Buffett’s credit card caper cost the company $50 million
Economic News Today about Warren Buffett reluctantly reached last year when shut down a money-losing credit card business he had dreamed up for Berkshire’s Geico car-insurance unit. The decision was disclosed in Buffett’s annual letter to Berkshire shareholders, released Saturday. The letter called Geico’s brief foray into credit cards “a very expensive business fiasco entirely of [Buffett's] own making.”Against the advice of Geico executives, Buffett said in the letter, he lit upon the idea of a Geico credit card. The Geico Platinum MasterCard was born.Buffett was so high on the idea a few years ago that he urged Berkshire shareholders to use the card.But it soon became apparent that people significantly less well off than Buffett were among the leading users of the Geico card.The card business eventually ran up $6.3 million in pretax losses before Buffett pulled the plug. Berkshire then sold its credit card receivables for 55 cents on the dollar, resulting in additional losses, Buffett wrote. In his 2008 letter, he said he did “some dumb things in investments,” including a purchase of ConocoPhillips (COP, Fortune 500) stock with oil prices near their all-time high and a bet on Irish banks whose shares promptly fell 89%.And a $50 million loss over half a decade is hardly worth mentioning for Geico. The insurance company posted a $649 underwriting profit for 2009.
