Buffett: SVB failure would be ‘catastrophic’ without guarantee – 05/06/2023 – Market

Warren Buffett says there would have been “catastrophic” consequences if US regulators had not guaranteed deposits at Silicon Valley Bank and Signature Bank. That’s because these bankruptcies created the risk of a nationwide bank run.

“Even though the FDIC limit [garantidor de depósitos dos EUA] $250,000, this is not the way the US is going to behave if the debt ceiling is going to send the world into chaos,” the Berkshire Hathaway CEO told tens of thousands of shareholders gathered in downtown Omaha to the company’s annual meeting this Saturday (6).

The comments follow a series of US bank failures that have heated up the debate over federal government intervention. Institutions guaranteed deposits at SVB and Signature Bank above the US$250,000 (R$1.24 million) level covered by federal insurance.

Regulators were able to circumvent this limit, arguing that these breaches posed systemic risks. Although shares in regional banks have fluctuated wildly in recent trading sessions, depositors have felt a little reassured by the implicit assurance that the government would intervene in the crisis.

“I can’t imagine anyone in the administration or Congress or the Federal Reserve [banco central dos EUA]saying that he would like to be responsible for going on television tomorrow and explaining to the American public why we are only keeping $250,000 insured,” Buffett added. “That would trigger a run on all the banks.”

Berkshire has been under pressure about the state of the banking system, with Buffett telling CNBC last month that the country had “not gotten over bank failures, but account holders haven’t faced a crisis”.

The conglomerate, which includes industries and insurance companies, had already used its balance sheet, bought by Buffett from a fortress, to invest in financial institutions in difficulty. Berkshire put money into Goldman Sachs and Bank of America during the financial crisis.

However, so far, it has not intervened during the current crisis. Investors noted that Berkshire’s portfolio already has positions in several major financial institutions.

Advisers at First Republic, which was sold this month to JPMorgan Chase in a deal orchestrated by US regulators, told the Financial Times that a Berkshire investment in the bank was seen as an unlikely solution.

This was due to the rapid drain of deposits that the First Republic was experiencing. Advisers believed the bank would burn through a multibillion-dollar capital injection if Berkshire’s investment was not enough to restore confidence.

Buffett spent Saturday morning fielding questions from shareholders about estate planning, value investing, US-China relations and, more important than anyone else at the CHI Health Center in Omaha, succession at Berkshire.

The 92-year-old investor confirmed that Greg Abel, the company’s vice president in charge of managing all of its non-insurance businesses, remained his anointed successor.

“Everyone talks about a board of directors, which is bullshit,” he added. “We don’t have that many people who can run five of the biggest equity companies and all kinds of diverse businesses.”

Abel has been with the company for more than two decades, since Berkshire acquired utility MidAmerican Energy in 2000. In 2018, he was promoted to Vice President alongside Ajit Jain.

Charlie Munger, Buffett’s longtime right-hand man and the company’s vice president, added that there was a reason why Berkshire outperformed other large conglomerates.

“We change executives much less often than other people and that has helped us,” he said.

Buffett says he still has challenges to live through. “If you want to know how to live your life, write your own obituary and reverse engineer the text.” Thus, it would be possible to know what remains to be achieved.