The book value of multinational conglomerate holding business Berkshire Hathaway Inc. (NYSE:BRK.A) of Warren Buffett may soon receive a $29 billion boost according to many experts. This will happen if Donald Trump, the President-elect, can bring down corporate tax in the United States from a high of 35 percent to 15 percent, as was promised during the campaign.
When this proposed reduction is implemented, the deferred tax liability of Berkshire is likely to drop from $50.5 billion to $21.6 billion, which means an impressive reduction of more than 50 percent. An analyst with Barclays Capital, Jay Gelb, however, points out that this will exclude amounts with its regulated utility units.
This is sure to be great news for the shareholders, as the company considers book value as the measure of their growth. Book value is calculated by adding assets and deducting liabilities. Gelb says that a $29 billion increase will be equal to 11 percent. So there is potential that the company’s stock may also go up substantially.
The Berkshire Hathaway Stock Goes Up
The market is already moving, fueled by this speculation, and the friendlier policies of Trump towards businesses. In fact, the Berkshire Hathaway stock has already gained by 8.4 percent since the election results were declared. On Monday, it touched an intraday record $240,500. The stock closed slightly down at $2,40,000, up 0.39 percent.
The value of holdings in bank stocks like Wells Fargo (NYSE:WFC), for instance, has also been going up, because of the interest rate going up.
Warren Buffett Was in Favor of Clinton as President
In spite of the proposed friendlier tax regime, Warren Buffett was still in favor of the Democratic candidate Hillary Clinton as the next US President. The billionaire even dismissed the idea that high interest rates may discourage investments. Responding to complaints about corporate America having to pay high tax, he earlier said, “I would have you take that with a grain of salt”.
Sounding confident about Berkshire’s prospects, Warren Buffett, however, said at their most recent annual meeting at Omaha that the company will do fine irrespective of who becomes the next President.
Though Trump has asked the tax to be reduced to 15 percent from 35 percent, the House Republican “blueprint” says it should be 20 percent. Berkshire Hathaway (NYSE:BRK.A) is likely to see considerable gains even at 20 percent.