May 5, 2012 5:10 pm

Buffett frets over health of Europe’s banks

Warren Buffett told the tens of thousands of shareholders packed into the CenturyLink Center in Omaha, Nebraska, that while America’s financial institutions were far healthier than during the financial crisis, he still feared for the health of Europe’s banks.

“It’s night and day”, said Mr Buffett, who contrasted the way that US banks were forced to raise funds, and the relatively small amounts of capital raised by European institutions so far, “probably because they didn’t like the price”.

While he praised Mario Draghi, head of the European Central Bank, for providing emergency liquidity to the continent’s banks, he remained sceptical of the ability of Europe to act in concert as voters go to the polls in France and Greece.

Considering that Europe has “17 countries that have surrendered their sovereignty as far as their currency is concerned”, he suggested that had the problems of 2008 been faced by US state governors attempting to act together, “we would have had a very different outcome”.

He was addressing the crowd gathered for the annual meeting for Berkshire Hathaway, a jamboree to celebrate the candy to cargo train conglomerate and its 81 year old chairman known as the “Sage of Omaha”.

Long a perk of owning stock, the weekend is treated as a chance to promote the Berkshire subsidiaries, with discounts for shareholders all weekend and a butterscotch lollipop on every seat, the launch of a new flavour from Sees Candy’s, one of the conglomerates oldest holdings.

But the meeting also came after Berkshire released better than expected first-quarter earnings on Friday evening. Operating profits were up 67 per cent on the year before, to $2.67bn, buoyed by better performance in insurance underwriting and continued underlying improvement in the conglomerate’s collection of non-insurance businesses.

Book value, a measure of assets minus liabilities by which Mr Buffett says he charts his progress and which he encourages his investors to focus on over the long term, rose in the quarter to $176bn from $165bn at the end of 2011.

Mr Buffett said that he had previously forecast operating profits of at least $10bn this year, up from $9bn last year and, “certainly nothing we’ve see so far would cause me to backtrack on that suggestion.”

We’ve found it almost useless in 60 years of investing to give advice to anybody

- Warren Buffett

For the first time Mr Buffett faced questions from Wall Street analysts, as well as questions from the crowd and three financial journalists.

These contrasted with the more general questions from the audience, with early inquiries focusing on mortality assumptions in Berkshires different insurance businesses, and premium pricing at the car and home insurance subsidiary, Geico.

Mr Buffett reiterated the conservative approach of all the insurance arms, but said that “there is no co-ordination between the subsidiaries, they all have the same mindset, but they are separate businesses.”

Among the subjects addressed, questioners from the crowd wanted to know what advice Mr Buffett had for China, and his thoughts on the state of investment tuition at business schools.

“We’ve found it almost useless in 60 years of investing to give advice to anybody”, said Mr Buffett, although he did recommend that students try to avoid the fads and fashions of investing, in favour of the patient approach by which he has built his own business.

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