Warren Buffett told a record 35,000 Berkshire Hathaway shareholders gathered today in Omaha the company will report a decline of almost 11 percent in first quarter earnings, due in part to losses on credit default swaps.
Saying the condition of some of Berkshire's swaps has gotten worse over the past few months, he also predicted they may wind up losing money over the long term.
"We have run into far more bankruptcies in the last year than is normal."
But Buffett defended Berkshire's much larger derivative contracts that provide their buyers insurance against long-term losses for major stock indexes around the world.
"I personally think the odds are extremely good that on the equity put options, we will make money."
Some critics have accused Buffett of not following his own advice on derivatives, recounting that he once famously called them "financial weapons of mass destruction."
BULLISH ON BANKS
Buffett continued to publicly praise Wells Fargo [WFC 19.61 -0.40 (-2%) ], calling it a "fabulous" bank that is well prepared to ride out the financial crisis.
In an on-camera interview with CNBC's Becky Quick before the Q&A session, he told her he did not know how Wells had done in the government's stress test but that he had done his own test and the bank had passed "with flying colors."
Berkshire owns over 290 million shares of Wells, a 6.9 percent stake in the company. The holding was worth about $5.7 billion at Friday's close. Berkshire also has a $1.2 billion stake in US Bancorp [USB 17.96 -0.26 (-1.43%) ].
Buffett told the audience today, "I would love to buy all of US Bancorp or I would love to buy all of Wells Fargo." Berkshire can't do that, he said, because it would have to become a bank holding company.
Also making headlines during the roughly 5-hour long question-and-answer session:
- Buffett sees signs of stabilization in housing markets. Citing information from Berkshire's real estate brokerage business, Buffett said, "In the last few months you've seen a real pickup in activity although at much lower prices."
- The four candidates to potentially succeed Buffett as chief investment officer did not "cover themselves in glory" last year, failing to outperform the benchmark S&P 500 stock index. But Buffett remains confident in their long-term track records.
- The three CEO candidates previously identified, but not revealed publicly, are all Berkshire insiders.
- There are no plans for a Berkshire stock buyback now, because its price (around $92,500) is not "demonstrably below" a conservative estimate of its intrinsic value.
- Berkshire won't be spinning off any subsidiaries, in part because companies that are bought by Berkshire need to be able to trust they'll continue to be owned by Berkshire.
- Buffett says he wouldn't buy most U.S. newspapers now "at any price" because they "have the possibility of unending losses" with "nothing on the horizon that causes that erosion to end."
- Berkshire did buy some "cheap" corporate bonds a few months ago. Some are up 20 to 25 percent.
- Berkshire is "still AAA in my mind," says Buffett, despite downgrades by two of the credit rating agencies. He admits to being "irritated" at losing the top rating, but doesn't see any material impact.
Even though Berkshire's stock price is down about 30 percent over the past 12 months, many of those attending the weekend event appeared to be enthusiastic, excited, and especially interested in what Buffett and long-time partner Charlie Munger had to say.
CNBC producer Lacy O'Toole tells me, "For a smart meeting, this one was even more intellectual than usual."
She also reports "huge" crowds were shopping in the exhibition hall, which features products from Berkshire subsidiaries. "The line at See's Candies was the longest I've ever seen at lunchtime."
From the Wall Street Journal's perspective, on the other hand, "applause was less enthusiastic than in previous years."
The marathon question-and-answer session ended on an upbeat note for those remaining in the arena, with a surprise marriage proposal by Buffett's great-nephew to his "best friend" Mimi. She said yes.
And the usually negative Munger, who is 85 years old, told the crowd, "As I move close to the edge of death, I find myself getting more cheerful about the economic future."
He's optimistic about solar power, and expects a "final breakthrough that solves the main technical problem of man... If you have enough energy you can solve a lot of other problems."
Current Berkshire stock prices:
Class B: [US;BRK.B 3043.95 -21.05 (-0.69%) ]
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