Warren Buffett, the billionaire investor, has guaranteed that capital has been reformed to a level and that the banks in his portfolio will not get in any trouble.
In his interview with Bloomberg last week, Buffett said “The capital ratios are huge, the excesses on the asset side have been largely cleared out.”
Bloomberg writes; in the era of deep financial crises, national lenders including Bank of America Corp (NYSE:BAC) and Citigroup Inc. (NYSE:C) have had to lay off jobs and sell out assets to save cost and repay taxpayer bailouts from 2008. The financial crisis began to tone down when the lenders started taking those actions to bolster their balance sheets till a boost was seen in the financial stock last year, which increased the value of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B)'s holdings.
According to Buffett, the banking system today is the best shape and does not pose a threat to nation's economy.
“We do not have an unusually concentrated banking system compared to the rest of the world, and there are certain advantages in the largest capital market in the world to having banks that are somewhat consistent with the size of those markets,” said Buffett
Contrary to what Buffet guarantees, Former bank executives and regulators still see lenders posing a systemic risks to the economy, even after paying the taxpayer bailouts from 2008.
New York Times reports that Morgan Stanley (NYSE:MS) was cutting off jobs at its trading business in an effort to shrink more in its actual size. This has raised many questions about the bank already. Other investment banks have also been reported to trim down their business to an extent.
Brian T. Moynihan, Bank of America Corp (NYSE:BAC) CEO, has however expressed his confidence over his company's potential to pass after the failure in 2011, when the company failed to win the approval for a dividend increase.
Buffett's firm has investments in at least four of the seven biggest U.S lenders by assets, including a stake of more than $14 billion in San Francisco-based Wells Fargo & Company (NYSE:WFC), $5 billion in Bank of America.
It is notable that Buffett provided capital to Bank of America Corp (NYSE:BAC) when the company's shares collapsed to 45 percent over the period of 8 months in 2011.
Being the Oracle of Omaha and father of investment, Buffett's word can taken on this matter when he pledges the performance of all the banks that fall under his portfolio. Even if one of the biggest national lenders become a victim of another crisis, chances are that Buffett will buy more shares to save them, just as he's been doing since the last crunch.