Investment tycoon Warren Buffett on Saturday said that messaging from the US government over the regional banking crisis had been “poor,” suggesting that is why confidence has not returned among consumers.
Four regional banks have been caught up in crisis since the beginning of March in the US, three of them subsequently taken over by other institutions with the help of authorities.
For two of them — Silicon Valley Bank (SVB) and Signature Bank — the Federal Deposit Insurance Corp (FDIC) took the controversial decision to support their uninsured deposits, citing fears of contagion.
Photo: Reuters
By law, the FDIC insures up to US$250,000 of customers’ deposits in eligible banks, but for SVB and Signature the body insured all deposits, including those above the legal limit.
Yet, despite that extraordinary step, consumers are still worried, Buffett said at a shareholder meeting of his holding company, Berkshire Hathaway Inc, in Omaha, Nebraska.
“That just shouldn’t happen. The messaging has been very poor,” said the billionaire, who continues to run his group at the age of 92.
“It’s been poor by the politicians who sometimes have an interest in having it poor, it’s been poor by the agencies. And I’d say it’s been poor by the press,” he said.
What happened with SVB demonstrated a government takeover completed with an expanded deposit guarantee, “and the public is still confused,” he said.
While the emergency takeover of First Republic Bank by the giant JPMorgan Chase & Co on Monday last week seemed likely to ease anxiety about the banks, it has been a turbulent week. Several mid-sized banks were targeted on Wall Street, in particular PacWest Bancorp, which fell 68 percent before recovering 82 percent in Friday’s session alone.
On Saturday, Berkshire Hathaway reported a US$35.5 billion profit for the first quarter alone, largely due to strong financial markets.
In the first three months of the year, the group sold US$13.2 billion worth of equities from its investment portfolio, while only buying US$2.8 billion, drastically reducing its exposure to stocks.
Buffett reaffirmed that his successor, Greg Abel, was “100 percent comfortable” with the decision and even indicated a largely business-as-usual transition, for whenever that could be.
“Greg understands capital allocation as well as I do. That’s lucky for us,” Buffett said at the meeting. “He will make those decisions, I think, very much in the same framework as I would make them. We have laid out that framework now for 30 years.”
Abel, 60, who joined Buffett and his long-term business partner Charlie Munger on stage for the morning, has built Berkshire’s energy business into one of the largest in the US. He was named as heir apparent in 2021.
Additional reporting by Bloomberg
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