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ENTITY
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🎵Wisdom Density:
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🏢 Berkadia
📝 Description
Berkadia is a joint venture between Berkshire Hathaway and Leucadia (now Jefferies Financial Group). Formed in late 2009, Berkadia was created to acquire the servicing assets of Capmark Finance, a major mortgage lender that collapsed during the financial crisis.
🔗 Connection to Berkshire
- Joint Venture: Owned 50/50 by Berkshire and Leucadia. The partnership combined Berkshire’s massive capital with Leucadia’s specialized financial expertise.
- Opportunistic Acquisition: Formed at the depth of the financial crisis to buy high-quality servicing and origination platforms from a distressed seller (Capmark).
- Reliable Fee Income: Berkadia services a massive portfolio of commercial and multi-family mortgages, generating steady fee income regardless of interest rate cycles.
📈 Key Insights
- The Buyer of Choice: Capmark had several suitors, but Berkshire and Leucadia were able to provide certain, immediate cash at a time when others were credit-constrained.
- Shared Culture: Buffett specifically notes that he enjoys working with Ian Cumming and Joe Steinberg of Leucadia because they share Berkshire's long-term orientation and opportunistic mindset.
- Scale: At inception, Berkadia serviced over $235 billion in commercial loans, making it one of the largest players in the industry from day one.
💡 Key Mentions
- 2009 Letter: Mentioned as a key capital commitment in the finance sector that generates non-insurance earnings.
📚 Historical Mentions & Citations (3)
Click a reference document below to expand and read the exact paragraph(s) containing this concept in the archive.
📜2001 LetterExcerpt Available▼
2001 LetterExcerpt Available
The plan as subsequently modified (and I’m simplifying here) provided that creditors would be paid 70% of face value (along with full interest) and that they would receive a newly-issued 7½% note for the 30% of their claims not satisfied by cash. To fund FINOVA’s 70% distribution, Leucadia and Berkshire formed a jointly-owned entity — mellifluently christened Berkadia — that borrowed $5.6 billion through FleetBoston and, in turn, re-lent this sum to FINOVA, concurrently obtaining a priority claim on its assets. Berkshire guaranteed 90% of the Berkadia borrowing and also has a secondary guarantee on the 10% for which Leucadia has primary responsibility. (Did I mention that I am simplifying?).
There is a spread of about two percentage points between what Berkadia pays on its borrowing and what it receives from FINOVA, with this spread flowing 90% to Berkshire and 10% to Leucadia. As I write this, each loan has been paid down to $3.9 billion.
📜2002 LetterExcerpt Available▼
2002 LetterExcerpt Available
This category also includes a highly satisfactory — but rapidly diminishing — income stream from our Berkadia investment in Finova (described in last year’s report). Our partner, Leucadia National Corp., has managed this operation with great skill, willingly doing far more than its share of the heavy lifting. I like this division of labor and hope to join with Leucadia in future transactions.
📜2009 LetterExcerpt Available▼
2009 LetterExcerpt Available
At the end of 2009, we became a 50% owner of Berkadia Commercial Mortgage (formerly known as Capmark), the country’s third-largest servicer of commercial mortgages. In addition to servicing a $235 billion portfolio, the company is an important originator of mortgages, having 25 offices spread around the country. Though commercial real estate will face major problems in the next few years, long-term opportunities for Berkadia are significant.
Our first venture was also christened Berkadia. So let’s call this one Son of Berkadia. Someday I’ll be writing you about Grandson of Berkadia.