion on September 30, based on Apple’s stock price at the time. Yet Berkshire valued the position at $126.5 billion, suggesting it bought a few more shares.
Meanwhile, Berkshire reported an estimated $4.7 billion drop in the cost base of its financial stocks, a $2 billion drop for its commercial and industrial stocks, and a $700 million drop for its consumer-products stocks. Those declines point to which parts of its portfolio it pruned last quarter.
2. Bigger buybacks
Berkshire spent $1.05 billion repurchasing shares last quarter. It appears to have spent another $500 million or so on buybacks between October 1 and October 26, based on the decline in Berkshire’s outstanding shares and the average trading price of Berkshire stock in that period.
Buffett and his team are now on track to spend upwards of $1.5 billion on buybacks this quarter, which would trump their outlays in each of the past two quarters.
3. Sharing in Oxy’s success
Berkshire, which built a 20.9% stake in Occidental from scratch this year, said it would account for that holding using the equity method.
That means it will report a proportionate share of the oil-and-gas company’s revenues and earnings as its own, with a one-quarter lag as Occidental reports its quarterly earnings later than Berkshire.
The position could contribute $2 billion in quarterly revenues and $750 million in net income to Berkshire every three months, based on Occidental’s second-quarter financials.
4. Higher rates are helping
The Federal Reserve has hiked interest rates from nearly zero in March to a range of 3.75% to 4% today, in an effort to curb historically high inflation.
The US central bank’s rate increases boosted the amount of interest that Berkshire earned on its cash and Treasury bills. As a result, the company’s income from interest and other investments soared by 182% year-on-year to nearly $400 million last quarter.
5. Disaster strikes
Hurricane Ian buffeted Florida, South Carolina, and other US States last quarter. Berkshire, which owns a raft of insurance and reinsurance companies, suffered an after-tax blow of $2.7 billion to its profits from the catastrophe.
Geico, the Berkshire-owned auto insurer, incurred about $600 million of losses and related expenses from the tropical storm. Meanwhile, the reinsurance arm of Berkshire’s property-casualty business swallowed a $1.9 billion loss.
6. Greenback gains
Buffett famously favors American stocks such as Coca-Cola and Kraft Heinz, and has built a vast collection of US businesses including the BNSF Railway and See’s Candies.
Berkshire’s domestic focus meant it enjoyed a $1.2 billion pretax gain from the dollar’s surge against other world currencies in the past quarter. It only saw a $264 million foreign-exchange gain in the same period of 2021.
Moreover, Buffett’s company notched a $858 million gain from non-dollar-denominated debt. That’s partly because the yen debt it issued to hedge its investments in five Japanese companies became less onerous, thanks to a stronger dollar.
Read more: David Rubenstein sees Warren Buffett as the ultimate investor. The private equity billionaire lays out the 12 traits and habits that are key to Buffett’s success.
Interest rate rises boost Warren Buffett’s Berkshire Hathaway results
Warren Buffett’s Berkshire Hathaway is quickly becoming one of the principal beneficiaries from the sharp increase in interest rates in the US, as its fortress-like balance sheet begins to generate hundreds of millions of dollars in income for the sprawling conglomerate.
The interest the company earns on its $109bn cash pile nearly tripled from a year before to $397mn in the third quarter, it disclosed on Saturday, noting the gain was “primarily due to increases in short-term interest rates”.
Berkshire holds the vast majority of its cash in short-term Treasury bills, deposits at banks and in money market accounts, where interest rates have been rapidly rising as the Federal Reserve has tightened monetary policy. Last week the US central bank lifted rates to between 3.75 and 4 per cent, up from near zero at the year’s start, and traders expect that rate to top 5 per cent next year.
While tighter policy has sent shockwaves through financial markets — even bludgeoning the value Berkshire’s mammoth stock portfolio — it is finally beginning to pay dividends for companies and consumers holding cash.
Data from the Investment Company Institute showed that cash parked in money market funds that cater to everyday retail investors has swelled to a record high.
Buffett and Berkshire vice chair Charlie Munger have over the past decade presided over a significant expansion in Berkshire’s cash holdings, which they believe is critical given the potential catastrophic payouts the company’s insurance businesses could one day need to make.
It was a point underlined by third-quarter results that showed Berkshire was hit by a $3.4bn pre-tax loss from Hurricane Ian, which killed more than 100 people as it tore through parts of Florida. US president Joe Biden has said it will take years, not months, for the region to recover.
Berkshire’s insurance unit suffered an operating loss of $962mn during the quarter, with Geico warning that higher used auto parts prices and an increase in accidents were weighing on its results.
Buffett and Munger have long been able to stomach large losses in its insurance division because of the sizeable “float” — insurance premiums it collects before it must ultimately pay claims on obligations. That float has helped fuel its investments in stocks and fund the company’s acquisitions of businesses.
The sell-off in financial markets hampered Berkshire’s equity portfolio, which includes large stakes in Apple, American Express, Chevron and Bank of America. The company said its portfolio slid in value to $306.2bn from $327.7bn at the end of June.
Those declines pushed it to a net loss of $2.7bn in the period, or $1,832 per class A share, from a profit of $10.3bn a year before, worth $6,882 a share. Buffett has long characterised the swings in its investment portfolio — which it must recognise in its profit and loss statements due to accounting rules — as “meaningless”.
The dozens of businesses it owns, which are widely-watched for signs of the health of the American industrial and business complex, laid bare the resilience of the US economy while also signalling the potential slowdown engineered by the Fed. Berkshire’s results also showed the effects of inflation and the fights over better wages as real living standards come under pressure from higher prices.
Revenues at its BNSF railroad surged 17 per cent to $6.5bn, but profits slid as the volumes of freight it shipped declined and it paid higher wages to its employees. The railroad became a flashpoint earlier this year as more than 30,000 unionised workers at BNSF threatened to strike, pushing back against conditions and demanding a boost to pay.
A tentative agreement in September delivered concessions to employees and BNSF said pay costs rose 27 per cent in the third quarter from a year earlier.
The energy businesses within Berkshire’s utility division reported a 17 per cent jump in revenues, boosted by higher power costs.
But the company’s real estate brokerage unit saw sales tumble by nearly a fifth, and operating profits at the unit plummeted 72 per cent from the year before as the housing market cooled and it sold fewer homes.
Berkshire said higher mortgage rates were also expected to pressure its handful of businesses in the housing sector. During the quarter, however, those businesses — including the brick maker Acme and flooring group Shaw — were able to raise prices and registered strong demand.
Overall, operating earnings rose to $7.8bn from $6.5bn a year earlier. The results were helped by larger profits in its manufacturing and services business lines.
Berkshire, which this year bought a 21 per cent stake in energy company Occidental’s common stock, disclosed that in the fourth quarter it would begin reporting earnings from the oil and gas giant as part of its results.
The company also said it had spent just over $1bn in the quarter buying back its own stock.
Berkshire’s class A shares, which are down 4.1 per cent this year, have far outperformed the broader market. The benchmark S&P 500 has declined 20.9 per cent while an investor in US Treasuries has lost 15.3 per cent, according to Ice Data Services.
Berkshire Hathaway Q3 earnings BRK
Berkshire Hathaway Chairman and CEO Warren Buffett.
Andrew Harnik | AP
Berkshire Hathaway on Saturday posted a solid gain in operating profits during the third quarter despite rising recession fears, while Warren Buffett kept buying back his stock at a modest pace.
The Omaha-based conglomerate’s operating earnings — which encompass profits made from the myriad of businesses owned by the conglomerate like insurance, railroads and utilities — totaled $7.761 billion in the third quarter, up 20% from year-earlier period.
Insurance-investment income came in at $1.408 billion, up from $1.161 billion a year earlier. Earnings from the company’s utilities and energy businesses came in at $1.585 billion, up from $1.496 billion year over year. Insurance underwriting suffered a loss of 962 million, however, while railroad earnings dipped to $1.442 billion from $1.538 billion in 2021.
Berkshire spent $1.05 billion in share repurchases during the quarter, bringing the nine-month total to $5.25 billion. The pace of buyback was in line with the $1 billion purchased in the second quarter. Repurchases were well below CFRA’s expectation as its analyst estimated it would be similar to the $3.2 billion total in the first quarter.
However, Berkshire did post a net loss of $2.69 billion in the third quarter, versus a $10.34 billion gain a year before. The quarterly loss was largely due to a drop in Berkshire’s equity investments amid the market’s rollercoaster ride.
Berkshire suffered a $10.1 billion loss on its investments during the quarter, bringing its 2022 decline to $63.9 billion. The legendary investor told investors again that the amount of investment losses in any given quarter is “usually meaningless.”
Shares of Buffett’s conglomerate have been outperforming the broader market this year, with Class A shares dipping about 4% versus the S&P 500‘s 20% decline. The stock dipped 0.6% in the third quarter.
Buffett continued to buy the dip in Occidental Petroleum in the third quarter, as Berkshire’s stake in the oil giant has reached 20.8%. In August, Berkshire received regulatory approval to purchase up to 50%, spurring speculation that it may eventually buy all of Houston-based Occidental.
The conglomerate amassed a cash pile of nearly $109 billion at the end of September, compared to a total of $105.4 billion at the end of June.
New minimum tax could hit Berkshire Hathaway and Amazon hardest, study shows
Berkshire Hathaway Chairman Warren Buffett seen at the annual Berkshire shareholder shopping day in Omaha, Nebraska, U.S., May 3, 2019.
Scott Morgan | Reuters
Researchers applied the Inflation Reduction Act’s new 15% corporate minimum tax onto 2021 company earnings and found that the burden would only be felt by about 78 companies, with Berkshire Hathaway and Amazon paying up the most.
The study from the University of North Carolina Tax Center used past securities filings to map the tax, which goes into effect in January, onto companies’ 2021 earnings.
The researchers found that the 15% minimum would have taken a total of $31.8 billion from 78 firms in 2021. Berkshire led the estimated payout with $8.33 billion, and Amazon follows behind with $2.77 billion owed based on its 2021 earnings.
The study notes the limitations of looking solely at public company data within a single year. The researchers recognized that these estimates may be subject to change, especially as company operations change under the tax in 2023.
President Joe Biden signed the minimum book tax into law, along with the rest of the Inflation Reduction Act, in August. The tax is specifically meant to target companies earning more than $1 billion per year.
The Joint Committee on Taxation had previously estimated that it would affect around 150 firms, with the costs falling specifically on the manufacturing industry. The bipartisan JCT also predicted $34 billion in revenue in the first year of the tax, slightly more than the theoretical 2021 revenue estimated at UNC.
According to the study, the next-highest taxes would be paid by Ford, AT&T, eBay and Moderna, all of which would owe more than $1.2 billion in payments based on their 2021 financials.
Amazon, Berkshire Hathaway Could Be Among Top Payers of New Minimum Tax
Researchers at the University of North Carolina Tax Center analyzed securities filings to determine what companies would have paid if the tax had been in place last year. They found fewer than 80 publicly traded U.S. companies would have paid any corporate minimum tax in 2021, and just six—including Amazon and
Warren Buffett’s
conglomerate—would have paid half of the estimated $32 billion in revenue the levy would have generated.
The tax, which takes effect in January, is the largest revenue-raising provision in Democrats’ climate, healthcare and tax law. The provision, projected to generate $222 billion over a decade, alters tax incentives and complicates corporate tax decisions. Democrats aimed the provision at large companies that report profits to shareholders but pay relatively little tax.
Berkshire Hathaway would have paid $8.3 billion last year if the new tax law had been in place, according to UNC estimates.
Photo:
Michelle Bishop/Bloomberg News
“Who actually pays a lot is just not very many firms at all,” said Jeff Hoopes, an accounting professor at UNC Chapel Hill who is one of the study’s authors. “My guess is it will not be the same firms every single year.”
Although this wasn’t the aim of the law, it could have an impact on some of the wealthiest Americans. Some Democrats proposed direct taxes on billionaires’ unrealized capital gains earlier in the legislative process. While that wasn’t adopted, the new corporate minimum tax would increase the tax burden on some wealthy shareholders, such as Warren Buffett at Berkshire and
Jeff Bezos
at Amazon.
Mr. Buffett owned 16% of Berkshire Hathaway’s shares earlier this year, while Mr. Bezos owned nearly 13% of Amazon’s, securities filings show. Representatives for Messrs. Bezos and Buffett declined to comment.
Corporate tax directors and accounting firms are also analyzing the law, figuring out how they are affected and preparing to lobby over regulations. Few have estimated its impact publicly.
The UNC analysis comes with caveats. Lacking confidential tax returns that would allow precise calculations, the authors used publicly available financial data. Companies might change behavior to minimize taxes. A one-year snapshot includes unusual situations that cause companies to pay the minimum tax once, generating tax credits that can be used in future years.
Jeff Bezos owned nearly 13% of Amazon shares earlier this year, securities filings indicated.
Photo:
Jay Biggerstaff/USA TODAY Sports
Under the new law, companies averaging more than $1 billion in publicly reported annual profits calculate their taxes twice: once under the regular system with a 21% rate and again with a 15% rate and different rules for deductions and credits. They pay whichever is higher.
The new system, known as the book minimum tax, starts with income reported on the financial statement, not traditional taxable income. Differences between the two—the treatment of stock-based compensation, for example—could drive a company into paying the new tax.
According to the UNC estimates, Berkshire Hathaway would have paid the most in 2021, at $8.3 billion—or about a quarter of the estimated total—followed by Amazon at $2.8 billion and
Ford Motor Co.
at $1.9 billion.
Add the next three companies and that reflects more than half the $31.8 billion total:
AT&T Inc.
at $1.5 billion,
eBay Inc.
at $1.3 billion, and
Moderna Inc.
at $1.2 billion.
Berkshire Hathaway didn’t comment. Amazon declined to comment on the figure but said it awaits federal guidance. Amazon said its taxes reflect a combination of investment and compensation decisions and U.S. laws.
Ask WSJ
The Economic Outlook with Larry Summers and the Fed’s Neel Kashkari
WSJ Chief Economics Correspondent Nick Timiraos sits down with former Treasury Secretary Lawrence Summers and Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, to discuss the steps the Fed is taking to battle inflation.
An AT&T spokesman said the company doesn’t expect the minimum tax to affect its 2023 tax bill. “Academics don’t prepare our taxes; trained and expert tax professionals do that work,” the spokesman said.
Moderna’s tax rate in 2021—its first year with an operating profit—was shaped by the use of deductible net operating losses generated from research expenses, said
Jamey Mock,
the company’s chief financial officer. The company also paid much of its 2021 taxes during 2022. “We do not anticipate those unique conditions factoring into our future tax considerations,” he said.
Melissa Miller, a Ford spokeswoman, said the company pays all the taxes it owes and pointed to tax credits in the law designed to accelerate the transition to electric vehicles.
Heather Jurek, eBay’s vice president of tax, said the study’s computations and interpretations of the law are inaccurate when applied to the company. “UNC’s conclusions are driven by a significant disposition in 2021 that eBay is unlikely to replicate,” she said.
SHARE YOUR THOUGHTS
What will be the impact of a 15% minimum tax on large profitable corporations? Join the conversation below.
Exelon Corp.
is among the few companies that has disclosed what it anticipates to be detailed effects from the tax. The utility-services holding company said in an August securities filing that it expected to incur annual cash costs of about $200 million starting next year, down from an earlier $300 million estimate.
Exelon said it continues to evaluate the tax provision and it expects to benefit from legislative provisions encouraging investment in electric vehicles and electrical-grid modernization.
Lynn Good,
chief executive of
Duke Energy Corp.
, told investors in August that the utility giant also expects to be affected, without providing figures. A spokesman said the UNC estimate, $802 million based on 2021 income, is far too high. He said the company also expects to benefit from the legislation’s tax credits for renewable and nuclear power.
Linking taxes closer to publicly reported profits is intentional. It will become harder for companies to maximize profits to impress shareholders while managing taxable profits downward to minimize payments to governments, tax advisers say.
Mr. Biden has said the new tax means that the days of profitable companies paying no tax are over.
“There are companies that, for a variety of reasons, will perpetually be in a minimum-tax position,” said April Little of accounting firm Grant Thornton LLP.
Some profitable companies could still pay very little or no federal income taxes. Companies can offset up to 75% of tax liability with credits—including renewable-energy incentives Congress just expanded. The law includes special provisions benefiting companies with wireless spectrum investments, defined-benefit pensions and significant capital investments.
“We have the anti-loophole tax bill that’s full of loopholes,” Mr. Hoopes said.
Tax advisers say companies are trying to understand the law, pointing to uncertainties such as the treatment of currency losses and gains, capitalized depreciation deductions and rules around mergers and acquisitions.
By early next year, companies will start providing earnings guidance, making estimated-tax payments and reflecting the tax in quarterly earnings. They might also start crafting mitigation strategies and looking for flexibility in the accounting rules for when income and expenses are counted.
“What I see most people doing right now is worrying about: How is it supposed to work? How am I going to do this without going crazy?” said Diana Wollman, a partner at law firm Cleary, Gottlieb, Steen & Hamilton LLP.
“They’re spending more time trying to figure out what they want to ask for in regulations in terms of either clarity or regulatory discretion than they are trying to figure out how they’re going to game it,” Ms. Wollman said.
Write to Richard Rubin at richard.rubin@wsj.com and Theo Francis at theo.francis@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8