Buffett Says Credit Crisis Ebbs for Wall Street Firms (Update4)
By Josh P. Hamilton and Betty Liu
May 3 (Bloomberg) --
Warren Buffett, chief executive officer of
Berkshire Hathaway Inc., said the global credit crunch has eased for bankers, and the Federal Reserve probably averted more failures by helping to rescue
Bear Stearns Cos.``The worst of the crisis in Wall Street is over,'' Buffett said today on Bloomberg Television. ``In terms of people with individual
mortgages, there's a lot of pain left to come.'' Buffett was interviewed before the Omaha, Nebraska-based company's annual meeting, attended by about 31,000 people.
Buffett, the world's richest man according to Forbes magazine, said the Fed acted properly when it arranged a $2.4 billion buyout in March of New York-based Bear Stearns by
JPMorgan Chase & Co. The billionaire said he turned down the opportunity because he lacked enough capital and time to craft a solution. More failures and wider panic may have resulted if the regulators didn't halt the run on Bear Stearns, he said.
``The worry was that there would be contagion; it was a very real worry,'' Buffett said. ``If Bear Stearns had gone, the next day, somebody else would have gone. It could've been a very, very, very chaotic situation.''
Buffett, 77, said he was contacted in March before JPMorgan, the third-biggest U.S. bank by assets, agreed to buy Bear Stearns. The person calling him, whom he wouldn't identify, was ``someone responsible'' and wasn't from the Federal Reserve or the Treasury. The call lasted about half an hour, Buffett said.
Too Big for Buffett
``As I understand it, Bear Stearns had $65 billion due on Monday and I didn't have $65 billion,'' Buffett said. ``I couldn't get my mind around that situation in the required time.'' New York-based JPMorgan was the right buyer for Bear Stearns, he added.
Berkshire had about $35 billion in cash as of March 31, according to a regulatory filing yesterday.
JPMorgan agreed in mid-March to acquire Bear Stearns, once the fifth-biggest U.S.
securities firm, after customers grew concerned about the company's health and pulled out their money, leaving Bear Stearns short on cash. JPMorgan, which got financial support from the Federal Reserve, raised the purchase price a week later to $10 a share from $2 to mollify Bear Stearns shareholders who said they weren't getting enough.
The 24-company
KBW Bank Index has advanced 14 percent since the Bear Stearns bailout was announced in March, and the 11- company Amex Securities Broker/Dealer Index has climbed 30 percent.
Credit Losses
In a question-and-answer session at the shareholder meeting, Buffett said that from a risk perspective, some banks got ``too big to manage.''
The world's largest banks and investment firms have recorded more than $300 billion of losses and writedowns tied to mortgages, bonds and loans.
Berkshire's own investment in derivative contracts recovered $500 million to $600 million of lost value since the end of March, Buffett said. The company will make ``significant money'' on the derivatives over the long term, he said at the meeting. Berkshire said yesterday the value of the investments had declined by $1.7 billion in the first quarter. The entire company's quarterly
profit plunged 64 percent to $940 million.
Buffett is scheduled to embark on a four-city European trip this month to scout potential acquisitions, including family- owned companies. He has been investing in China, Israel and the U.K. to spur
profit growth after saying that U.S. investments meeting his criteria have become scarce.
International Earnings
``Over time we'd like to develop more international earnings,'' Buffett said. ``If it's a $2 billion deal, fine; if it's a $20 billion dollar deal, fine.''
Buffett, who made his first non-U.S. acquisition in 2006, paying $4 billion for 80 percent of Israel-based Iscar Metalworking Cos., said he can't predict the location of the next company Berkshire will acquire.
``They can come from Europe, they can come from the United States, you just never know,'' he said. ``Somebody, someplace is going to have a situation where we fit. They're going to call me; I want to make sure I'm on their radar screen.''
Buffett said during the meeting he'd like to buy businesses in India and China, and that he wanted to acquire one or two non- U.S. companies in the next three years. He is looking as competition forces down insurance rates in the U.S. for Berkshire, which typically gets about half its
profit from insurance units including National Indemnity, General Re Corp. and Geico Corp.
The U.S. dollar will keep weakening and Buffett feels ``no need to hedge'' against currency risk when buying large companies outside the U.S., he said.
Landing From Mars
``If I landed from Mars today with a billion of Mars dollars, or whatever they call them on Mars, and I was thinking about where to put my money,'' he said. ``I don't think I'd put the entire billion in U.S. dollars.''
Berkshire Hathaway has spent $4 billion investing in the municipal auction-rate bond market, taking advantage of payouts that topped 10 percent after regular bidders fled the market. Markets were so disrupted, Buffett said, that bonds from the same issue were selling simultaneously from the same broker with yields of 6 percent and 11 percent.
Berkshire has risen about 22 percent in New York Stock Exchange composite
trading during the past 12 months and gained about 4,700 percent in 20 years through Dec. 31, about six times more than the Standard & Poor's 500 Index including dividends.
Buffett took shareholder questions for more than five hours on dozens of issues.
Other topics Buffett addressed include:
-- There's ``no guarantee'' Berkshire Hathaway won't be a buyout target after his death, though such a takeover is unlikely.
-- He said he's in good health because of his diet, ``some Wrigley, some Mars, some See's, some Coke.'' Berkshire this week committed $6.5 billion to help finance candy company Mars Inc.'s takeover of
Wm. Wrigley Jr., the world's biggest maker of chewing gum. Berkshire owns See's Candies and is the top shareholder of
Coca-Cola Co.-- He doesn't support a push for companies or countries to boycott the Olympics in China based on that country's human rights record.
-- He would buy shares of PetroChina Co. again if they are at a level he considers cheap, Buffett said. Berkshire sold a stake in the company last year.
-- Factories in China have different norms for working conditions than those in the U.S., and he won't ``tell the world how to run'' their businesses.
To contact the reporters on this story:
Josh P. Hamilton in Omaha at
jphamilton@bloomberg.net;
Betty Liu in New York at
Bliu17@bloomberg.net; Last Updated: May 3, 2008 18:43 EDT
