At Berkshire Hathaway's (NYSE: BRK.A) (BRK.B 0.11%) annual meeting, held May 6 in Omaha, Nebraska, Warren Buffett was unsurprisingly asked several questions about the recent bank failures and general worries many investors have about the sector.
Buffett had a warning for bank investors after the recent turmoil, saying that the bank collapses we've seen so far have created fear, and he doesn't know if it's over yet. As Buffett said, "The situation in banking is very similar to what it's always been in banking, that fear is contagious, always." Going further, he said that he has no idea what is going to happen from here.
Vice Chairman Charlie Munger said that bankers are starting to distort the lessons learned in the 1929 crash when it comes to taking on responsible risk. Munger also said that he liked it better when banks didn't simply do investment banking, and that when you have many bankers all trying to get rich, it isn't a good thing.
Buffett and Munger both still like the banking business, although Berkshire's recent earnings report shows that the company sold roughly $2 billion in bank and other financial stocks in the first quarter (we don't know which ones yet). Buffett revealed that when he originally started acquiring businesses after taking control of Berkshire, banking was more attractive to him than insurance, which, thanks to legal changes governing bank ownership, ultimately became Berkshire's focus for much of its history.
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Should depositors worry?
So Buffett thinks investors might see some turbulence in the banking sector in the near future. However, he doesn't think depositors will have anything to worry about, regardless of whether more banks fail. Buffett said that it "would have been catastrophic" to allow depositors to lose money in the collapse of SVB Financial's Silicon Valley Bank in March.
And Buffett was very clear on this point. He has previously said that the government would never allow a depositor to lose any money they have in a U.S. bank, despite the $250,000 cap on Federal Deposit Insurance Corp. (FDIC) insurance. Buffett himself keeps his money at a smaller bank and doesn't worry about doing so. "Although there's a $250,000 limit on FDIC, the FDIC and the U.S. government and American public have no interest in having a bank fail or to have deposits actually lost by people," Buffett said at the annual meeting.
However, he would clearly like to see those in power be clearer on this point. As Buffett said, "The messaging has been very poor."
Will Berkshire take advantage of the banking situation?
I mentioned that Buffett sold some bank stocks in the first quarter, but he remains a big Bank of America (BAC +0.32%) shareholder and believes banking can be a great business. Also, in the wake of the last banking crisis, Buffett made some extremely savvy investments, both in Bank of America and Goldman Sachs (GS +0.59%).
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In the current situation, Berkshire has even more capital to put to work than in the financial crisis, with over $130 billion in cash and short-term investments. While he's generally content leaving most of the money in short-term Treasuries for the time being, he did mention that the company is ready to act "if the banking system temporarily gets stalled in any way."
What does this mean to bank investors?
In a nutshell, Buffett doesn't think bank depositors have anything to worry about, regardless of whether their account sizes are within the FDIC's insurance limits. However, he has absolutely no idea if the banking crisis is over or what shareholders should expect. But if the banking system does get into serious trouble, Buffett and his team could certainly start making some deals.
