Warren Buffett to draw biggest crowd ever
May 1st, 2008
By Jonathan Stempel
OMAHA, Nebraska (Reuters) - Few 77-year-olds could hold thousands of people in rapt attention for five hours. Sean Connery, maybe; Clint Eastwood, perhaps. Warren Buffett? Definitely.
Buffett will be the center of attention on Saturday at the annual shareholder meeting for Berkshire Hathaway Inc, his roughly $200 billion holding company.
Berkshire estimates that 30,000 to 32,000 people, up from 27,000 last year, will fill the Qwest Center in Omaha for what has become known as "Woodstock for Capitalists."
Shareholders will listen to Buffett and his effervescent sidekick, 84-year-old Berkshire Vice Chairman Charles Munger, answer questions on business, the economy and life.
"It restores your enthusiasm for what we know in our heart is right in investing, management ethics and everything that is good about capitalism," said Frank Betz, a principal at Carret/Zane Capital Management LLP in Warren, New Jersey. "I hate to sound so corny, but that is exactly what happens."
Berkshire had a good year in 2007. It boosted profit 20 percent to $13.2 billion, and revenue the same amount to $118.2 billion, despite increased competition in insurance and several of its more than 70 businesses hurting from the housing slump.
Shares of Berkshire, meanwhile, rose 29 percent. Buffett is worth $62 billion, making him the world's richest person, Forbes magazine said. Most of that amount is in Berkshire stock, and all of that stock will someday go to charity.
The meeting may have less controversy than last year, when some shareholders demanded that Berkshire divest its stake in PetroChina Co because of the oil company's links to Sudan. Buffett later sold the stake based on valuation.
SPENDING CASH
Berkshire sells such items as bricks, candy, car insurance, carpets, ice cream, jewelry, knives, paint and underwear. About half its business comes from insurance and reinsurance.
The company ended the year with $44.3 billion of cash, but has since agreed to spend some.
In March, it paid $4.5 billion for three-fifths of Marmon Holdings Inc, whose products are used in construction and energy. Then on April 28, it deployed $6.5 billion tied to Mars Inc's purchase of chewing gum maker Wm Wrigley Jr Co.
Berkshire's $75 billion stock cache has included blue-chip names such as American Express Co, Coca-Cola Co Procter & Gamble Co and Wells Fargo & Co.
Buffett may weigh in on how politicians, regulators and greedy investors mess up the markets.
Shareholders may want to know more about Berkshire Hathaway Assurance Corp, a bond insurer that Buffett created late last year as rivals struggled with subprime mortgages. Berkshire's bond insurer quickly won "triple-A" credit ratings.
"He's prepared to share state secrets," said Thomas Russo, a partner at Gardner, Russo & Gardner in Lancaster, Pennsylvania, attending roughly his 25th meeting. "People won't duplicate him because they don't invest as patiently."
Succession will also be on people's minds. Buffett has said Berkshire has three internal candidates to replace him as chief executive officer, and four "young to middle-aged" candidates to become chief investment officer.
And Buffett could offer his views on the 2008 elections. He has said he plans to support the Democratic Party, but has not endorsed either of its leading candidates for the presidency, Barack Obama or Hillary Clinton.
"I go to hear the 10 or 20 percent of new stuff," said Steven Check, chief investment officer of Check Capital Management Inc in Costa Mesa, California, a 15-year attendee. "You get reinforced by the other 80 to 90 percent."
Even so, Buffett gets some things wrong.
Last year, he said subprime mortgages did not pose a "huge danger" to the economy, and that absent surges in unemployment and interest rates, "it's unlikely that that factor triggers anything of a massive nature in the general economy."
HOLDING A TUNE NOT NECESSARY
Official festivities begin Friday evening, after Berkshire releases first-quarter results.
Cocktails, food and very long lines will await shareholders visiting Borsheim's, a Berkshire-owned jeweler west of downtown that will hawk memorabilia such as a Berkshire Monopoly game, towels, and license-plate frames.
The festivities end at Buffett favorite Gorat's, which last year served 915 dinners on "Shareholder Sunday." Shareholders, meanwhile, will host their own events throughout the weekend.
Many attendees live in Omaha, and most are ordinary investors. Attendance is up sixfold since Berkshire in 1996 created Class B shares worth 1/30th of Class A shares.
Yet some have greater reknown. Bill Gates, the Microsoft Corp chairman and Buffett bridge partner, is a Berkshire director and has attended past meetings.
And Betz recalls dining with the legendary Chicago Cubs shortstop and Hall of Famer Ernie Banks at the 1999 meeting.
But it's the meeting itself that's the centerpiece.
Last year, as Buffett milled about a Qwest Center hall featuring goods from Berkshire companies, he snacked on a Dairy Queen vanilla orange bar, flopped on a bed from Nebraska Furniture Mart, and strummed a ukulele while singing -- sort of on key.
Later, Jimmy Buffett (no relation) regaled shareholders with a parody of his best-known song, "Margaritaville." The title: "Berkshire Hathaway-a-Ville."
He forgot some lyrics. Wasn't exactly on key, either.
(Editing by Brian Moss)
Warren Buffett embraces Erica of "All My Children"
OMAHA, Nebraska (Reuters) - It's part of Warren Buffett's job not just to answer questions from many of the 31,000 people at the annual meeting of Berkshire Hathaway Inc. He also has to entertain.
Especially if the entertainment involves Susan Lucci, one of America's best-known soap opera stars.
Part of the roughly one-hour movie preceding this year's meeting, produced by Buffett's daughter Susie, showed a clip of Buffett's recent cameo on the soap opera "All My Children." Buffett, who plays himself, visits Erica Kane, portrayed by Lucci, who is in prison on an insider trading charge.
The movie included faux news reports about his leaving Berkshire, which the 77-year-old has run since 1965, to swap jobs with Lucci.
So at the start of the meeting, instead of Buffett emerging with Berkshire Vice Chairman Charlie Munger, Lucci came out.
And she promised change.
"The first thing we need to change is our dividend policy," she said. "I have never heard of anything so cheap and so unfair to our shareholders." Berkshire hasn't paid a cash dividend since 1967.
She then urged Berkshire to give weekly guidance on earnings, and to pay directors more than $900 a year. That let directors -- including Microsoft Corp Chairman Bill Gates, worth $58 billion -- to jump up and roar approval.
Buffett, Berkshire's chairman and chief executive officer and the world's richest person with $62 billion according to Forbes magazine, then emerged.
"The deal is off," he told Lucci. "My show is Berkshire Hathaway, and my role is to run it.... 'All My Children' can't do without you. I can't do without Berkshire."
He urged Lucci to go to Borsheim's, a Berkshire-owned jeweler that has struggled with declines in the housing market and consumer confidence "pick out anything you would like -- and charge it to Charlie." She then hugged Buffett and Munger.
The movie itself featured other celebrities, including the actress Jamie Lee Curtis and the voice of former CBS News veteran Walter Cronkite.
Reuters/Nielsen
© Thomson Reuters 2008 All rights reserved
The Croesus Files
Seven Hours With Warren
Robert Lenzner 05.03.08, 5:35 PM ET
The Berkshire Hathaway annual meeting was a classic example of shareholder meeting as farce. Incredibly, the seven-hour session before a record crowd of 30,000 had barely a mention of the financial crisis impacting markets worldwide for a year.
There were more questions about the dams on Oregon's Klamath River shutting off the salmon run for Indian tribes than the damming up of the credit markets.
The word "recession" was never mentioned. "Inflation" only once. No one asked about the $1.6 billion loss Berkshire took on a derivative position in the last quarter. Not a soul inquired about the decline in Berkshire's earnings. Buffett's brilliant call in buying Brazilian currency (the real) never got a nod, even though Standard & Poor's raised that nation's credit to investment grade last week.
Nor did anyone raise the provocative theme put forth in Buffett's letter to shareholders (See "Croesus, Buffett: New Advice From On High") that investors should not expect to earn on their common stock positions the modest 5.3% rate of return earned during the whole of the 20th century. Were none of the 30,000 shareholders alert enough to take the opportunity to ask Buffett what rate of return they could expect? After all, many small investors count on their Berkshire holdings as an important stake and nest egg.
"Anyone who wants us to repeat the past should sell [his or her] stock," said the Oracle of Omaha, without any follow-up questions from alarmed shareholders. Be fairly warned.
This passivity cannot be due to Buffett's willingness to appear on a certain cable network nine times and another one five times since October 2007. This was a chance blown to find out how Buffett and Munger weighed the risks in the world.
It was Buffett's acerbic partner Charles Munger who finally exclaimed that "we are having convulsions that make Enron look like a tea party. We will have changes in regulation but they won't work perfectly." No one asked Munger what changes he saw on the horizon. Later on the 84-year-old Los Angeles lawyer described the convulsion as "a huge dislocation that was very extreme but very brief. It's interesting how brief these opportunities are."
Nevertheless, Berkshire was able to accumulate a $4 billion position in auction rate notes when that market froze up some weeks ago. It included the short-term debts of the nonprofit Los Angeles County Museum of Art at interest rates of 8% to 10%--triple the 3% to 4% the same notes sold for in January. Perhaps it was this opportunity that Munger chose to describe in his no-holds-barred style--"some idiot hedge fund bought municipal bonds on incredible margin. These things were disposed on a margin call," meaning that the fund had to sell because it didn't have the capital to support its position.
After a lunch break, Buffett finally got in some licks at the regulator of Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people )--Office of Federal Housing Enterprise Oversight--for allowing accounting irregularities to go on for some time. Buffett, who describes himself as "the chief risk officer" of Berkshire, also slammed the large commercial and investment banks as both too big to manage and too big to fail, according to the government. He reckoned that the failure of Bear Stearns (nyse: BSC - news - people ) would have caused the failure of "another investment bank or two going down in a day or two."
The panic would have been caused by financial institutions "trying to undo $14.5 trillion [worth of] derivatives contracts in just hours, not days or weeks. Hardly anyone caught Buffett's words when he muttered that "to some extent it's an evil culture." The evil culture he was talking about was Wall Street, the commercial and investment banks who had no idea that their risk models were utterly useless. "They didn't have the faintest idea what risks were involved," he said.
As for politics, Buffett, a Democrat, said all three candidates are intelligent. But he scoffed at the way both Clinton and Obama "ask for an excess profits tax on Exxon"--but not on the farmers getting rich off the boom in commodity prices. Munger added that "while we don't like inflation because it's bad for our country, we'll probably make more money over time because there is inflation."
On oil prices, Buffett predicted that production will level off and then start to decline, which will tend to put a floor under the price of oil. His politically incorrect partner Munger declared that "in the 1930s [when oil was first discovered in the Middle East] we should have taken the oil out of the Middle East and put it in the ground" in the U.S. "Eventually," Munger predicted, "we'll have to use the sun for our power."
On a lighter note, the high point of the meeting was a cartoon film that had Munger being elected president on the Financially Independent ticket--and naming Buffett secretary of commerce, secretary of the Treasury and chairman of the Federal Reserve all at once. In a serious vein, Buffett later said his inclination would be to raise taxes on the super-rich (himself included, of course) and lower them on the middle class, a position shared by both of the Democratic candidates.
As for the stock market, Buffett, made it crystal clear that "Charlie and I haven't the faintest idea where [it's] going."
Warren Buffett equivalent is needed in Britain
04/05/2008
The corporate cash kings needed to drive some morale-boosting deals for the economy are thin on the ground, says Helen Power
As 30,000 investors descended on Warren Buffett's annual shareholder jamboree in Omaha in the midwestern US state of Nebraska yesterday, they had only one thing on their minds: money.
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| during the annual shareholders' jamboree in Omaha |
Seventy-seven year old Buffett, the world's richest man, is sitting on a US$40bn (£20bn) cash pile at a time when the credit crunch has sidelined his rivals and his investors are desperate to know what he's going to spend the money on.
Will he target another family-dominated company like chewing gum giant Wrigley, whom he shepherded into a US$23bn sector transforming deal with confectionery giant Mars last week? Will his eye turn to bargains in Europe? Will he for instance go for that stake in UK gas giant Centrica he is rumoured to be eyeing?
Even an unexpected US$1.6bn hit from an investment in derivatives contracts - an asset class Buffett himself once described as a weapon of mass destruction - could not dampen the mood.
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Any UK investment would be a big boost for advisers. UK deal volumes are down by 25 per cent on last year and many bankers are looking longingly across the Atlantic at the Mars deal.
UK advisers can expect a few scraps from the Mars-Wrigley table and more from knock-on sectoral consolidation if Cadbury re-enters the merger fray with talks with Hershey. But what they really need to lift the credit crunch gloom is Britain's own answer to Warren Buffet.
In the past there have been big corporates with cash on their balance sheets who would use downturns to pick off rivals and transform their sectors.
But do such corporate cash kings exist now and are they really ready to start buying?
"At this stage of the cycle, you tend to see more stock-based mergers of equals," he said.
"I think with company valuations under some pressure, it is possible there will be more hostile-type bids given differing valuation opinions of the boards of targets and suitors."
But not enough to lift the gloom encasing Canary Wharf's investment banks. So could there be a British Buffett?
KBC Peel Hunt analyst Robin Savage believes private equity bidders could be coming back to fill that gap. "There are not many organisations with large amounts of surplus cash. The few organisations who have it are the private equity funds, who are sitting on money. In the future they need to accept that banks will lend them that little bit less," he said.
Candover, in recently putting up half of Expro's asking price itself rather than asking the banks to fund almost all of it, has offered some hope sponsors are beginning to move in this regard.
But many bankers are still sceptical about sponsors' ability to plug the gap.
One unconvinced UK head of M&A at an investment bank said: "The sort of people who stand up and do these brave sorts of deals aren't chief executives with UK shareholders, they are the private equity houses and they can't raise any money."
So failing private equity, where are Britain's rich individuals, the UK's real Warren Buffetts?
Ordinarily the likes of the millionaire Tchenguiz brothers might be expected to step in and pick up bargains, but the credit crunch has not treated them kindly. Vincent Tchenguiz slipped down the rankings of Britain's richest people this year, while his brother Robert did not make it at all.
BC Partners is regarded as one of the country's shrewdest private equity houses but eyebrows were raised over the deal.
At first glance BC Partners looks like a good contender to be caught out by Buffett's famous comment that it is only when the tide goes in that you can see who is wearing trunks. But if Hunt, for example were to start buying into property again it would be a clear sign the UK market had turned the corner and others would be sure to follow.
And there are plenty of other UK-based billionaires from the owner of Chelsea football club Roman Abramovich to retailer-turned property magnate Sir Philip Green who pocketed money in the good times and could cheer up the bankers by getting out their chequebooks.
Certainly the bankers - whose lucrative fees depend on big ticket M&A transactions - must hope so, because corporate cash kings look thin on the ground.
Savage said: "We don't really have too many cash kings. To the extent to which we might find businesses in the UK with spare cash, they tend to be conservative organisations who aren't keen on splashing it around."
An analysis of FTSE balance sheets shows there are quite a few around with money to spend, if they want to. The cash-richest companies are dominated by energy and natural resources business. They include oil businesses Cairn Energy and Tullow Oil and miner Anfogastsa. Takeover target British Energy, and publisher Reed Elsevier, which is set to get even richer when it sells off its business publishing arm, also have low levels of debt.
Go down to the FTSE 250 and the names are more obscure, but natural resources are still strong with Hardy Oil & Gas and JKX Oil & Gas both cash positive. Electronic equipment manufacturer Renishaw and semi-conductor business Arm Holdings also have more money in the bank than debt on the balance sheet.
But money alone, it seems, is just not enough. Even in these days when the credit crunch should have left rivals cash-strapped and pickings easy, the strategic rationale for a deal must be totally convincing.
UBS analyst Daniel Stillit said: "Just because a company has a strong balance sheet it doesn't mean it is going to be an acquirer. Balance sheets aren't a great predictor of M&A activity."
Other bankers just don't think we are far down enough in the cycle for the cash kings to come out to play.
"Its very hard to think of targets and everybody is conserving cash for when it gets even rainier. People will say, how do you know it's the bottom for the sector?" asked the UK head of M&A at one investment bank.
"People feel there is more opportunity now with sponsors out of the market. But by equal measure, CEOs are feeling more nervous about shareholder reaction to acquisitions than probably they ever have," he added.
Corporates who dare to be brave could pick up some bargains, particularly in areas like house-builders and financial institutions.
"Financial institutions is one area we think there is room for more consolidation, but given the level of uncertainty and volatility there will be a premium on proper due diligence, said Smith.
Co-head of corporate and leveraged finance at Lehman Brothers Richard Howell said: "Whilst financing volumes for sponsor-led M&A have fallen significantly, the corporate acquisition debt market has been much less impacted. Although the cost of financing has gone up, significant liquidity continues to exist for investment grade companies to make debt-financed acquisitions."
Savage, however, believes only the best-placed corporates will get bank funding.
Failing UK Plc there's always Buffett himself, who is coming to Europe on a shopping trip in two weeks. Certainly his investors seem to believe the Sage is well placed to pick up bargains.
Asked by US TV Channel CNBC where he would hold his perfect AGM last Friday, Buffett responded - in a reference to one America's biggest sporting events - The Super Bowl.
The Sage of Omaha has beaten his competitors and the Standards & Poor's 500 index every year for the past two decades. If he keeps it up, he may even be able to fill the Super Bowl next time.
The Warren Buffett Show
Karen Richardson reports from the Berkshire Hathaway shareholder meeting.
Encore! Encore! Encore! Encore! Encore! Encore!
If you think you’re seeing a lot of Warren Buffett these days, it’s because you are. In the past year, Mr. Buffett has become an increasingly televised jack-of-several-causes. There’s the estate tax; the fact that he’s taxed at a lower rate than his receptionist; there’s Obama and Hilary; municipal bonds and bond insurance; the recession, the ballooning deficit and the dollar.
Since October, Mr. Buffett has appeared on CNBC live from the Nebraska Furniture Mart, in taped interviews from his office, on the phone and even aboard his jet to China and Korea, for a total of nine times (not including several exclusive interviews this weekend, during Berkshire Hathaway annual shareholder meeting). He’s appeared on Fox Business News, to date, at least four times, including on the streets of San Francisco, and is doing a couple of specials with the network on Saturday night and Monday. A few months ago, Tom Brokaw interviewed him and his staff at Berkshire’s modest headquarters. He’s even done a hit on Bloomberg TV.
Could Warren Buffett be the hardest working man in show business?
Warren Buffett: big is bad for banks
THE big banks have become too large to manage their own risks properly, Warren Buffett, the world’s most successful investor, warned last night. Their size had led to the recent meltdown in financial markets.
Buffett’s business partner Charlie Munger said a “crazy culture of greed and overreaching” had led to the excesses of the credit crisis and was “counter-productive for the country”.
Speaking at the annual meeting of his company Berkshire Hathaway, Buffett said: “We have clearly seen in the past year situations where, if the chief executive knew what was going on, he didn’t let on.” Sometimes, Buffett said, it was “less embarrassing to say you didn’t know what was going on”.
He believed that the worst of the global credit crunch was over, but the after-effects would continue to be felt by homeowners.
Munger said the credit crisis made the collapse of the energy giant Enron “look like a tea party”. After the Enron crisis, the American government brought in new legislation to clamp down on financial fraud. “Now it’s turned out that they hit an elephant with a peashooter,” said Munger.
Up to 32,000 people are believed to have attended this year’s annual meeting of Berkshire Hathaway in Omaha, Nebraska. Ahead of the meeting, the company reported a sharp fall in first-quarter profits as underwriting income fell. It also revealed $1.7 billion (£860m) in unrealised derivatives losses. The company’s quarterly profit plunged 64% to $940m.
Warren Buffett poised to go bargain hunting
03/05/2008
Billionaire may start spending $40bn war chest while his rivals are crippled by the credit crunch, writes Helen Power
Berkshire Hathaway billionaire Warren Buffett is sitting on a $40bn (£20bn) war chest at a time when the credit crunch has sidelined his competition.
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Investors in Berkshire Hathaway expect Mr Buffett - known as the Sage of Omaha for his shrewd counter-cyclical investments - to start deploying his cash to scoop up bargains.
Mohnish Pabrai, founder of California-based Pabrai Investment Funds, said: "Buffett has got the liquidity others lack. The disruptions work in his favour. This is a perfect market for Berkshire."
Mr Buffett, who famously said of investors in bull markets, "only when the tide goes out do you discover who's been swimming naked", masterminded this week's tie-up between Mars and confectionery giant Wrigley.
That deal will see him plough $6.5bn of financing into Mars' takeover of Wrigley, including $2.1bn that will buy him a minority stake in the chewing gum giant for a discount.
Mr Buffett is particularly keen on family-dominated companies like Wrigley. Last month he spent $4.5bn on a 60pc stake in the Pritzker family's Marmon Holdings.
The investor is due to start a four-city tour of Europe in two weeks' time. Trips to Milan and Madrid are being arranged by Mr Buffett's European adviser Angelo Moratti, scion of the founding family of Italian energy company Saras Spa.
Mr Moratti believes Mr Buffett's investment style is still alien to many European companies.
"Mr Buffett's practices, which are based on trust of the human being and deep understanding of the business, are really not understood in Europe at this point," he said.
Berkshire Hathaway's share price has ridden out the worst housing slump in a quarter of a century to rise 22pc in the last 12 months, compared to a 6.8pc fall in the Standards & Poor's 500 Index. In the last two decades the conglomerate's shares have risen at an average annual rate of 19.5pc, beating the S&P 500's advance of 11pc.
Mr Buffet, who is the world's richest man according to Forbes magazine, owns 33pc of Berkshire. The company holds its annual general meeting this weekend with 27,000 investors from around the world expected to attend to hear his views on the investment climate.
But the company is facing a regulatory probe by Connecticut Attorney Richard Blumenthal over possible conflicts. Berkshire owns 20pc of ratings agency Moody's, but also runs a new municipal bond insurer.
Mars and Warren Buffett in Wrigley deal
By James Quinn, Wall Street CorrespondentConsumer goods group Mars has agreed a deal to buy chewing gum giant Wrigley for $23bn (£11.5bn).
The deal, which is backed by billionaire investor Warren Buffett, will change the shape of the global confectionery market and could trigger the re-opening of merger talks between Cadbury and Hersheys.
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Wrigely’s shareholders are being offered $80-a-share, a 28.1pc premium to its $62.45-a-share closing price on Friday night under a deal that has been recommended by the boards of both Mars and Wrigley.
Shares in Wrigley traded up $14.54 at $76.99, implying that investors believe the premium being paid by Mars is enough to gain control. Mr Buffett’s Berkshire Hathaway will purchase a $2.1bn (£1bn) equity stake in the combined confectionery business at an as yet undisclosed discount to the price being paid to Wrigley investors, with further backing coming from investment banks Goldman Sachs and JP Morgan.
Berkshire Hathaway is also providing $4.4bn of sub-ordinated debt to Mars in order to fund the deal.
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“Both companies have great brands,” said Mr Buffett. “There’s really nothing that can go wrong with something like the Wrigley and Mars brands.”
As a result of the deal, Wrigley will become a stand-alone subsidiary of Mars, and will take control of all Mars’ non-chocolate confectionery brands such as Starburst and Skittles.
Bill Wrigley Junior will remain executive chairman of Wrigley, and will report to Paul Michaels, who is Mars’ global president.
Mr Michaels said the transaction with Wrigley would create a shared commitment “to innovation, quality and best-in-class global brands.” He also stressed that Wrigley’s business will remain in Chicago – its home for over a century – highlighting its importance to the Mid-West city.
However, the deal, which both companies believe will take 12 months to complete, is likely to face severe regulatory scrutiny in both the US and beyond, even though the combined company will still only control 14.1pc of confectionery sales worldwide.
In the US, it will face staunch tests by federal regulators, as well as scrutiny from the Congress and the Senate, while in Europe, the European Union is almost certainly set to weigh in with its views.
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The deal will increase Mars’ reach yet further, providing real access to the lucrative chewing gum market, in which Wrigley’s sell its products in more than 150 countries worldwide. Analysts now predict Cadbury is likely to re-open previously stalled merger talks with US chocolate manufacturer Hershey
“Cadbury will have to look at its options and the most obvious is to re-open talks with Hershey over a merger,” said Investec Securities analyst Martin Deboo.
The pair have held talks in the past but have failed to reach agreement as the Hershey Trust, a charitable concern which controls 78pc of Hershey’s voting shares, has always said it does not want to dilute its control over the business.
A deal between the pair would make sense, because Cadbury lacks any form of strong presence in the US, while Hershey does not have the global reach which Cadbury is known for. The combination of Mars and Wrigley will create a business with more than $27bn of annual sales, dwarfing both Cadbury with annual sales of £5.2bn ($10.4bn) and Hershey, a relative minnow with just $4.9bn.
Buffett says Fed avoided chaos in Bear bailout
By Jonathan Stempel
OMAHA, Nebraska (Reuters) - Warren Buffett said on Saturday said the U.S. Federal Reserve avoided financial market "chaos" in coordinating the March bailout of Bear Stearns Cos (BSC.N: Quote, Profile, Research), which faced imminent bankruptcy before agreeing to be acquired by JPMorgan Chase & Co (JPM.N: Quote, Profile, Research).
The central bank, led by Chairman Ben Bernanke, helped broker the buyout, after liquidity evaporated at Bear, which had been Wall Street's fifth-largest investment bank.
JPMorgan, the third-largest U.S. bank by assets, agreed to pay $10 per share for Bear, and the Fed agreed to guarantee $29 billion of Bear's assets.
"I think the Fed did the right thing in stepping in on Bear Stearns," Buffett said at the annual meeting of his Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research) (BRKb.N: Quote, Profile, Research) insurance and investment company. "Just imagine the thousands of counterparties around the world having to undo contracts."
Buffett said a record 31,000 shareholders attended the meeting in Omaha's Qwest Center, including an overflow crowd in halls outside the main arena.
He and Berkshire Vice Chairman Charlie Munger fielded questions for five hours, often humorously, on investing, the economy, politics and life.
Attendance has soared since Berkshire in 1996 created Class B shares worth 1/30th of a Class A share. These made it easier for ordinary investors to invest with Buffett, the world's richest person.
RISK AT ISSUE
Buffett said the Bear debacle illustrates how some investment banks and commercial banks may have grown too large to effectively manage risk.
"The big investment banks, a number of them, and big commercial banks, I think they're almost too big to manage effectively from a risk standpoint in the way they've elected to conduct their business," he said. "You need someone at the top whose DNA is very, very much programmed against risk."
Berkshire is, he said. "We want to run Berkshire where if the world isn't working tomorrow the way it is working today, or in a way that wasn't expected, we wouldn't have a problem," Buffett said. "If we can earn a decent return on capital, what's an extra percentage point?"
One area of concern is the estimated $60 trillion market for credit default swaps, an insurance contract that covers losses to banks and bondholders when companies don't pay their debts, and lets investors bet on credit markets.
Yet Buffett doesn't foresee a collapse. "I don't think it's going to happen, and I think the chances of it happening were reduced significantly by the fact the Fed stepped in at Bear Stearns," he said.
Berkshire, however, has benefited from market disruptions, including many triggered by the nation's housing crisis.
Buffett said his four-month-old bond insurer, Berkshire Hathaway Assurance Corp, wrote $400 million in business in the first quarter, more perhaps than other rivals combined.
Much, he said, came from customers who already had insurance from other "triple-A" rated insurers, some of which got caught with exposure to subprime mortgages.
"It tells you something about the meaning of 'triple-A' in the bond insurance field in the first quarter," Buffett said.
Buffett said Berkshire also bought $4 billion in "auction-rate" municipal debt whose yields soared, often into double digits, despite many issuers' high credit quality.
SUCCESSION ON TRACK; BUFFETT EYES EUROPE
Buffett, 77, said Berkshire still has three internal candidates to eventually succeed him as chief executive, and four candidates to become chief investment officer. Berkshire ended March with about $147 billion in stocks, bonds and cash.
But noting that the average age between he and Munger is 80, and assuming they'll live to be 100, Buffett joked: "We're only aging at 1-1/4 percent a year. Some companies' (CEOs) are aging at 2 percent. Think about how risky that is."
Buffett plans this month to visit four European countries to seek out family-owned businesses he might want to buy when the time comes for a sale. He said Berkshire isn't on the "radar screen" of many potential sellers in Europe.
Berkshire does have a process in place to make its 95 percent-owned German reinsurance unit, Cologne Re, a fully owned subsidiary "before too long," Buffett said.
Buffett occasionally addressed more controversial issues.
Asked whether he should push Coca-Cola Co (KO.N: Quote, Profile, Research) to pull back from its role as a big corporate supporter of the Summer Olympics in Beijing, Buffett said it would be a "terrible mistake" not to back the Olympic movement. Berkshire ended 2007 with an 8.6 percent stake in Coca-Cola.
And Buffett turned back efforts by American Indian tribes and salmon fishermen to have Berkshire's PacifiCorp unit remove four dams on the Klamath River in California and Oregon, which they say kill fish. Three people asked Buffett questions about it and protesters occasionally shouted opposition to the dams.
(Editing by Todd Eastham)
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