Buffett Says He Can’t See Rationale for Bank Levy

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Buffett Says He Can’t See Rationale for Bank Levy

By Andrew Frye, Betty Liu and Jamie McGee

Jan. 20 (Bloomberg) -- Warren Buffett opposes President Barack Obama’s proposed levy on financial institutions because firms including Goldman Sachs Group Inc. and Wells Fargo & Co. already repaid bailout funds.

“I don’t see any reason why they should be paying a special tax,” said Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., in an interview on Bloomberg Television today. Supporters of the plan to tax the banks “are trying to punish people,” he said. “I don’t see the rationale for it.”

Obama announced a plan last week to impose a fee on as many as 50 financial companies to recover losses from the federal government’s Troubled Asset Relief Program. The levy would apply to firms with more than $50 billion in assets, including Wells Fargo and Goldman Sachs, two companies that Berkshire has investments in. It would exclude Fannie Mae and Freddie Mac, the government-sponsored mortgage lenders taken over by the U.S.

“Look at the damage Fannie and Freddie caused, and they were run by the Congress,” said Buffett. “Should they have a special tax on congressmen because they let this thing happen to Freddie and Fannie? I don’t think so.”

Wells Fargo, Goldman Sachs and other beneficiaries of the bailout such as Bank of America Corp. and JPMorgan Chase & Co. repaid the money they got from the government. Fannie Mae and Freddie Mac owe about $110 billion, according to Bloomberg data.

Unnecessary Rescue

“Most of the banks didn’t need to be saved,” Buffett said. “Including Wells Fargo.”

Before the U.S. Congress approved the bailout in 2008, Buffett, 79, said he was making a $5 billion investment in Goldman Sachs because he expected the government to rescue financial companies.

“If I didn’t think the government was going to act, I would not be doing anything this week,” he said on cable network CNBC the day after announcing the Goldman Sachs investment in September 2008. “I might be trying to undo things this week. I am, to some extent, betting on the fact that the government will do the rational thing here and act promptly.”

Goldman Sachs CEO Lloyd Blankfein, 55, was among bank executives who testified last week to a panel created by Congress to examine the causes of the economic collapse that roiled global markets. Blankfein defended his bank, the world’s most profitable securities firm, against criticisms that the mortgage securities it sold helped trigger the meltdown.

Buffett Praises Blankfein

Buffett said in a separate interview with Bloomberg today that Blankfein “has been the right man” to lead the company.

“I don’t think anybody could have done a better job at Goldman Sachs than Lloyd Blankfein,” Buffett said. “I give him enormous credit for how he’s run Goldman. You’ve got to expect vilification of banks.”

Obama and the U.S. Congress are tapping into voter anger that the government bailout may be followed by record Wall Street bonuses as the country struggles with a 10 percent unemployment rate. The president’s proposed tax would be imposed on firms including bank holding companies and some insurers. The administration estimates the tax will raise $90 billion over 10 years and $117 billion over 12 years.

“My determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at some of the very firms who owe their continued existence to the American people,” Obama said Jan. 14 when he announced the Financial Crisis Responsibility Fee. “We want our money back, and we’re going to get it.”

Buffett held a fundraiser for Obama and advised the future president on economic issues during his campaign.

‘Terrible Mistake’

Berkshire, the largest stock investor in Wells Fargo, is also the top shareholder in Kraft Foods Inc., which agreed yesterday to pay 11.9 billion pounds ($19.4 billion) to take over Cadbury Plc. Buffett said Kraft is overpaying for the British candymaker because it is using its undervalued stock to fund part of the deal.

Kraft said this month it would sell pizza brands including DiGiorno and Tombstone to Nestle SA and use proceeds from the $3.7 billion deal to boost the cash component of its Cadbury bid. The takeover creates a company with about $50 billion in annual sales, adding Cadbury’s Creme Eggs and Trident gum to Kraft’s Oreo cookies.

“I think this deal was a mistake,” he said in the Bloomberg Television interview. “Selling a piece of the business was a terrible mistake. It was a very tax-inefficient deal,” he said. “Kraft was very undervalued before. I feel it’s less undervalued after doing this deal.”

‘Decent Job’

In an interview with CNBC today, Buffett said he would vote against the deal if given a chance. Kraft CEO Irene Rosenfeld raised the cash portion of its offer in its final bid, obviating the need to obtain the consent of shareholders.

Rosenfeld “has done a perfectly decent job running Kraft,” Buffett said in the Bloomberg Television interview. “I like her.”

Kraft believes the acquisition “transforms our portfolio for better long-term growth,” said Michael Mitchell, a spokesman for the Northfield, Illinois-based company, after Buffett’s comments. “We respect his opinion.” Trevor Datson, a spokesman for Uxbridge, England-based Cadbury, declined to comment. Kraft fell 63 cents, or 2.1 percent, to $28.78 at 4 p.m. in New York Stock Exchange composite trading.

‘Paying a Penalty’

Buffett, who usually refuses to give investors an opinion on Berkshire’s value, said in the interview with Bloomberg that his company’s shares are also undervalued. Still, he said his critique of Kraft’s bid for Cadbury didn’t apply to his plan to use Berkshire stock to fund part of his takeover of railroad Burlington Northern Santa Fe Corp. The railroad fell 15 percent to $76.07 in the year before Buffett agreed to pay $100 a share.

“We are paying a penalty issuing shares at this price” for the Burlington deal, he said. “Even though I value our offer at more than $100 a share, I’m still OK with it. But it’s close.”

Berkshire is paying $26 billion for the 77.4 percent of the Forth Worth, Texas-based railroad it doesn’t already own. The company will issue about $10 billion in stock, and is tapping Wells Fargo and JPMorgan for an $8 billion loan. The remaining $8 billion is coming from Berkshire’s cash hoard.

Berkshire advanced 2.7 percent on the New York Stock Exchange last year, compared with the 23 percent rise in the Standard & Poor’s 500 Index, the company’s worst performance against the index in 10 years. Two analysts tracked by Bloomberg have price forecasts on Berkshire averaging $125,000.

Book Value

Berkshire’s Class A shares rose $4,170, or 4.2 percent, to $104,200, the biggest gain in five months. Investors who bought stock at that price paid about $1.28 for every $1 of net assets. That’s about 11 percent more than the figure for the financial companies in the S&P 500. Berkshire’s multiple to book value, or assets minus liabilities, has averaged about 1.76 over that past 15 years, compared with 2.17 for the S&P 500 financial firms.

Berkshire investors approved a 50-for-1 split of the company’s Class B stock today, the company said in a statement. The split will reduce the number of partial shares Buffett’s firm needs to issue to holders of Burlington stock. The split takes effect tomorrow, the statement said.

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BONNIE

WELL this is an interesting article

and it seem the man has good points

the government is getting its hands into

many places they dont really belong

dgrimm60

On money matters I would pay more attention to Warren Buffet than I would Obama. He has never held a real job and hasn't a clue. Most that he has brought on board have never held a real job either.