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Holly LaFon
Holly LaFon
Articles (7527) 

Warren Buffett's Berkshire Strikes Deal with Beleaguered Spain's CaixaBank

November 30, 2012 | About:

“A crisis is a terrible thing to waste” Paul Romer once said, and it seems like Warren Buffett was listening. The Oracle of Omaha is picking at the carcass of Spanish financial institutions in the midst of a terrible crisis, signing a reinsurance deal with Barcelona’s CaixaBank only a day after the European Commission accepted the Madrid’s bank restructuring and bailout plans.

Buffett’s Berkshire is set to pay €600 million ($779 million) to reinsure CaixaBank’s life-insurance portfolio. VidaCaixa, as it’s called, will continue servicing the portfolio, but will be obliged to hand over its cash flows to Berkshire Hathaway.

With the Spanish banking system falling apart, Buffett’s deal offers CaixaBank’s management some breathing room. The Catalonian bank will book a much-needed pretax profit of €524 million ($680 million) on the reinsurance deal. Buffett expects the steady cash-flows from VidaCaixa’s policy holders through 2012 to exceed that amount.

This isn’t the first time the Oracle of Omaha puts money in financials in the midst of a deep crisis. In 2008, Buffett extended a $5 billion life-line to Goldman Sachs, from which he profited handsomely. And in 2011, as investors were selling shares in Bank of America on fears over its capital position, Berkshire invested another $5 billion that helped the stock rally. Buffett currently holds a bunch of financials including Wells Fargo, U.S. Bancorp, and Bank of New York Mellon.

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