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Warren Buffett has finally weighed in on the banking fiasco. He slammed lenders for taking unnecessary risks and disguising their losses, and revealed that he sold his stakes in several banks because he spotted red flags in their financials.
The famed investor and Berkshire Hathaway CEO told CNBC on Wednesday that several banks engaged in misleading accounting to artificially inflate their profits. He gave the example of banks valuing their long-dated bonds at their par value instead of their market value, which hid the fact their value had fallen on paper.
"I don't like it when people get too focused on the earnings number and forget banking principles," Buffett said. "Some of the dumb things that banks do periodically become uncovered during this period."
The 92-year-old billionaire noted the banks that have run into trouble in recent weeks didn't make the same reckless errors they made in the lead up to the financial crisis. Instead, they mismanaged their assets and liabilities, which he described as an eternal temptation for banks that "bites them in a big way."
Buffett also underscored the importance of people feeling their bank deposits are safe. "It's important that banks retain the confidence of the public and they can lose it within seconds," he said.
The Berkshire chief said he sold certain bank stocks after seeing signs of trouble in their earnings. Buffett's company has pared or fully disposed of numberous financial stocks in recent years, including JPMorgan, Goldman Sachs, Wells Fargo, PNC Financial, US Bancorp, and BNY Mellon. The investor emphasized that he didn't see problems at all of them.
Silicon Valley Bank collapsed in a matter of days in March after it tried to shore up my finances by selling long-dated assets at a loss and trying to raise fresh capital.
The move spooked its customers, whose deposits in the bank were overwhelmingly uninsured, sparking a wave of withdrawals or "bank run" that spurred the Federal Deposit Insurance Corp. (FDIC) to take control of the lender and guarantee all of its deposits.
SVB, Signature Bank, and Silvergate Bank all folded within days in March, stoking concerns of further bank runs, fears of a credit crunch if banks pull back on lending, and a possible financial crisis.
