Complete Property Market Updates of Singapore

May 5, 2008

Worst of Wall Street crisis over, says Buffett

Filed under: Financing,General — Propertymarketupdates @ 2:49 pm

Credit crunch has eased for bankers but Berkshire chief sees more pain for people with individual mortgages

MR WARREN Buffett, the chief executive officer (CEO) of Berkshire Hathaway, said the global credit crunch has eased for bankers, and the Federal Reserve probably averted more failures by helping to rescue Bear Stearns.

 ‘The worst of the crisis in Wall Street is over,’ he said last Saturday on Bloomberg Television. ‘In terms of people with individual mortgages, there’s a lot of pain left to come.’

The billionaire was interviewed before the annual meeting of the company, which is based in Omaha, Nebraska.

Mr Buffett, who is listed as the world’s richest man by Forbes magazine, said the Fed acted properly when it arranged a US$2.4 billion (S$3.3 billion) buyout in March of New York-based Bear Stearns by JPMorgan Chase.

He said he turned down the opportunity to buy the troubled investment bank because he lacked enough capital and time to craft a solution. More failures and wider panic may have resulted if the regulators had not halted the run on Bear Stearns, he added.

‘The worry was that there would be contagion; it was a very real worry,’ he said. ‘If Bear Stearns had gone, the next day, somebody else would have gone. It could’ve been a very, very, very chaotic situation.’

Mr Buffett said he was contacted in March before JPMorgan, the third-biggest United States bank by assets, agreed to buy Bear Stearns.

The person calling him, whom he would not identify, was ’someone responsible’ and was not from the Fed or the Treasury.

‘As I understand it, Bear Stearns had US$65 billion due on Monday and I didn’t have US$65 billion,’ Mr Buffett said. ‘I couldn’t get my mind around that situation in the required time.’ New York-based JPMorgan was the right buyer for Bear Stearns, he added.

JPMorgan agreed in mid-March to acquire Bear Stearns, once the fifth-biggest US securities firm, after customers grew concerned about the company’s health and pulled out their money, leaving Bear Stearns short on cash.

JPMorgan, which received financial support from the Fed, raised the purchase price a week later to US$10 a share from US$2 to mollify Bear Stearns shareholders who said they were not getting enough.

In a question-and-answer session at the shareholder meeting, Mr Buffett said that from a risk perspective, some banks got ‘too big to manage’. Berkshire’s own investment in derivative contracts has recovered US$500 million to US$600 million of lost value since end-March.

The company will make ’significant money’ from the derivatives over the long term, he said at the meeting, which was attended by a record 31,000 shareholders.

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 Mr Buffett.

On the issue of succession, Mr Buffett, 77, said Berkshire still has three internal candidates to eventually succeed him as CEO, and four candidates to become chief investment officer.

To replace him, Berkshire plans to split his job into three parts – chief investment officer, CEO and chairman.

Mr Buffett has refused to publicly identify the candidates, but he has said previously that after he dies, his son will take over as chairman to ensure Berkshire’s culture is preserved. Mr Howard Buffett already serves on the board.

Source : Straits Times – 5 May 2008

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