Financial markets are shaking and shimmying in expectation of the bank stress test results later today.
But investment icon Warren Buffett isn’t worried.
While the Omaha billionaire doesn’t know what the results will be for Wells Fargo, one of his major holdings, Buffet is quite bullish on the bank.
“I apply my own stress test, and they pass it with flying colors,” he tells CNBC.
And how does Buffett conduct his examination?
“I do it by looking at the details of their operations,” he explains. “Wells Fargo obtains their money, which is the raw material, cheaper than any anybody else,” Buffett says.
“You would be startled at the $1 trillion, roughly, that Wells Fargo gets from deposits and to some extent from debt, how much cheaper that is compared to most of the other big banks.”
Buffett compares the bank’s situation to a copper producer.
Say you’re a copper producer, he says, and copper is selling for $2 a pound. If “you want to measure the stress of copper going to $1.30, for a guy whose production costs $1.50, he’s got a problem,” Buffett says.
“If his cost is $1, he doesn’t have a problem. Wells Fargo, in terms of its raw material costs, is better situated than any large bank by some margin.”
Not everyone is so sanguine about the stress tests.
The feds are “grossly underestimating the risks that banks are facing over the next months,” financial author Martin Weiss tells Moneynews.com.
© 2017 Newsmax. All rights reserved.