Uber-investor Warren Buffett‘s 2004 performance letter to Berkshire Hathaway, Inc‘s shareholders was published over the weekend. While citing such diverse characters as W.C. Fields and Jesus Christ, Mr. Buffett accepted blame for a drop in Berkshire’s 2004 earnings. Here is a prior post about Mr. Buffet’s letter from last year.
Mr. Buffett candidly admitted the following:

My hope was to make several multibillion dollar acquisitions that would add new and significant streams of earnings to the many we already have, But I struck out.

As a result, Berkshire’s change in book value increased only 10.5% in 2004, lagging behind that of the S&P 500-stock index’s 10.9% return, a performance that Mr. Buffett characterized as “lackluster.” However, it’s important to remember that Berkshire generated that return while remaining quite liquid — the company has $40 billion in cash reserves earning a small return, but putting the company in an enviable position to make acquisitions. Unfortunately, Mr. Buffett commented that there are currently “very few attractive securities to buy,” continuing a theme that was also used in last year’s letter.
Mr. Buffett’s currency investments allowed him to include the quote from W.C. Fields in his report. Inasmuch as Berkhire’s bets nearly doubled in 2004 to $21.4 billion, Mr. Buffet quoted Mr. Fields’ famous comment to a a beggar’s approach: “Sorry, son, all my money’s tied up in currency.”
Mr. Buffett also criticized U.S. policy makers for the growing current-account deficit and warned that net ownership of U.S. assets by foreign countries over the next decade will amount to about $11 trillion if account deficits continue at current levels. He did not explain why he thought that it was a bad idea for foreigners to overpay for U.S. assets.
Somewhat surprisingly, Mr. Buffett’s letter did not mention investigations by state and federal regulators into transactions between insurance clients and Berkshire’s General Re and other company reinsurance subsidiaries. Those investigations are examining whether some companies have used finite-risk insurance to hide financial obligations and make their results appear stronger than they actually are. You know, sort of like the criminalization of structured finance transactions of Enron fame.
Mr. Buffett also quoted Scripture in defending the independence of Berkshire’s board, which includes several Buffett family members and their friends, including Microsoft Corp.’s Bill Gates. Mr. Buffett contends that the board members’ substantial holdings in their own companies’ stock aligned them with the interests of other shareholders, and then cited Matthew 6:21, in which Jesus is quoted as saying “For where your treasure is, there will your heart be also.” Mr. Buffett concluded that “measured by the biblical standard, the Berkshire board is a model.”

The venerable Louisiana bank, Hibernia Corp., has agreed to be acquired by McLean, Va.-based Capital One Finance Corp. in a $5.35 billion deal that allows one of the nation’s leading credit card issuers finally to enter the retail banking industry. With a market value of approximately $20 billion, Cap One is nearly five times Hibernia’s size.
Hibernia is a Louisiana institution that established in the post-Civil War years. It became best known during the Great Depression, when the late Louisiana Governor and demagogue Huey Long leaned on Hibernia and other banks to finance huge public works projects for the construction of bridges, roads and other infrastructure in Louisiana during the 1930s. Hibernia has more about $22 billion in assets, about 300 branches and operations in Texas, Louisiana and Mississippi.
Cap One’s acquisition is a clear response to a shrinking market share in the credit card business, where competitors such as Bank of America Corp. have invested billions in new products over the past several years. That’s why your and my teenage children continue to receive so many solicitations for credit cards in the mail. Acquiring a retail bank will give Cap One low-cost retail deposits, which it can then use to generate loans at more profitable interest rates to its borrowers.
Hibernia’s banking operation will will fit nicely into Cap One’s business, which also provides financial services such as health insurance and personal loans. Cap One was also attracted to Hibernia’s presence in the Texas banking market, which is growing much faster than Louisiana’s market. The deal is is expected to close by the third quarter of this year. Hibernia shareholders will receive $33 for each of their shares, split into roughly half cash and half Cap One stock, which means that Hibernia stockholders will receive about a 24% premium on their shares’ $26.57 price on the New York Stock Exchange as of this past Friday.