Warren Buffett, Berkshire Hathaway CEO and chairman. Cnbc | Nbcuniversal | Getty Images
Berkshire Hathaway shares rallied to record highs Monday following a strong quarterly report that showed a rebound in insurance operations as well as a massive cash hoard that swelled to nearly $150 billion.
Berkshire’s Class A shares climbed 3.4% to hit an all-time high of $551,920 on a a closing basis, exceeding the conglomerate’s previous high from March 2022. Class B shares of Warren Buffett’s conglomerate jumped a similar 3.6%, reaching a new record close of $362.58.
The Omaha-based giant reported Saturday that its operating earnings jumped 6.6% year over year, totaling $10.04 billion last quarter.
Berkshire shares rising
Insurance underwriting earnings recorded a 74% increase to $1.25 billion, benefiting from higher interest rates and lower catastrophe losses. The solid performance in insurance helped offset the softness in railroad due to lower volumes.
Meanwhile, Berkshire’s massive cash pile grew to $147.38 billion at the end of June, near a record and much higher than the $130.62 billion in the first quarter.
Elevated interest rates are now enabling Berkshire to earn a hefty return from its cash. The conglomerate held more than $97 billion in short term Treasury bills. Buffett previously revealed that he’s been buying $10 billion worth of 3-month or 6-month T-bills every Monday.
A crisis of confidence in the U.S. banking sector has led to the failure of three midsized banks since March as depositors fled from smaller banks, with calls for the Federal Deposit Insurance Corp (FDIC) to raise its $250,000 limit guarantee on deposits.
Warren Buffett says Berkshire is cautious on banking sector
Warren Buffett on Saturday said Berkshire Hathaway (BRKa.N) is cautious around the banking sector, largely because of poor messaging by officials around government-insured deposits, as well as distorted incentives he said were brought on by banking regulation.
A crisis of confidence in the U.S. banking sector has led to the failure of three midsized banks since March as depositors fled from smaller banks, with calls for the Federal Deposit Insurance Corp (FDIC) to raise its $250,000 limit guarantee on deposits.
The messaging by politicians, government agencies and the media around the safety of the banking system has been poor, the nonagenarian billionaire said at Berkshire’s annual meeting in Omaha, Nebraska.
“The U.S. government and the American public have no interest in having a bank fail and having deposits actually lost by people,” he said.
“We had a demonstration project the weekend of Silicon Valley Bank and the public is still confused.”
In March, startup-focused lender SVB Financial Group (SIVB.O) became the largest bank to fail since the 2008 financial crisis after depositors tried to pull more than $42 billion in a single day, kicking off the deposit flight across other regional banks and prompting the collapse of Signature Bank.
While 89% of SVB’s $175 billion in deposits were uninsured as of the end of 2022, according to the FDIC, depositors were protected, even those whose accounts exceeded $250,000, through a “systemic risk exception” designed to prevent broader contagion to the U.S. banking system.
Berkshire keeps around $128 billion in cash and Treasury bills, Buffett said.
“We want to be there if the banking system temporarily even gets stalled in some way – it shouldn’t – I don’t think it will, but I think it could,” he said.
Part of the reason for that is that incentives in banking regulation are “so messed up,” he said.
First Republic Bank, the latest regional U.S. bank to fail, disclosed that it was offering non-guaranteed jumbo-sized mortgages at fixed rates in its annual report.
“That’s what First Republic was doing and it was in plain sight and the world ignored it until it blew up,” said Buffett, who earlier noted his own father lost his job in 1931 because of a bank run.
“The incentives in bank regulation are so messed up and so many people have an interest in having them messed up — it’s totally crazy,” Buffett said. “So we are very cautious in a situation like that about ownership.”
Buffett made the comments while sitting behind a sign that said “Available for sale,” while his longtime business partner, Charlie Munger, sat behind a “Held-to-maturity” sign, referencing how banks account for their securities, which has been at the heart of the regional bank crisis.
First Republic, which was seized by regulators and sold to JPMorgan N>, had significant losses in its held-to-maturity investment portfolio, mainly government-backed debt.
