Buffett Defends Goldman Sachs Stake at Meeting

Saturday, 01 May 2010 03:06 PM

 

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Berkshire Hathaway CEO Warren Buffett said Saturday he has no plans to sell his company's stake in Goldman Sachs Group Inc. as the investment bank fights civil fraud charges.

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

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

Buffett also previewed his company's first-quarter earnings report at the meeting 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 last year, 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.

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

The assortment of different businesses Berkshire owns, 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 on April 16. The government charged that the investment bank misled investors about a deal involving complex mortgage-related investments that later plunged in value.

During an expected five hours of questions from 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.

"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 at the meeting that 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 that is 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 banks and insurance companies.

But Buffett says 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.

A growing concern for Berkshire shareholders is will eventually replace the 79-year-old Buffett and 86-year-old Munger at the top of the conglomerate they built. 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.

But many shareholders, like Dave Taylor of Minneapolis, don't seem terribly worried about the prospect of 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 early Saturday by doing a series of interviews in front of an orange cardboard BNSF locomotive and playing with a model BNSF train set.

Railroad CEO Matt Rose looked on from a few feet away while Buffett was mobbed by reporters and shareholders at the model train display. 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.

——

On the Net:

Berkshire Hathaway Inc.: http://www.berkshirehathaway.com

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

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