Buffett sticks by embattled Wells Fargo, balks at insuring cyber risks

Warren Buffett said Saturday that he's sticking by embattled bank Wells Fargo, isn't ready to jump into the risky business of insuring "cyber" catastrophes and all but ruled out paying a one-time special dividend to shareholders despite sitting on nearly $109 billion in idle cash.

 

The legendary investor, and chairman and CEO of Berkshire Hathaway, now 87 years old, also reassured investors that the company is built to last and will flourish when he's gone. Buffett shot down inferences that Berkshire will have a tougher time striking acquisition deals after his run at the company is over and his longtime seal of approval fades from view. Berkshire's appeal to companies it does business with, he argued, is about its track record and deep pockets and not just because of the Buffett name. 

"The reputation belongs to Berkshire," Buffett said. "For somebody that cares about a business, we absolutely are the first call and will continue to be the first call."

The billionaire's comments came at the "Woodstock of Capitalism," Berkshire's annual shareholder meeting in Omaha. Tens of thousands of Buffett followers flocked to the rockstar of investing's hometown to hear his thoughts on topics ranging from trade to stocks to life at Berkshire after he leaves. Buffett fielded questions from a packed Century Link Center with his right-hand man and Berkshire vice chairman, Charlie Munger, 94.

Who will replace Buffet has gained greater urgency since January, when Buffett took a step toward announcing his successor when he promoted two longtime Berkshire executives, Greg Abel and Ajit Jain, as vice chairmen.

Buffett, who is adored by his followers, fielded a string of difficult questions related to controversial topics, including his continued support of Wells Fargo despite the bank's sales practices scandals, his views on investing in gun manufacturers, and trade tensions between the U.S. and China.

Here are highlights from the hotly anticipated question-and-answer session:

Buffett sticks by Wells Fargo

As expected, Buffett, who owns more than $29 billion of Wells Fargo stock, was asked what it would take to make him sell his shares in the bank, which has been embroiled in turmoil since its 2016 unauthorized accounts scandal and more recent troubles, such as a $1 billion fine from regulators related to mortgage and auto loan violations.

Buffett reiterated that the company made a mistake by putting in the "wrong incentives."

But he again stuck by the company, saying, "I like it as an investment. I like (CEO) Tim Sloan as a manger. He is correcting mistakes made by other people."

Buffett also noted that some of his best investments, such as American Express and GEICO, were in companies that had done bad things but then corrected them.

"I see no reason why Wells Fargo as a company, from both an investor standpoint and a moral standpoint going forward, is in any way inferior to the other big banks with which it competes."

Calls cyber a 'super-cat' like risk

In his annual letter in February, Buffett estimated that there is a 2% risk of a $400 billion so-called "super-cat" insurance hit around the globe. And he added cyber risk to the usual list of suspects like hurricanes, wildfires and earthquakes.

Still, Buffett said he's in no rush to be a "pioneer" in the field of underwriting cyber insurance.

"Anyone that tells you they know in some actuarial way what ... (the) worst case is, is kidding themselves," Buffett said, adding that the industry has a "pretty good idea of the probability of an earthquake in California or a hurricane hitting Florida, but I don't think we or anyone else knows what we're doing in cyber."

Balks at dividend payout

Berkshire is sitting on $109 billion in cash that can be used to acquire other companies or be returned to shareholders in the form of dividends or stock buybacks.

Buffett likes to have a big cash hoard to ride out tough times and buy when prices are lower, but holding too much cash is muting Berkshire's results. Buffett is always searching for "elephants," or mega-deals. But Berkshire hasn't taken part in the recent dealmaking boom on Wall Street, nor has it closed a big deal since 2015.

Still, investors hoping Buffett, who's not a fan of dividends and hasn't paid one in more than 50 years, would cave and give some cash back to investors came away disappointed.

Buffett, who prefers to his use cash to invest in companies, basically said it's not going to happen.

"It would be very unlikely for us to pay a special dividend, a stock buyback is more likely," he said.

Buffett made headlines a day ahead of the event by telling CNBC that Berkshire, which owns scores of businesses including ice cream retailer Dairy Queen, battery-maker Duracell and auto insurer GEICO, snapped up 75 million more shares of Apple in the first quarter, an eye-popping accumulation of the iPhone maker's shares that boosted Berkshire's total Apple stake to an estimated $44 billion.

The Oracle of Omaha also weighed in other topics:

Guns: Buffett had to defend a comment he made back in February, when he said Berkshire would not rule out doing business with people that own guns. But he stuck by his comment. In response to an audience question, he said: "I do not believe in imposing my political opinions on the activities of our businesses."

Trade: Despite the recent trade tensions between the U.S. and China, Buffett was optimistic that the two economic superpowers would work things out, as they have many common interests.

"It's a win-win situation when the world trades," said Buffett.

Apple's stock buybacks: Buffett backed cash-rich Apple on its recent announcement that it plans on buying back $100 billion of its own stock. "We very much approve of them repurchasing shares," he said.

This article duplicated from: USATODAY.COM

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