Warren Buffett backs successor and blames US bank failures on executives

Billionaire investor says it would have been catastrophic if Washington hadn’t guaranteed SVB’s deposits

Warren Buffett, chairman and chief executive of Berkshire Hathaway, said he was '100 per cent comfortable' with the decision to name Greg Abel as his heir apparent. AP

Warren Buffett faced question after question about one thing in particular at Berkshire Hathaway’s annual meeting on Saturday: his successor.

Mr Buffett named Greg Abel as heir apparent in 2021, and the vice chair for non-insurance operations has since had a more pronounced presence.

On Saturday, Mr Buffett said he was “100 per cent comfortable” with the decision and indicated a business-as-usual transition, for whenever that will be.

“Greg understands capital allocation as well as I do. That’s lucky for us,” Mr Buffett said at the meeting in Omaha, Nebraska.

“He will make those decisions, I think, very much in the same framework as I would make them. We have laid out that framework now for 30 years.”

Mr Abel, 60, who joined Mr Buffett and his long-term business partner Charlie Munger on stage for the morning, has built Berkshire’s energy business into one of the largest in the US.

Mr Buffett recently joked that Mr Abel does “all the work”.

Here are the other main takeaways from the meeting that drew Mr Buffett's disciples in their thousands.

Occidental control

One analyst called it the biggest announcement of the day: Berkshire won’t make an offer for full control of Occidental Petroleum, the energy firm it has spent months boosting its wagers on.

The comment by Mr Buffett is likely to have helped temper speculation that Berkshire is seeking to own Occidental after winning approval from US regulators last year to acquire as much as 50 per cent of the firm.

Mr Buffett didn’t rule out buying more stock of the Houston-based company, adding it may — or may not — seek further purchases.

Banking turmoil

Mr Buffett and Mr Munger were so sure there would be questions about the recent banking turmoil that they jokily brought placards bearing the accounting classifications spotlighted during the upheaval. One was labelled “available for sale”, while the other read “held to maturity”.

Striking a more serious note, Mr Buffett faulted the executives in charge of the failed banks, arguing they should be held accountable for mistakes that were hiding in “plain sight”.

He also called out “messed up” incentives in banking regulation, as well as poor messaging by regulators, politicians and the press to the American public about the upheaval.

Mr Buffett pointed to First Republic Bank, the beleaguered lender which JP Morgan Chase just rescued. First Republic’s filings showed the lender was offering jumbo, non-government-backed mortgages at fixed rates that were interest-only for 10 years in some cases — which Mr Buffett called “a crazy proposition”.

“It was doing it in plain sight and the world ignored it until it blew up,” Mr Buffett said.

The turmoil began with the liquidation of a small crypto-friendly lender in early March before it engulfed three other regional banks, including Silicon Valley Bank.

Mr Buffett said it would have been catastrophic for the US if the government hadn’t moved to guarantee all of SVB’s deposits, the vast majority of which weren’t covered by the $250,000 Federal Insurance Deposit Corporation cap.

Debt ceiling

As lawmakers race to resolve a standoff around the US debt ceiling, Mr Buffett said he couldn’t see how Washington would allow the US to default on its debt, an outcome that would tip the financial system into turmoil.

Investors and politicians are zeroing in on whether or not the US government can avoid crashing into its statutory debt ceiling and a potentially catastrophic technical default that could follow.

Despite the impasse, Mr Buffett reiterated his belief in America as an “incredible society” with “everything going for us”.

Given the choice, he would still want to be born in the US, he said.

Earnings decline

The firm posted an almost 13 per cent gain in operating earnings to $8.07 billion for the first quarter, powered by its insurance underwriting businesses including auto-insurer Geico, which swung to profitability following six quarters of losses.

But the results came with a gloomier forecast: that earnings at the majority of Berkshire’s sprawling collection of businesses would decline this year as an “incredible period” for the economy draws to an end amid inflation and rising rates.

Still, Mr Buffett said he expects earnings at its insurance underwriting operations — which are less correlated to business activity — to improve this year. Geico posted $703 million in profit as higher average premiums and lower advertising spending contributed to the gain even as claim frequencies fell, Mr Buffet said.

Geopolitics

In the fourth quarter, Mr Buffett slashed his holding of Taiwan Semiconductor Manufacturing just months after disclosing a major stake in a quick reversal that spooked investors.

Mr Buffett said on Saturday that the company was one of the best managed and most important in the world, but that he didn’t like the location — a reference to Taiwan amid rising tensions between the island and China.

Mr Buffett and Mr Munger emphasised the need for smooth relations between the US and China and urged increased trade. While the two will be competitive, they will always need to judge “how far you can push the other guy without them reacting wrong”, Mr Buffett said.