Photo illustration: Annelise Capossela/Axios. Photo: Tasos Katopodis/FilmMagic
Warren Buffett revealed why he hasn’t moved to buttress a U.S. banking system suffering a confidence crisis — more accountability is needed from executives.
Why it matters: The irrepressibly pro-America billionaire could take action. He has an established history with retail banking plus nearly $130 billion worth collectively in his holding company of dry powder to invest in banks, or even buy a few outright.
- Berkshire Hathaway's net earnings more than quadrupled from the same quarter last year to over $35 billion in the first quarter.
- With investors punishing regional bank stocks, a few observers have openly wondered why Buffett hasn’t put his money where his mouth is.
- At Berkshire Hathaway’s annual meeting this weekend, the "Oracle of Omaha" indirectly answered that question.
Driving the news: Buffett and his business partner Charlie Munger spoke frankly — and in less than flattering terms — about what ails the banking sector, and hinted at why they were cautious about investing there.
- Buffett said allowing SVB to fail would have been “catastrophic” but he and Munger were sharply critical of bank executives, and officials trying to manage the crisis.
- Both men also expressed concerns about the outlook for commercial real estate, a linchpin of small and medium-sized banking portfolios. Munger specifically singled out the “hollowing out of downtowns in the U.S. and elsewhere in the world [that] will be quite significant and quite unpleasant.”
What they’re saying: Buffett keyed in on First Republic Bank’s bespoke — and generous — jumbo mortgages for high-end clients, calling them a “crazy proposition. You don’t give options like that. That’s what First Republic was doing and it was in plain sight and everyone ignored it until it blew up.”
- He also called for executives who take on excessive risk to be held accountable if the bank has to be rescued. “You have to have … punishment for people that do the wrong things,” the billionaire added.
The bottom line: “Banking can have all kinds of new inventions but it needs to have old values…depositors should not lose money [but] stockholders and debt holders should lose money – too bad,” Buffett added.