Democrats Deny Buffett on a Key Provision

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Warren Buffett's Berkshire Hathaway pushed a provision that would have allowed the company to avoid a significant financial hit.

Senate Democrats agreed Monday to kill a provision from their derivatives bill pushed by Warren Buffett's Berkshire Hathaway Inc., a change one analyst predicted could force the Nebraska company to set aside up to $8 billion.

The Senate Agriculture Committee inserted language into its derivatives bill last week at the request of Sen. Ben Nelson (D., Neb.) that would have exempted any existing derivatives contracts from new collateral requirements—the money set aside to cover potential losses.

Berkshire has $63 billion in derivatives contracts, and Mr. Buffett has boasted he holds very little collateral against these products.

Mr. Buffett's push was notable because he has warned of the potential dangers of derivatives, famously branding them "financial weapons of mass destruction."

The inclusion of the provision could have been a problem for Democrats, who saw their health-care overhaul stagger under the weight of similar home-state favors, including one for Mr. Nelson.

The provision wasn't included in the financial overhaul bill passed by the Senate Banking Committee in March, and lawmakers had to reconcile differences in the banking and agriculture bills. The Wall Street Journal ran a page-one article about the provision Monday, and the panels agreed Monday morning to strip out the provision.

The provision would have helped all companies with existing contracts. Senate aides on Capitol Hill said, however, that Berkshire pushed forcefully for the change because of its large book of derivatives.

Barclays Capital said Monday the Senate bill now "could result in a drain on the company's excess cash" and force Berkshire to set aside between $6 billion and $8 billion in collateral. The company has about $20 billion in cash on hand.

Treasury Department officials worked to kill the provision, arguing that regulators should have the flexibility to require companies post more collateral if they could pose a threat to the broader financial system, like that created by American International Group Inc. in 2008. Berkshire officials argued existing derivatives should be exempt because they are legal contracts that can't be retroactively amended.

The provision was inserted into the agriculture committee bill after Mr. Nelson pushed to have it included, a Democratic Senate aide said.

Berkshire employees have given Mr. Nelson $75,550 over his political career, according to the Center for Responsive Politics. Mr. Nelson owned between $500,000 and $1 million in Berkshire stock at the end of 2008, according to the most recent financial disclosure forms.

A spokesman for Mr. Nelson said Friday that money had no influence in Mr. Nelson's role in the matter and that Mr. Nelson has long felt that new laws shouldn't apply retroactively to existing contracts. The spokesman didn't return phone or email messages left Monday.

Berkshire officials didn't return calls seeking comment Monday.

Mr. Nelson broke with other Democrats on Monday and voted with Republicans to prevent the Senate from beginning debate on the financial overhaul bill. He said his opposition was because of concerns about the bill's impact on auto dealers and dentists, among other things.

"It's groundhog day here," said Sen. Christopher Dodd (D., Conn.), laughing, when asked about Mr. Nelson's opposition vote, a likely reference Mr. Nelson's role in the health-care debate.

Mr. Dodd said he was prepared to grandfather existing derivatives that have not been cleared, but he could not support waiving margin requirements for those derivatives.

"There are trillions of dollars in play that would raise risks again," Mr. Dodd told reporters after the vote.

He said Treasury is working on language to see if there's a fix "without exposing the economy to the kind of problems that you'd have with derivatives out there without margin requirements and position limits."

Asked if Mr. Nelson's "no" vote was because the Berkshire amendment was stripped out, Mr. Dodd told reporters to ask Mr. Nelson. But he did indicate it was the only issue he and Sen. Harry Reid (D., Nev.) discussed with Nelson during a tense-looking huddle at the start of the vote. "Dentists and auto-dealers did not come up," Mr. Dodd said.

The change was part of a broader agreement on derivatives regulation, which could also force Wall Street banks to spin off their derivatives desks and force many derivatives contracts to be cleared and traded through exchanges. The derivatives portion is a major plank in the Democrats financial overhaul package, which lawmakers could vote on soon. At least two Republicans have expressed support for the Democrats' derivatives proposal, but no Republicans have said they would vote for the broader bill.

—Victoria McGrane contributed to this article.