Buffett: No Problem With Goldman's Mortgage Deals

Monday, 03 May 2010 08:45 AM

 

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Berkshire Hathaway CEO Warren Buffett has declared his support for Goldman Sachs Group Inc. CEO Lloyd Blankfein, and said he has no plans to sell his company's stake in the bank.

Buffett also said he doesn't see a "problem" with the Goldman Sachs Abacus deal at the center of SEC fraud charges  against the firm.

He says there's nothing "unique" about the 2007 Abacus deal and points out that a lot of banks and others, including American homeowners, lost money betting on the housing market at the time.

"When there's a mass delusion, you can say everyone is to blame... There's no villain," he told CNBC on Monday.

Buffett and Berkshire vice chairman Charlie Munger praised Goldman on Saturday before a crowd of about 40,000 at Berkshire's annual shareholder meeting.

Both executives said they're happy with Blankfein's leadership and said they don't view the Securities and Exchange Commission's civil fraud charges against Goldman as a strike against him.

"There's really no reason to think about somebody else running Goldman," Buffett said when asked whether someone besides Blankfein should be leading the investment bank. The charges filed April 16 have raised questions about Blankfein's tenure.

Buffett previewed his company's first-quarter earnings report at the meeting at Omaha's Qwest Center. He said Berkshire rebounded from last year's first-quarter loss and earned $3.6 billion as the economic recovery began and Berkshire absorbed Burlington Northern Santa Fe railroad.

The full report will be released Friday. In the first quarter of 2009, Berkshire lost $1.5 billion.

The addition of Burlington Northern more than doubled Berkshire's regulated businesses unit income to $555 million in the January-March period. The unit also includes utilities, which, along with railroads, operate under government regulations.

Buffett said Berkshire's quarterly results show the economy is improving because manufacturing and retail income grew 85 percent to $477 million.

Berkshire's assortment of businesses, including clothing, insurance, furniture, utility, jewelry and corporate jet companies, gives Buffett insight into the health of the overall economy. Berkshire also has big investments in companies including Coca-Cola Co. and Wells Fargo & Co.

Last year's loss included $241 million on the sale of investments. Berkshire also took a $1.9 billion charge from writing down a ConocoPhillips investment.

Buffett has been one of Goldman's biggest supporters before and since the SEC filed its civil lawsuit against the bank. The government charged that the investment bank misled investors about a deal involving complex mortgage-related investments that later plunged in value.

During questioning by shareholders, Munger noted that the SEC vote to file the charges was 3 to 2. He said that if he had been a member of the SEC, he would have voted against the suit.

Buffett and Munger both expressed confidence in Blankfein.

"There are plenty of CEOs I'd like to see gone in America, and Lloyd Blankfein is not one of them," Munger said.

On Friday, Goldman stock plunged 9 percent on reports that the Justice Department had opened a criminal investigation of Goldman.

Buffett said Berkshire's $5 billion of preferred stock in Goldman is a good investment because it generates 10 percent interest a year. He said the investment includes warrants that can convert the preferred shares into regular stock at $115 a share, a discount from Goldman's current price of $145.20.

Buffett and Munger also discussed the financial overhaul legislation now before Congress. Munger said the regulatory system should be changed to be much less permissive for investment banks.

The House has passed a version of the bill, which among other things would limit the kinds of lucrative trading that banks including Goldman Sachs do. The Senate has yet to begin debate on its version.

Berkshire has objected to one provision of the financial overhaul that could require companies to post collateral on existing derivative contracts. Derivatives are complex investments that have been blamed in part for the 2008 financial crisis and the recession. Banks lost billions of dollars on derivatives, and that and the recession led the government to bail out hundreds of financial companies.

But Buffett said he doesn't believe the bill, as it's written now, would require Berkshire to post any additional collateral on its 250 derivatives because the company is unlikely to be considered a threat to the system.

"If the bill passes tomorrow ... we would not have to put up a dime," Buffett said.

Buffett also talked about the European debt crisis. Negotiations were continuing this weekend on a bailout package aimed at helping Greece avoid default on loans that are coming due May 19.

Buffett said Greece sets its own budget, but can't print its own money because it shares the euro currency with 15 other countries. So that limits its options and keeps them from printing money to help with its credit problems.

"I don't know how this movie is going to end," Buffett said. "This will be high drama in my view."

A growing concern for Berkshire shareholders is who will eventually replace the Buffett, 79, and Munger, 86. Buffett did not offer any new clues Saturday about the plan he's discussed previously, to split his job into three parts: a chief executive, chairman and several investment officers.

Both Buffett and Munger remain in good health and have not announced any plans to retire.

Many shareholders, like Dave Taylor of Minneapolis, don't seem worried about losing Buffett's leadership someday.

"The companies he bought aren't going to go away," Taylor said. "He's got so many smart people working for him. They may not have his personality, but they might have his smarts."

Buffett showcased BNSF by doing interviews in front of an orange cardboard BNSF locomotive and playing with a model BNSF train set.

Railroad CEO Matt Rose looked on while Buffett was mobbed by reporters and shareholders. Rose said the transition into Berkshire went smoothly.

Buffett also grabbed his ukulele to perform a version of "I'll Be Working on the Railroad" with the Quebe Sisters Band at the Justin Boots booth before the meeting started.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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