NEW YORK – Warren Buffett, the billionaire investor who oversees stakes in some of the largest U.S. banks, said the nations lenders have rebuilt capital to the point where they no longer pose a threat to the economy.
The banks will not get this country in trouble, I guarantee it, Buffett, chairman and chief executive officer of Omaha, Neb.-based Berkshire Hathaway, said in a phone interview. The capital ratios are huge, the excesses on the asset side have been largely cleared out.
Lenders including Bank of America Citigroup sold assets, cut jobs and bolstered balance sheets after repaying taxpayer bailouts from 2008, when the companies were overwhelmed by losses on securities tied to the housing market. Those actions helped boost financial stocks last year and increased the value of Berkshires holdings.
Buffetts firm has investments in at least four of the seven biggest U.S. lenders by assets, including a stake of more than $14 billion in San Francisco-based Wells Fargo & Co., $5 billion in Bank of America and warrants that allow it to buy $5 billion of Goldman Sachs Group shares. Berkshire also has a holding in U.S. Bancorp.
Our banking system is in the best shape in recent memory, Buffett said.
Former bank executives and regulators have said the largest lenders still pose systemic risks to the economy four years after the bailouts and 2 1/2 years after legislators passed the most sweeping reforms to Wall Street regulation since the Great Depression.
JPMorgan Chase & Co.s trading loss of at least $6.2 billion last year rekindled those concerns. Former Citigroup CEO Sanford Sandy Weill has said that deposit-taking and lending operations should be split from investment banking to prevent another crisis.
Investors, too, have signaled their doubts about banks accounting. Even after last years stock rally, Citigroup, Bank of America, Goldman Sachs and JPMorgan all trade at less than book value, a calculation of how much a lenders assets would be worth minus liabilities.
Mergers during the financial crisis sparked criticism that too-big-to-fail companies became even larger. Buffett said that concentration shouldnt worry investors. Canadian banks weathered the crisis better than counterparts in other nations, even as the biggest firms in that country held more market share than those in the U.S., he said.
We do not have an unusually concentrated banking system compared to the rest of the world, and there are certain advantages in the largest capital market in the world to having banks that are somewhat consistent with the size of those markets, he said.
The largest U.S. banks face another round of Federal Reserve stress tests to determine whether they have adequate capital to lift dividends and buy back stock.
Bank of America CEO Brian Moynihan has said hes confident his company will pass after failing in 2011 when he didnt win approval for a dividend increase.
Buffett lent his credibility to the bank by providing capital in 2011 after the lenders shares declined more than 45 percent over eight months. The wager followed bets the billionaire made on Goldman Sachs and General Electric in the depths of the 2008 crisis.