Warren Buffett attacked the government's stress tests of 19 large U.S. banks, saying they failed to properly assess the industry's health, and that he would buy more shares in three big banks Berkshire Hathaway Inc already owns.
The world's second-richest man also said Berkshire, which generates about half its business from insurance, would consider writing policies to insure against a potential swine flu pandemic if it got paid enough.
Buffett and Berkshire Vice Chairman Charlie Munger held a press conference a day after Berkshire's annual meeting, which brought 35,000 shareholders to Omaha to hear the two field questions on the company, the economy, and other matters. The weekend is known as Woodstock for Capitalists.
Three Berkshire holdings, Wells Fargo & Co, U.S. Bancorp and SunTrust Banks Inc are among 19 large banks the U.S. government is stress testing to gauge whether they need more capital to survive a deep recession.
Buffett said Wells Fargo, U.S. Bancorp, and a third Berkshire holding, M&T Bank Corp, do not need more equity capital, and we would buy stock in any of the three banks at present prices.
He expressed no opinion on SunTrust's capital needs. M&T is not being tested. Berkshire also invests in Bank of America Corp in a portfolio run by a different executive.
Buffett said the government is taking the wrong approach in assessing banks by ignoring differences in lenders' business models. Wells Fargo, he said, has a different model from Citigroup Inc, which has had multiple bailouts.
The question is whether the people conducting tests have a bunch of markers to write down a variety of assets, requiring new capital, Buffett said. You get the impression from reading it, there will be percentage whacks (at various assets). That is not a very sophisticated way of looking at it.
Munger added: This one-size-fits-all reasoning in the case of bank stress tests is very likely to be done poorly.
Buffett nevertheless endorsed government efforts to stabilize the financial system, and that the government would find a home for big banks in trouble.
There is no reason ever in the United States to have a run on the bank, Buffett said. While equity investors do not deserve protection, Buffett said, The United States government has demonstrated that whatever it takes is what is going to get done, and they are right to do so.
On the financial crisis, he added: The most important lesson is that the world needs a whole lot less leverage.
Berkshire would consider writing insurance policies for pandemics, including one that Buffett said assumes the U.S. mortality rate rises by 25 percent in 2010, equivalent to roughly an additional 600,000 deaths.
The company paid out billions of dollars on claims losses from Hurricane Katrina, but will still assume big risks for the right price.
You could get us to quote a policy on the present potential pandemic, Buffett said, though you may not like how much Berkshire would charge. You need someone with a real sense of the probabilities to write such policies, he said.
Buffett said Berkshire has reduced the amount of bond insurance business it writes, though not because it recently lost its triple-A ratings from two credit rating agencies.
We basically don't like the pricing, he said. We've written some business, and we'll write more tomorrow if the price is right. It depends on what our competition is doing.
He also said Berkshire has eliminated what was once a $21 billion currency bet against the U.S. dollar, having shed a remaining stake in the Brazilian real.
Buffett said Berkshire is still looking for acquisitions and remains willing to sell stocks to fund them, though its cash stake this quarter fell below $20 billion, less than twice the $10 billion minimum Buffett wants.
He said he reviewed General Growth Properties Inc's finances but took a pass, noting that the now bankrupt mall owner has $27 billion of debt, and today, their properties in my view wouldn't bring $27 billion.
Buffett also pledged to quickly disclose any serious problems with his health, saying we wouldn't want rumors flying around, and that he would depend on his board to tell him when it is time to turn over Berkshire to a successor.
Noting his donation of much of his wealth to the Bill & Melinda Gates Foundation in the form of Berkshire stock, and that Bill Gates sits on Berkshire's board, Buffett said: He is not going to sit there and watch the future value of his holdings go down because he doesn't have the guts to tell me.
(Reporting by Jonathan Stempel and Lilla Zuill, editing by Maureen Bavdek, Leslie Gevirtz)