Warren Buffett criticises handling of bank crisis

Omaha/New York — Warren Buffett on Saturday criticised the handling of recent tumult in the banking sector and said a debt ceiling showdown in the US could bring “turmoil” to the financial system, even as he offered a vote of confidence in the US and his conglomerate, Berkshire Hathaway.

Buffett criticised how politicians, regulators and the media have handled the recent failures of Silicon Valley Bank (SVB), Signature Bank and First Republic Bank, saying their “very poor” messaging has unnecessarily frightened depositors.

“Fear is contagious,” he said at Berkshire’s annual shareholder meeting, adding that “you can’t run an economy” when people worry if their money is safe in banks.

Buffett also warned of a growing “tribalism” in Washington, where partisanship causes people to talk past each other. “We have to refine, in a certain way, our democracy as we go along. But if I still had a choice, I would want to be born in the US. It is a better world than we’ve ever had.”

Buffett spoke hours after Berkshire posted a $35.5bn quarterly profit and said the company bought back $4.4bn of its own stock, a sign it considered the shares undervalued. In contrast, it sold $13.3bn of other companies' stocks in a quarter where the S&P 500 index rose 7%.

Buffett, the world’s sixth-richest person, has since run Berkshire 1965. Its dozens of businesses include Geico car insurance, the BNSF railroad, and consumer names such as Dairy Queen and Fruit of the Loom. Berkshire also owns $328bn of stocks, close to half in Apple.

The meeting featured Buffett, 92, who is Berkshire’s chair and CEO, and vice-chair Charlie Munger, 99, answering five hours of shareholder questions. Vice-chair Greg Abel and Ajit Jain joined in the morning. Buffett reiterated on Saturday that Abel would succeed him as CEO, while adding he had no plan if Abel could not.

Lighted match

Buffett said regulators were right to guarantee depositors of SVB, saying that not doing so “would have been catastrophic”.

He also said bank shareholders and executives should bear the risks of mismanagement, with Munger criticising executives concerned more with getting rich than with customers.

“A lighted match can be turned into a conflagration or can be blown out,” Buffett said. “You have to have punishment for people who do the wrong thing.”

Buffett said he could not imagine politicians or regulators being willing to “disrupt the world’s financial system”, including if Washington failed to break its impasse on raising the debt ceiling, which dictates how much the government could borrow.

Anticipating questions on banking, Buffett prompted laughter by putting in front of him a sign reading “Available for sale” and one reading “held to maturity” before Munger. These referred to how lenders account for their securities, a central issue in the recent banking crisis.

Buffett said Berkshire is cautious about banks and sold some bank stocks in the past six months.

Saturday’s meeting is the centrepiece of a weekend Buffett calls “Woodstock for capitalists”, which draws tens of thousands of people to Omaha, Nebraska, Berkshire’s hometown. Attendance surged from 2022. Unlike last year, the downtown arena hosting the meeting was filled to capacity.

Apple investment

In discussing Berkshire’s performance, Buffett said that perhaps a majority of its operating businesses may fare worse in 2023 than in 2022 as economic activity slows. But he said Berkshire can offset this with more income from investments, including $7bn of treasury bills bought in April.

Buffett defended the size of Berkshire’s $151bn Apple investment, saying consumers are less likely to shed their $1,500 iPhones than, for example, their $35,000 second cars. “Apple is different from the other businesses we own,” Buffett said. “It just happens to be a better business.”

Berkshire has recently held a 5.6% stake in Apple, and Buffett said it could buy more. He also said that while Berkshire owns nearly one-fourth of Occidental Petroleum, it has no plans to take control of the company.

Cathy Seifert, vice-president at CFRA Research, said: “Portfolio management practices would suggest there is definitely concentration risk with having so much Apple in that portfolio.”

Munger, a longtime China bull who spearheaded Berkshire’s investment in electric car company BYD, called for lowered tensions and increased trade between that country and the US. Buffett cited those tensions in saying he is more comfortable deploying capital in Japan than in Taiwan.

Before the meeting, dozens of uniform-clad pilots at Berkshire-owned NetJets demonstrated outside the arena, protesting against low pay and long hours.

Thousands of shareholders, meanwhile, lined up outside the arena before it opened. Many recognised it could be one of their last chances to see Buffett and Munger, given their ages.

Vidhya Vivekananda, an investment associate from Vancouver, Canada, said attending the meeting has been on our bucket list for a long time. We don't know how long it will be with Warren and Charlie before they pass it on.”

Yongsheng Zhao, who lives in Shanghai and is a researcher for an asset management firm, said he showed up at midnight with a chair to see Buffett and Munger for the eighth time. “I am inspired by their passion and normalcy,” he said. “I would hope they can go another five years, or more.”

Reuters