Warren Buffett, whose Berkshire Hathaway Inc has more than $19 billion invested in US banks, said the lenders had ample liquidity and were a class apart from European rivals.
“I would put European banks and American banks in two very different categories,” Buffett, Berkshire’s chairman and chief executive officer, said today at the firm’s annual meeting in Omaha, Nebraska. “The American banking system is in fine shape. The European system was gasping for air a few months back” before getting assistance from the European Central Bank.
Wells Fargo & Co and JPMorgan Chase & Co posted record profits last year and their CEOs are contesting efforts by US policy makers to strengthen banking regulations. European banks have struggled amid the continent’s sovereign debt crisis and turned to the ECB, starting in December, for extraordinary three-year loans at interest rates of 1 per cent. “I’d like to have a lot of money for three years at 1 per cent, but I’m not in trouble,” said Buffett, 81. US banks have “liquidity coming out their ears.”
Berkshire, which Buffett has led for 42 years, is the biggest shareholder of San Francisco-based Wells Fargo, with a more than $12 billion stake. Buffett injected $5 billion into Bank of America Corp last year in exchange for preferred stock and warrants. Berkshire’s shareholding of US Bancorp was valued at $2.2 billion as of Friday.
Buffett said that despite his huge investment in IBM, which topped $11.7 billion at year end, he would not plunge into other technology giants such as Apple Inc and Google. He also said Berkshire may buy more newspapers. It owns the Buffalo News, just bought the hometown Omaha World-Herald, and is a longtime shareholder of Washington Post Co.
Buffett tried to allay fears of Berkshire Hathaway Inc shareholders about the company’s future after he was diagnosed with prostate cancer, and revealed that he recently tried to make one of the biggest acquisitions of his storied career.
The question of who will succeed Buffett, 81, as chief executive became more of an imperative after Buffett disclosed the diagnosis on April 17. While Buffett called it “a really minor event,” his early-stage prostate cancer was a reminder that for all his success as an investor and all the plaudits he gets, Buffett is mortal and would be hard to replace at the company he has run since 1965.
“I don’t think that every deal that I made would necessarily be makeable by a successor, but they’ll bring other talents,” including skills to be an effective chief risk officer, Buffett said. “We’re not going to have an arts major in charge of Berkshire.”
Charlie Munger, who is Berkshire’s 88-year-old vice-chairman and sat beside Buffett, quipped: “I resent the sympathy Warren is getting. I probably have more prostate cancer than he does.” Among the internal candidates seen as possible future Berkshire chief executives are Ajit Jain, Buffett’s top insurance lieutenant; Matthew Rose, who leads Burlington Northern; and Greg Abel, who runs the MidAmerican Energy unit.
The annual meeting is the centerpiece of a weekend of events that Buffett has dubbed “Woodstock for Capitalism.” Close to 40,000 shareholders were expected to attend this year. This year’s meeting had fewer fireworks than the 2011 meeting, which was dominated by the then-recent, scandal-driven resignation of Buffett heir apparent David Sokol. Yet Buffett offered a blunt assessment on a scandal enveloping Walmart Stores, in which Berkshire held a $2.33 billion common stock stake at year end.
Last month, the New York Times said the retailer’s majority-owned Walmart de Mexico unit ran a widespread bribery campaign in that country to win market dominance, and that senior Walmart executives tried to cover it up. “If you read the New York Times story, and there’s always another side to it, it looks like they may well have made a mistake in how that was handled.” He nonetheless said he did not believe the matter “changes the fundamental dynamic” about Walmart or its earnings power.
He was upbeat about Berkshire’s prospects. As in recent years, Buffett and Munger fielded questions from shareholders and three journalists. For the first time, they also took questions from three insurance industry analysts - Barclays Capital’s Jay Gelb, KBW’s Cliff Gallant, and Dowling & Partners’ Gary Ransom - who each have the equivalent of a “buy” rating on Berkshire.
While some hoped the analysts would add depth to the meeting, some of their questions concerned relatively arcane matters such as mortality rates in insurance, or whether Geico would use electronics to track driver behavior. Gelb did ask the question that prompted Buffett’s comment about a mega-takeover.
Prior to the questioning, shareholders were regaled with the annual comedy-infused movie made by Buffett’s daughter Susie. In one sketch, Buffett sang and played the ukulele with the cast of the TV show “Glee.”
Another featured Buffett’s secretary Debbie Bosanek, whose effective tax rate is higher than her boss’s and helped inspire the Obama administration’s proposed “Buffett rule” to raise taxes on the wealthy that recently failed in Congress. Bosanek was shown with her feet up on her desk, discussing magazine covers. A helpful Buffett fielded phone calls for her.
Buffett told Reuters Insider he expects some version of the “Buffett rule” would be passed in a second Obama administration. Buffett on Saturday also said that he recently considered a more than $20-billion acquisition, and would have sold some Berkshire stock holdings he wanted to keep to get it done.
“I wish we could have made it,” he said. “It could happen. I don’t think it will happen.”Buffett did not name the target. A takeover of that magnitude would have been close in size to Berkshire’s biggest takeover — the $26.5-billion purchase of railroad company Burlington Northern Santa Fe in 2010. It would have also dented Berkshire’s $37.83 billion cash hoard. Buffett said he wants to keep $20 billion on hand.
“Ideally we would spend about $20 billion, that would be about as much as I would feel comfortable spending now,” Buffett told Reuters Insider in an interview after the meeting ended. “I would settle for about $10 billion and don’t try me with $5 (billion).”Berkshire has about 80 operating units, which sell such things as car insurance, chemicals, clothing, furniture and ice cream.