Buffett Reaffirms Abel as Heir, Blames Bank Leaders for Failures

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(Bloomberg) — Warren Buffett faced question after question about one thing in particular at Berkshire Hathaway Inc’s annual meeting on Saturday: His successor. 

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Buffett named Greg Abel as heir apparent in 2021, and the vice chair for non-insurance operations has had a more pronounced presence ever since. On Saturday, Buffett reaffirmed he was “100% comfortable” with the decision and even indicated a largely business-as-usual transition, for whenever that could be. 

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“Greg understands capital allocation as well as I do. That’s lucky for us,” 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.”

Abel, 60, who joined 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. Buffett recently joked that Abel does “all the work.” Here are the other main take aways from the meeting that drew Buffett disciples in their thousands. 

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Occidental Control

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

The comment by Buffett likely helped temper speculation that Berkshire is seeking to own Occidental after winning approval from US regulators last year to acquire as much as 50% of the firm. Buffett didn’t rule out buying more stock of the Houston-based firm, adding it may — or may not — seek further purchases.

Banking Turmoil

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

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Striking a more serious note, 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.

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

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

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

Debt Ceiling

As lawmakers race to resolve a standoff around the US debt ceiling, 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.

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Despite the impasse, 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% 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 “incredible period” for the economy draws to an end amid inflation and rising rates.

Still, 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, Berkshire said.

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Geopolitics, Taiwan

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

Buffett and Munger emphasized 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,” Buffett said.