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Berkshire Hathaway Benefits from 2007 Financial Valuations

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Finance and financial products

Berkshire Hathaway (BRK-B) made some good investments in the financial sector during the 2007 crisis. The company has generated heavy capital profits over a five- to seven-year period. Its major subsidiaries in the segment include manufactured housing builder and financer Clayton Homes, transportation equipment manufacturing and leasing businesses UTLX and XTRA, as well as other leasing and financing businesses. XTRA owns and leases over-the-road trailers. UTLX manufactures, owns, and leases railcars, intermodal tank cars, and cranes.

Berkshire Hathaway competes with other companies to acquire financial companies. Some of its competitors include Blackstone (BX), BlackRock (BLK), Goldman Sachs (GS) and Morgan Stanley (MS).

Together, these companies make up 5.93% of the Financial Select Sector SPDR Fund (XLF). Berkshire and its competitors are also part of the iShares Core S&P 500 ETF (IVV).

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Increasing margins

Berkshire earned over $6 billion in revenues from its finance and financial products division, with after-tax earnings of $1.2 billion.

Clayton Homes saw an increase in revenues and after-tax earnings primarily because it sold 7% more homes, had fewer losses in its installment loan portfolio, paid less interest on loans, and improved its manufacturing results.

The transportation equipment leasing businesses benefited from more units on lease and higher lease rates for railcars.

Berkshire also made after-tax investment gains of $3.3 billion in 2014. Investment gains fluctuate with the company’s sale of assets or businesses. Major gains were realized from a transaction involving Phillips 66 and Graham Holdings Company common stock. In exchange for this stock, Berkshire Hathaway received 100% of the common stock associated with two subsidiary companies—one a subsidiary of Phillips 66, the other, of Graham Holdings Company.

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