Warren Buffett | BNSF Acquisition | January 20, 2010 | Summary and Q&A

Transcript

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Summary

Warren Buffett, Chairman and CEO of Berkshire Hathaway, shares his thoughts on various topics including the Wells Fargo earnings, government actions during the financial crisis, Berkshire Hathaway's special shareholder meeting, splitting Class B shares, and the craft bid for Cadbury.

Questions & Answers

Q: What are Warren Buffett's thoughts on the Wells Fargo earnings?

Warren Buffett's immediate takeaway from the Wells Fargo earnings was that the charge-off at $5.4 billion was exactly what he expected. He believes that the revenue and other numbers are in line with expectations as well, and mentions that Wells Fargo has consistently made money despite larger losses than anticipated.

Q: What is Warren Buffett's opinion on Wells Fargo issuing more shares to pay back the government?

Warren Buffett didn't like the fact that Wells Fargo had to issue more shares to pay back the government. He believes that the government forced them to do so, and while he acknowledges the positive impact of government actions on the economy, he also acknowledges that it has cost Berkshire Hathaway real money.

Q: Was it the right move by the government to make Wells Fargo issue more shares?

Warren Buffett believes that it was the right move by the government to show that they were willing to act promptly and decisively. He emphasizes the importance of the government's actions in stabilizing the financial system, particularly during the 2008 financial crisis.

Q: Why is Berkshire Hathaway splitting the Class B shares?

Warren Buffett explains that the decision to split the Class B shares 50-for-1 was primarily due to the acquisition of Burlington Northern. They wanted to provide a stock and cash option to smaller shareholders and needed a lower denomination than the Class B shares, which were valued at around $3,000.

Q: Is this split a change in Warren Buffett's stance on dividends?

Warren Buffett clarifies that the split does not indicate a change in stance on dividends. The split was necessary for specific reasons related to the Burlington Northern acquisition and allowing for the inclusion of smaller shareholders.

Q: Does Warren Buffett think the vote for the split will be easy?

Warren Buffett is confident that the vote for the split will be easy. He humorously compares himself to a politician in Chicago, suggesting that he has enough votes in favor of the split.

Q: What does Warren Buffett think about the idea of Berkshire Hathaway becoming a member of the S&P 500?

Warren Buffett is unsure whether Berkshire Hathaway will become a member of the S&P 500. He mentions that they are four times larger in market cap than any company not in the index and will have a significant number of shareholders. Ultimately, the decision is up to the S&P.

Q: Would Warren Buffett like Berkshire Hathaway to be in the S&P 500?

Warren Buffett thinks that being in the S&P 500 would be beneficial for Berkshire Hathaway shareholders. He believes it would be a positive development for them.

Q: What were the Wells Fargo revenue and profit numbers?

The revenue for Wells Fargo was $22.7 billion, beating the estimate of $21.9 billion. It was the first major bank to beat revenue estimates. The profit was 8 cents per share, exceeding the street's expectation of a loss of a penny.

Q: What is Warren Buffett's opinion on Wells Fargo's performance?

Warren Buffett believes that Wells Fargo runs a terrific bank. He mentions that they are very customer-oriented and have a strong revenue potential due to their wide customer base. He also commends them for managing larger losses in recent years and highlights their consistency in profitability.

Q: What does Warren Buffett think about the bank tax to pay for the GM bailout?

Warren Buffett does not understand the bank tax. He questions the idea of penalizing banks that were saved during the financial crisis. He believes that the cost the banks incurred from the government bailout already outweighs any benefits provided to the economy. He suggests looking at other areas like the auto companies or individuals who escaped losses from Freddie Mac and Fannie Mae.

Q: Does Warren Buffett think the investment banks should be backstopped by the government?

Warren Buffett believes that investment banks should not be backstopped by the government. He points out that investment banks like Morgan Stanley and Goldman Sachs were independent during the financial crisis and went to raise their own capital before joining the TARP program. He suggests regulating leverage and certain activities of large banks that are too big to fail.

Q: What are Warren Buffett's thoughts on compensation at investment banks?

Warren Buffett acknowledges that compensation at investment banks has returned to previous levels. However, he states that compensation at commercial banks is not significantly different from a few years ago. He clarifies that the choice between the government and bonuses should be between stockholders and bonuses, not the federal government.

Q: How does Warren Buffett think the government should handle large banks?

Warren Buffett suggests imposing strict penalties on CEOs and directors of banks that have to go to the government for assistance. He believes that if a bank requires government help, the CEO and directors should be essentially wiped out financially. He also mentions penalties for directors to change behavior that causes trouble.

Q: How should the issue of too big to fail banks be addressed?

Warren Buffett thinks that banks that are considered too big to fail should be reined in on leverage and certain activities. He suggests implementing regulations and having a regulator, like the Federal Reserve, oversee these activities.

Q: What aspects of financial regulatory reform does Warren Buffett support?

Warren Buffett supports efforts to restrict leverage, as he believes it is what gets people in trouble. He also believes that a new regulator or the existing Federal Reserve should draw up sensible regulations for different kinds of instruments and activities of commercial banks.

Q: Does Warren Buffett think Ben Bernanke should be reconfirmed as Federal Reserve Chairman?

Warren Buffett thinks that Ben Bernanke should be reconfirmed as Federal Reserve Chairman. He praises Bernanke's actions during the financial crisis, particularly in September and October 2008, as crucial in saving the American economy.

Q: What would happen if Ben Bernanke is not reconfirmed?

Warren Buffett suggests that there would likely be a strong sell-off across the board if Ben Bernanke is not reconfirmed. He believes that it would be justified as it would indicate a lack of confidence in Congress' ability to handle economic matters.

Q: What are Warren Buffett's thoughts on the recent Massachusetts election and its impact on the administration and healthcare reform?

Warren Buffett believes that the election in Massachusetts is a reflection of the American people's frustration with Congress, the administration, the healthcare reform bill, and the economy. He mentions that people had high expectations but are now disappointed with how things have been handled.

Q: What do Americans expect from the economy and security?

Warren Buffett suggests that Americans expect better job prospects and improvements in the economy to feel good. He mentions that until jobs come back, people will not feel good, and it is essential to address unemployment to improve the mood of the American people.

Q: Does Warren Buffett think the administration could have done more to address the economy?

Warren Buffett believes that the administration could have been more effective in implementing the stimulus package to have a more immediate impact. He mentions that the stimulus bill had many earmarks and was not as efficient as it could have been.

Q: Did Warren Buffett agree with Paul Krugman's view that the failure of the Democratic candidate in Massachusetts was due to not spending enough on the stimulus?

Warren Buffett does not believe that spending more on the stimulus would have made a significant difference. He expresses skepticism towards economic figures and projections and emphasizes the need for deleveraging and time to recover from the economic crisis.

Q: What are Warren Buffett's thoughts on the bid for Cadbury by Kraft?

Warren Buffett believes that Kraft's bid for Cadbury is a bad deal. He highlights the tax inefficiencies and the high price Kraft is paying for Cadbury. He also questions the directors' failure to mention their views on the undervaluation of Kraft stock in the proxy statement.

Q: Will Warren Buffett vote against the bid for Cadbury?

Warren Buffett clarifies that he does not have the opportunity to vote on the deal. However, if he had the chance, he would vote against it. He expresses his disagreement with Irene Rosenfeld's view that it is a good deal.

Q: Could Warren Buffett reconsider his stake in Kraft based on this deal?

Warren Buffett states that he still believes Kraft is undervalued, but less so than before because of the deal. He suggests that the value may be affected by a few dollars, but he still considers Kraft a good long-term investment.

Q: Does Warren Buffett talk to Irene Rosenfeld about the bid for Cadbury?

Warren Buffett confirms that he has had conversations with Irene Rosenfeld and acknowledges that they both have different views on the deal. Despite their disagreements, he maintains a good relationship with her and respects her as a person.