Billionaire Warren Buffett says that American banks are stronger than they've been in years, and won't derail the economy.
Billionaire Warren Buffett says that American banks are stronger than they’ve been in years, and won’t derail the economy.
Buffett, who is the chairman and CEO of Berkshire Hathaway Inc., told Bloomberg television that nation’s biggest banks have improved their financial position considerably.
“The banks will not get this country in trouble, I guarantee it,” Buffett told Bloomberg television in an interview that aired Thursday.
Berkshire Hathaway has large investments in Wells Fargo & Co., U.S. Bancorp and Bank of America Corp., and Buffett pays close attention to their condition. Berkshire also holds warrants to buy $5 billion in Goldman Sachs shares.
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Buffett said the banks have largely cleared out the bad assets that hurt their balance sheets. And the current low interest rates have helped them.
“Our banking system is in the best shape in recent memory,” Buffett said.
The country’s 19 biggest banks are about to undergo the Federal Reserve’s “stress tests” to see if they could withstand a severe U.S. recession and a global downturn at the same time.
Buffett said Bank of America may soon try to repurchase the preferred shares he bought for $5 billion in the summer of 2011. Buffett would like to keep the shares because they come with $300 million in annual dividend payments, but he told Bloomberg that he expects the bank to pay Berkshire $5.25 billion to end the dividend payments whenever it makes sense for Bank of America.
But the Fed can stop banks from paying stock dividends or buying back their own stock if they fail the stress test.
And regardless of what happens to Berkshire’s preferred shares of Bank of America, the company will retain warrants to buy 700 million shares at $7.14 apiece until 2021. Bank of America shares were trading at $11.70 at midday, up 27 cents.
Besides bank investments, Berkshire Hathaway owns more than 80 businesses, including BNSF railroad, Geico insurance, General Reinsurance, MidAmerican Energy, Helzberg Diamonds and Acme Brick. The conglomerate is based in Omaha, Neb.
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Berkshire Hathaway Inc.: www.berkshirehathaway.com