Buffett's bond insurer gambit no burst of altruism

By Jonathan Stempel

NEW YORK (Reuters) - Warren Buffett's offer to support $800 billion (400 billion pounds) of municipal bonds isn't a bail-out. Nor is it a fresh burst of altruism for a man donating 85 percent of his billions to charity.

It's a way for his insurance and investment company, Berkshire Hathaway Inc (BRKa.N) (BRKb.N), to rake in even more profits.

"When I go to St. Peter I will not present this as some act that should entitle me to get in," Buffett said on CNBC television. "We're doing this to make money ... If you put up $5 billion, you ought to make some money."

That's how much capital Buffett said he offered last week to guarantee municipal bonds now backed by MBIA Inc (MBI.N), Ambac Financial Group Inc (ABK.N) and FGIC Corp. He said he would insure the bonds for 50 percent more than the insurers charge, an amount that analysts said was high.

Buffett's offer was also notable for what it excluded -- risky debt, including securities tied to subprime mortgages, that has caused billions of dollars of losses for bond insurers. He said one insurer rejected his proposal, without identifying it.

If Buffett steps in, he could stabilize credit markets fearful of existing insurers losing their "triple-A" credit ratings.

This could make it tough for them to win business, and trigger widespread sales of municipal bonds, driving up states' and cities' borrowing costs and thus hurting taxpayers.

"To the extent (Buffett) has been a white knight on occasion, it has been driven by the opportunity to make a whole lot of money," said Whitney Tilson, managing partner of T2 Partners LLC in New York.

"I think the reason he went public is he is offering a very good deal for society and the financial system, but a very bad deal for MBIA and Ambac," Tilson added. "He's offering only to cherry-pick the good business."

Tilson said T2 invests $140 million of hedge fund capital, and that its largest investment is Berkshire. He said T2 is selling MBIA and Ambac "short," betting on a further decline.

GOOD FOR BERKSHIRE, AND COUNTRY?

Omaha, Nebraska-based Berkshire is a $214 billion insurance and investment company that owns more than 70 companies, as well as stocks of such brand-name companies as American Express Co (AXP.N), Coca-Cola Co (KO.N) and Wells Fargo & Co (WFC.N).

It made $10.27 billion from January to September last year, and Berkshire shares are up roughly a quarter since the global credit crunch accelerated early last summer.

Berkshire created its own bond insurer, Berkshire Hathaway Assurance Corp, in December, and is seeking to expand nationally. Experts said Berkshire's $47 billion cash cushion and triple-A ratings gave the new insurer instant credibility.

"Buffett is trying to capture a huge piece of the market share because (he sees) weakness in the whole sector," said Robert Haines, an insurance analyst at CreditSights Inc.