Warren Buffett, chief executive officer of Berkshire Hathaway Inc, said the global credit crunch has eased for bankers and the US Federal Reserve probably averted more failures by helping to rescue Bear Stearns.
“The worst of the crisis in Wall Street is over,” Buffett said. “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 on Saturday, 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 US$2.4 billion buyout in March of New York-based Bear Stearns by JPMorgan Chase and 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 did not 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 US bank by assets, agreed to buy Bear Stearns. The person calling him, whom he would not identify, was “someone responsible” and was not from the Federal Reserve or the Treasury. The call lasted about half-an-hour, Buffett said.
“As I understand it, Bear Stearns had US$65 billion due on the Monday and I didn’t have US$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 said.
Berkshire had about US$35 billion in cash as of March 31, a regulatory filing said.
JPMorgan agreed in mid-March to acquire Bear Stearns, once the fifth-biggest US 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 US$10 a share from US$2 to mollify Bear Stearns shareholders who said they were not getting enough.
The 24-company KBW Bank Index has advanced 14 percent since the Bear Stearns bailout was announced in March, and the 11-firm Amex Securities Broker/Dealer Index has climbed 30 percent.
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 US$300 billion of losses and writedowns tied to mortgages, bonds and loans.
Berkshire’s own investment in derivative contracts recovered US$500 million to US$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 on Friday the value of the investments had declined by US$1.7 billion in the first quarter. The entire company’s quarterly profit plunged 64 percent to US$940 million.