NEW YORK (Reuters) - Warren Buffett's Berkshire Hathaway Inc BRKa.NBRKb.N said Joseph Brandon resigned Monday as chairman and chief executive of its General Re Corp unit, less than two months after a jury convicted four former executives of the reinsurer of fraud.
Brandon was once considered a leading candidate to replace the 77-year-old Buffett at Berkshire’s helm. Franklin “Tad” Montross, president of Stamford, Connecticut-based General Re, will replace Brandon as the unit’s chairman and chief executive.
A federal jury in Hartford on February 25 convicted the former General Re executives and a former American International Group Inc AIG.N executive over a reinsurance transaction that prosecutors said bolstered AIG's loss reserves by $500 million, making its results look better.
Prosecutors have pressured Berkshire to replace Brandon, the Wall Street Journal said last week. Brandon has not been charged, but his status grew less certain after the U.S. Securities and Exchange Commission told him in 2005 that he could face charges that he violated U.S. securities laws.
“You have to go back to Warren Buffett’s credo that management integrity is paramount,” said Chuck Hamilton, an analyst at FTN Midwest Securities Corp in Nashville, Tennessee, who has a “neutral” rating on Berkshire. “The SEC and federal prosecutors often have quite a bit of weight in who sits in the top chairs, and can sway management into making changes. I suspect Buffett had no choice.”
Berkshire, in a statement, did not give a reason for Brandon’s departure. Brandon and Berkshire did not immediately return a requests for comment. Spokesmen for the SEC and the U.S. Attorney in Connecticut declined to comment.
Berkshire Class A shares fell $1,785, or 1.4 percent, to $128,515 on the New York Stock Exchange.
Before becoming General Re’s chief executive in 2001, Brandon had worked as the company’s chief financial officer. He was a top executive at the time of the AIG transaction.
In his annual letter to Berkshire shareholders in February, Buffett praised Brandon and Montross for “doing first-class business in a first-class way” at General Re, adding that “the luster of the company has been restored.”
Ronald Ferguson, whom Brandon replaced as chief executive, was among the convicted executives. Prosecutors called Brandon an unindicted co-conspirator, published reports show. Buffett has denied wrongdoing, and was not called to testify at trial.
General Re last year generated more than $6 billion of revenue, about 5 percent of Berkshire’s total.
Buffett has said he has three internal candidates to replace himself as chief executive of Omaha, Nebraska-based Berkshire, his $199 billion insurance and investment company, including one who would step in immediately if needed.
Many investors have said possible successors include David Sokol, the chief executive of MidAmerican Energy Holdings Co, and Ajit Jain, a top insurance executive who is spearheading Berkshire’s push into bond insurance.
Additional reporting by Rachelle Younglai, editing by Dave Zimmerman and Tim Dobbyn
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