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Buffett upbeat on American business; Berkshire operating profit down


´╗┐Warren Buffett on Saturday mounted a forceful and upbeat defense of the prospects for American business, as his Berkshire Hathaway Inc (BRKa. N) reported a higher quarterly profit though operating income fell. In his annual letter to Berkshire shareholders, Buffett said investors "will almost certainly do well" by staying with the long term with a "collection of large, conservatively financed American businesses."Buffett puts Berkshire in that category, using the letter to tout the successes of many of his Omaha, Nebraska-based conglomerate's more than 90 operating units. These included businesses such as the BNSF railroad and Geico auto insurance that posted weaker results last quarter."American business -- and consequently a basket of stocks -- is virtually certain to be worth far more in the years ahead," Buffett wrote. "Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle."For the fourth quarter, Berkshire's net income rose to $6.29 billion, or $3,823 per Class A share, from $5.48 billion, or $3,333 per share, a year earlier, helped by a $1.1 billion increase in gains from investments and derivatives. Operating profit fell 6 percent to $4.38 billion, or $2,665 per share, from $4.67 billion, or $2,843 per share. Analysts on average had forecast operating profit of $2,716.60 per share, according to Thomson Reuters I/B/E/S. Book value per Class A share, reflecting assets minus liabilities and which Buffett calls a good measure of Berkshire's intrinsic worth, rose 11 percent to $172,108.

For all of 2016, profit was virtually unchanged, dropping to $24.07 billion from $24.08 billion. Operating profit rose just 1 percent to $17.58 billion, despite January's $32.1 billion purchase of aircraft parts maker Precision Castparts Corp, Berkshire's largest acquisition. Buffett has run Berkshire since 1965. The company also owns dozens of stocks including Apple Inc (AAPL. O), Coca-Cola Co (KO. N), Wells Fargo & Co (WFC. N) and the four biggest U.S. airlines, and more than one-fourth of Kraft Heinz Co (KHC. O). PRAISE FOR AJIT JAIN

Profit from insurance operations rose 7 percent to $1.44 billion, as underwriting gains at the Berkshire Hathaway Reinsurance Group more than offset an underwriting loss at auto insurer Geico, where claims for losses have been rising. The reinsurance business is run by Ajit Jain, widely considered a potential successor for Buffett, 86, as Berkshire's chief executive. Buffett said Jain has created "tens of billions of dollars of value" since joining Berkshire in 1986."If there were ever to be another Ajit and you could swap me for him, don't hesitate," Buffett wrote. "Make the trade!"The insurance units ended 2016 with $91.6 billion of float, the amount of premiums held before claims are paid, and which Buffett uses to fund acquisitions and other investments.

U.S. SEC to take steps to modernize disclosures WASHINGTON The top U.S. securities regulator unveiled plans on Friday to modernize corporate disclosure rules and make it easier for investors to locate information that is often buried in lengthy public company filings.

Out-of-favour BRIC funds see inflows amid emerging equity boom LONDON Economic turnaround in Russia and Brazil may be tempting investors back to BRIC equity funds, with EPFR Global on Friday reporting such funds took in new cash for two weeks in a row for the first time in five months.

Buffett expected to tout passive investing in Berkshire annual letter NEW YORK Warren Buffett, widely considered one of the world's best investors, is likely to tout the merits of passive investing this weekend to readers of his annual letter to Berkshire Hathaway Inc shareholders.

HSBC share run stumbles on writedowns, tough outlook


´╗┐HSBC's (HSBA. L) full-year profit slumped 62 percent and fell far short of forecasts on Tuesday as the bank took hefty writedowns from restructuring and flagged near-term brakes on revenue growth. Shares in Europe's largest bank slid more than 7 percent after its revenues fell by a fifth from 2015, bringing an eight-month stock rise to a halt. Investors have driven HSBC's shares higher, betting on its ability to benefit from U.S. rate hikes. HSBC made profit before tax of $7.1 billion in 2016 compared to $18.87 billion for the previous year, well below an average analyst estimate of $14.4 billion in Thomson Reuters data. Despite the fall, HSBC announced a new $1 billion share buy-back, taking buy-backs since the second half of 2016 to $3.5 billion, as the bank returns cash to shareholders after the sale of its Brazil business last July in a $5.2 billion deal. But the worse than expected profits took their toll on the bank's bonus pool, which it cut by 12 percent to $3 billion, and sets the stage for results this week from Lloyds (LLOY. L), Barclays (BARC. L), RBS (RBS. L) and Standard Chartered (STAN. L). While HSBC is expected to benefit in the long run once interest rates rise worldwide, the one-off charges showed the toll its restructuring is taking on short term profits."The Brazilian disposal highlights the key problem for HSBC -- not only is the quality of the bank's earnings weak, as evidenced by yet another messy set of numbers...but the quantity is lacking as the lender is still trying to shrink itself back to health," said Russ Mould, investment director at online investment manager AJ Bell. HSBC's core capital ratio -- a measure of its financial strength -- was 13.6 percent, against expectations of 13.8 percent, and the bank signalled a number of factors that would pressure its revenues in 2017, including a $500 million increase in regulatory capital costs, lower interest rates in Britain and adverse foreign exchange rates.

SWISS MISS A $3.2 billion impairment in its private banking business led HSBC to report a $3.4 billion fourth-quarter loss, against analysts' expectations for a profit, as the accounting valuation of the unit caught up with years of declining performance. HSBC effectively built out its Swiss private bank from its $10 billion purchase of Republic National Bank of New York and Safra Republic Holdings in 1999. But major compliance failures at those operations ate into the bank's bottom line and hurt its reputation, leading to a radical restructuring which mean the private bank is now viable as a slimmed-down operation providing advice to wealthy clients referred from the lender's other business lines.

"What this doesn't mean is that we are selling the private bank... it means we have restructured the private bank and that's now behind us," CEO Stuart Gulliver told Reuters. The bank also disclosed it was under investigation by Britain's Financial Conduct Authority into its compliance with money laundering regulations. Gulliver told reporters that he could not estimate the impact of this, but that it reflected the bank finding more "bad actors" among its clients as it improves controls."It's quite normal for a bank of our size and scale with 37 million customers to find among them instances of money laundering that we have self-identified or the regulator has identified," Gulliver said. Gulliver also said HSBC did not yet have a shortlist of candidates to replace Chairman Douglas Flint, but said the successor will be identified by the end of 2017.

BRIGHTER LATER The disappointing results halted HSBC's rapid share price climb as investors saw brighter prospects as interest rates rise, helping it earn better returns on its deposits. HSBC's shares were among the best-performing European bank stocks since Britain's June 23 "Brexit" vote, climbing 53 percent in London against a 28 percent increase in the STOXX Europe index of 600 banks . SX7P. That reflected the fact that HSBC is among the global banks best positioned to take advantage of U.S. rate rises, thanks to more than $400 billion of excess deposits that are currently stuck in low-yielding investments."HSBC are sitting on this bucketload of riches that they don't know what to do with...even a one percentage point boost in the earnings from those deposits could see overall profits lifted 20 percent without them having to do anything," Rob James, analyst at Old Mutual Global Investors, said.