Sunday, May 3, 2009

Buffett Dismisses Stress Tests

According to this Bloomberg article, here's what Warren Buffett had to say about the bank stocks he likes before the annual shareholder meeting:

I think I know their future, frankly, better than somebody that comes in to take a look..."

Regulators, "may be using more of a checklist-type approach." 

Dynamism Matters
Buffett said he judges banks by their "dynamism" and their ability to attract deposits, and singled out San Francisco-based Wells Fargo as a "fabulous" company. 

"If you look at Coca-Cola today, for example, and just looked at a balance sheet, it wouldn't tell you anything at all about Coca-Cola...It's what the product is."

Low Cost of Funding
U.S. banks can't be viewed indiscriminately, Buffett said, citing "real differences," such as varying costs of funding, that separate strong lenders from their weaker rivals. 

Low cost money is crucial in banking. It's not much different than a mining company with lower cost of extraction. If loan are in general intelligently made, then low cost money increases return on equity and provides more capacity to absorb losses in an economic downturn.


Long Wells Fargo and Coca-Cola
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