Bloomberg has reported today that Warren Buffet, CEO of Berkshire Hathaway Inc. (NYSE:BRK.A), (NYSE:BRK.B), attempted to buy the mortgage lender ResCap before the company announced its bankruptcy. The company sought bankruptcy protection last Monday after losses at the firm from bad loans continued to increase and the company faced liabilities from separate court proceedings.
Buffet, according to Bloomberg’s sources, apparently sought to take control of the firm paying no up front fees but taking on all of the firm’s liabilities. That deal was rejected. The motive behind the deal is postulated to have been offered in order to avoid troubles stemming from Berkshire’s unsecured debt in the unit.
ResCap was a major lender in the sub prime mortgage market in the years leading up to the crisis. Since the collapse in the market the company’s main preoccupation has been attempting to mitigate its losses and avoid bankruptcy. That plan has proved ineffective.
Since declaring Bankruptcy ResCap, which is owned by Ally Financial, sold the mortgage unit to Fortress Investment Group (NYSE:FIG) and Nationstar Mortgage Holdings Inc. (NYSE:NSM) for around $2.3 billion. The terms of that sale do not include the buyers taking on the liabilities of the firm.
As the firm’s losses have become too much to forecast any sort of future at the company Ally financial sought to cut the ties between the firms and jettison the subsidiary. Ally paid Rescap $750 million in order to settle any claims the company may have had against its parent. That settlement is hoped to provide legal cleavage between Ally and ResCap’s legal troubles. Ally is almost entirely owned by the United States after a $17 billion bailout from the Federal Government.
The attempt show that Buffett is still vivacious and on the look for value investments. Taking on that level of debt at no cost is a risky manoevre with the implied liabilities that come along with it. The 81 year old legendary investor is still willing to make innovative decisions. Though this deal didn’t work out the maven’s continuing work will give confidence to shareholders who woory about the health of the company’s founder and controlling shareholder as he advances in age.
The biggest source of speculation involving the firm is the identity of Mr. Buffet’s successor. He has openly admitted that there is a plan to replace him in place at the company and has suggested his position will be divided into several roles given to different executives.