Buffett says more bank crackdowns would have occurred without government guarantees

Omaha Oracle’s Warren Buffett said on Saturday that a decision to protect customer deposits during the March banking crisis averted further bank crackdowns.

“It would have been devastating,” he said, had federal regulators not intervened.

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Buffett, CEO of Berkshire Hathaway, said the federal government’s boost to Silicon Valley Bank and Signature Bank in March was necessary to keep more customers from withdrawing money. said. (BRK.A)- Get Free Reportat the conglomerate’s annual shareholder meeting in Omaha, Nebraska.

The FDIC stepped in when the SVB and undersigned banks collapsed and cheered up depositors by insuring 100% of deposits above current thresholds. The FDIC guarantees $250,000 per account.

“I can’t imagine anyone in the administration or Congress. federal reserve .

A decision to protect depositors was “inevitable,” he said.

Buffett, 92, said he sold bank shares in 2020 and in the past six months, but did not give details.

Buffett, the chairman of Berkshire Hathaway, anticipating questions about the banking system, put up a sign in front of him that said “Available for Sale” and “Hold to maturity” next to 99-year-old vice chairman Charlie Munger. He said he put up a sign that said conglomerate.

Buffett did not say whether he would step in to acquire or offer more bank stock. Liquidity Berkshire has $128 billion in cash and Treasury bills, as it did during the Great Recession, he said.

“Even if the banking system were to somehow come to a temporary halt, we would still want to be there.

He said in April that he had sold stakes in several banks.CNBC interview.

Management of California’s First Republic Bank, acquired May 1 in a last-minute bailout by JPMorgan Chase (JPM)- Get Free ReportBuffett said he should be “punished” along with the directors for causing the bankruptcy.

The Fed was also seized by federal regulators, making it the biggest bank failure since 2008.

Customers who have deposits in U.S. banks should feel secure that their money is protected, he said.

“The message was very poor,” Buffett said. “There shouldn’t be too many people misunderstanding the facts… The FDIC and the US government have no interest in busting banks and actually making people lose their deposits.”

Paul Morigi/Getty Images for Fortune/Time Inc

Berkshire Hathaway’s 10-year long-term investment in banks

Buffett has loved owning bank stocks for decades, bailing them out during the 2008 financial crisis.

Billionaires avoid investing in local banks and stick to big banks with trillions of assets.

Buffett and his conglomerate have helped them during previous financial troubles, including investing $5 billion in Goldman Sachs Group (GS)- Get Free Reportduring the financial crisis. In 2011, Berkshire made his $5 billion investment in Bank of America BAC.

Buffett likes banks because “the core banking of a bank is a very simple business model,” Professor Robert Johnson of Creighton University’s Hyder School of Management previously told TheStreet.

“Pay x% on deposit, lend y%,” he said. “Banking is an essential business, and if you stick to the basic business of lending money, it is a profitable business in the long run.”

Buffett, known as a value investor, finds banks attractive on a valuation basis, Johnson said.

“They have historically valued at lower price-to-earnings ratios than the market as a whole, but they can deliver attractive returns on capital,” he said.

Will Buffett keep bank stocks?

Johnson said Buffett is unlikely to sell the bank he currently owns.

“In light of recent events, it would be surprising to see Berkshire Hathaway lower its bank holdings,” he said. I am afraid when others are greedy,’ he famously said.”

Berkshire now owns 1 billion shares of Bank of America and is diversifying its current portfolio.

It remains unclear whether Buffett believes Bank of America is a good bet. The bank’s share price has fallen 19.13% in the last six months, contagion due to recent bank failures.

tech giant apple (AAPL)- Get Free ReportIt has become a large player in equity holdings and currently represents 44% of Berkshire Hathaway’s securities portfolio.

“The share of financial stocks in Berkshire’s marketable securities portfolio has declined over time,” Johnson said. His lieutenant is very confident in the investment.”

But Buffett isn’t afraid to sell some of his bank holdings. He has previously sold stakes in JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co., and also lowered shares in Bank of New York Mellon. (BKMore)- Get Free Reportand U.S. Bancorp (USB)- Get Free Report2022.

Former JPMorgan Chase & Co. economist Anthony Chan said Buffett has been sticking to his investment strategy for decades and “will never let go of bank stocks.”

“If the price is right, I would never abandon Warren Buffett, who has a reputation for saving financial institutions in trouble,” he said. “In 2008 he boldly invested his $5 billion and made a staggering $3.1 billion!”

Buffett invested in American Express in 1962 (AXP)- Get Free ReportHe is now the company’s largest shareholder, owning 20% ​​of the company’s shares, according to FactSet data. His stock is valued at $22 billion at the end of 2022. dividend From American Express, Buffett spoke in their February annual letter.

Munger says commercial real estate loans are ‘bad’

Munger said commercial real estate loans held by U.S. banks are problematic because many of them are considered “bad debt” as real estate prices are falling.

U.S. banks are “filled up” with real estate loans, which he deems “bad debt,” he said. financial times.

“Berkshire has made some banking investments that have worked very well for us,” Munger said. “There have also been disappointments with banks.

Berkshire has long invested in insurance companies, but neither Munger nor Buffett liked them. volatility This comes from commercial real estate loans. Falling real estate prices may not turn around soon, especially in office buildings and shopping centers, as part of the workforce continues to work remotely.

“A lot of real estate isn’t that good anymore,” he said. “There are a lot of troubled office buildings, troubled shopping centers and other troubled properties. There is a lot of pain there.”

Some banks have begun to mitigate risk by lowering the approvals for commercial real estate loans sought by developers.

“All the banks in the country are tightening real estate lending significantly now than they were six months ago,” Munger said. “They all [to be] Too troublesome. ”

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