Warren Buffett mistakes handling of bank failures, bullish on US, Berkshire

OMAHA, Nebraska, May 6 (Reuters) – Warren Buffett on Saturday criticized the handling of the latest turmoil in the banking sector, saying a debt ceiling settlement could bring “unrest” to the financial system, even as he offered a vote of confidence in the banking sector. United States and his conglomerate Berkshire Hathaway Inc (BRKa.N).

In a speech at Berkshire’s annual shareholder meeting, Buffett criticized how politicians, regulators and the press have handled the recent failures of Silicon Valley Bank, Signature Bank and First Republic Bank, saying their “very bad” messaging has unnecessarily scared depositors.

“Fear is contagious,” he said, adding that “you can’t run an economy” when people worry about whether their money is safe in the banks.

Buffett also warned of a growing “tribalism” in Washington where partisanship causes people to talk past each other.

“We have to delineate, in a certain way, our democracy as we go forward,” he said. “But if I still had a choice, I would want to be born in the United States. It’s a better world than we’ve ever had.”

Buffett spoke hours after Berkshire posted a quarterly profit of $35.5 billion and said it was buying back $4.4 billion of its own stock, a sign the shares were undervalued.

By contrast, it sold $13.3 billion of other companies’ shares, in a quarter in which the S&P 500 index (.SPX) rose 7%.

The world’s sixth-richest person, Buffett has since 1965 run Berkshire, whose dozens of businesses include Geico auto insurance, the BNSF railroad and consumer names such as Dairy Queen and Fruit of the Loom.

Berkshire also owns $328 billion in shares, nearly half in Apple Inc ( AAPL.O ).

The meeting featured Buffett, 92, who is Berkshire’s chairman and CEO, and Vice Chairman Charlie Munger answering five hours of questions from shareholders. Deputy managers Greg Abel, 60, and Ajit Jain, 71, joined in the morning.

Buffett reiterated Saturday that Abel would succeed him as CEO, while adding that he had no plan if Abel could not.

At the meeting, Berkshire shareholders re-elected all board members and rejected shareholder proposals regarding climate change, diversity and political activities.

LIGHT match

Buffett said regulators were right to bail out Silicon Valley Bank depositors, and said not doing so “would be catastrophic.”

He also said that bank shareholders and managers should bear the risk of mismanagement, with Munger criticizing managers who are more concerned with getting rich than with customers.

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

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

Anticipating questions about the bank, Buffett got a laugh by placing an “AVAILABLE FOR SALE” sign in front of Munger and one with a “HOLD TO MATURITY” sign.

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 centerpiece of a weekend Buffett calls “Woodstock for Capitalists” that draws tens of thousands of people to his hometown of Omaha, Nebraska.

Attendance increased from 2022, with Berkshire receiving ticket requests from 45 countries. Unlike last year, the city center arena that hosted the meeting was filled to capacity.

MOUTHS: TURN TO SMALLER

In discussing Berkshire’s performance, Buffett said that perhaps a majority of its businesses could do worse in 2023 than in 2022 as economic activity slows.

But he said Berkshire could offset this with more income from investments, including $7 billion of Treasury bills bought in April.

Buffett defended the size of Berkshire’s $151 billion Apple investment, saying consumers are less likely to lose their $1,500 iPhones than, say, their $35,000 second car.

“Apple is different than the other businesses we own,” Buffett said. “It just happens to be a better business.”

He also said that while Berkshire owns almost a quarter of Occidental Petroleum Corp ( OXY.N ), it has no plans to take control of the oil company.

Munger drew muffled groans by saying that value investors like himself and Buffett — and much of the public — “should get used to making less,” in part because so many investors follow similar strategies.

Buffett also said a 15% tax rate wouldn’t bother him. A 2021 agreement by 137 countries to adopt minimum corporate taxes at that level has not been implemented by the United States.

Munger, a longtime China bull who spearheaded Berkshire’s investment in electric car company BYD Co, also called for reduced tensions and increased trade between that country and the United States.

“It is in our common interest,” he said.

Buffett cited these tensions by saying he is more comfortable deploying capital in Japan than Taiwan.

Abel, who oversees Berkshire’s non-insurance businesses, also said BNSF is taking the recent spate of train derailments in the industry seriously and that “it comes down to responding properly.”

WAITING ON LINE

Before the meeting, dozens of uniformed pilots at Berkshire-owned NetJets demonstrated outside the arena, protesting low wages, long hours and fatigue.

Thousands of shareholders, meanwhile, lined up outside the arena before it opened at 7 a.m. CDT (1200 GMT). Many realized 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 she and her husband showed up 30 minutes early for their first meeting.

“It’s been on our bucket list for a long time,” she said. “We don’t know how long it will take 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 normality,” he said. “I hope they can go another five years, or more.”

Reporting by Jonathan Stempel in Omaha, Nebraska; additional reporting by Carolina Mandl and John McCrank in New York; Editing by Megan Davies, Ira Iosebashvili and Diane Craft

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