This is The Takeaway from today’s Morning Brief, which you can receive in your inbox every Monday to Friday by 6:30 a.m. ET along with:
On Saturday, Berkshire Hathaway (BRK-A, BRK-B) investors will gather in Omaha to hear from CEO Warren Buffett and Berkshire’s vice chair, Charlie Munger.
The duo’s views on the latest turmoil rocking regional banks will no doubt be at the top of the agenda.
In April, Buffett was asked in an interview with CNBC about what he thought the crisis, to that point, might amount to.
Buffett said this turmoil was largely about the “dumb things” banks did becoming uncovered. In the case of the balance sheets mismatches that befell Silicon Valley Bank and Signature Bank earlier this year, that meant sitting on tens of billion of dollars in unrealized losses. Some of which were forced to become realized.
“Accounting procedures have driven some bankers to do some things that may have helped their current earnings a little bit,” Buffett said. “And it’s ended in a result you could predict.”
Last weekend, First Republic (FRC) was added to the list of 2023’s bank failures.
“You can predict when it would happen, and then once [investors] start looking at one that does it then they start looking at others,” Buffett added. “And pretty soon, you know, that everybody is in a position of looking at a number that nobody looked at when it was, when it was presented to them a year ago.”
As this crisis has rolled along, many investors have waited to see if — or when — Buffett might be forced to reprise his role from the 2008 crisis. A role that saw Berkshire make a $5 billion investment in Goldman Sachs (GS) and Buffett write an op-ed in The New York Times which sought to assure the public a collapsing US economy still remained a friendly place for investors.
The obvious retort, of course, is that this current moment of stress is not a redux of 2008.
As JPMorgan (JPM) CEO Jamie Dimon said on a call with investors earlier this week following his bank’s deal to acquire First Republic: “This part of the crisis is over.” Speaking at the Milken Conference in Los Angeles earlier this week, Citi (C) CEO Jane Fraser said First Republic’s fate “was the last remaining main uncertainty” among banks that faced similar stresses.
At a press conference on Wednesday, Fed Chair Jay Powell said JPMorgan’s deal for First Republic “is an important step toward drawing a line under that period of severe stress.”
Action in regional bank stocks since these comments suggests perhaps a coda remains in this crisis.
And in a climate where reports of potential sales send bank stocks down more than 40% and CEOs feel compelled to come out and call these reports “categorically false,” few in the US business community are better positioned to bring something like calm to these choppy waters than Buffett.
Buffett’s role in the Salomon Brothers scandal of the early ’90s, his investments during the 2008 financial crisis, and his assurances during the COVID pandemic that “nothing can stop America” are just a few examples of Buffett serving as a port in the various financial storms that have shaken the US economy over the last several decades.
How Buffett responds to, and passes judgement on, this current moment of upheaval could go a long way towards turning down the anxiety in some pockets of the market.
Or perhaps Buffett will fuel the flames of fear roiling small banks, noting these remain relatively small problems for relatively small lenders. Lenders looking to someone, anyone — be they an investor, a regulator, or otherwise — to offer something like an answer to the question: Are we alone?
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