Warren Buffett struck some of his famous deals — taking lucrative stakes in Goldman Sachs Group Inc. and General Electric Co. — by swooping in when others panicked during the last financial crisis. He’s treading more carefully this time around.
With a record US$137 billion of cash piled up at his Berkshire Hathaway Inc., Buffett fielded questions over the weekend from shareholders who wanted to know why he hadn’t acted as companies clamored for liquidity amid the pandemic-related shutdowns. This crisis is different, Buffett said.
“We have not done anything because we don’t see anything that attractive to do,” Buffett said at his annual shareholder meeting, which was held by webcast. The deals in 2008 and 2009 weren’t done to make “a statement to the world,” he said. “They seemed intelligent things to do and markets were such that we didn’t really have much competition.”
The famous investor’s reputation allowed him to serve as a lender of last resort during the 2008 financial crisis, racking up deals that generated 10 annual dividends from household-name companies. But as panic about the virus and shutdowns assaulted equities in March and even began to freeze debt markets, the Federal Reserve beat him to the punch with an unprecedented set of emergency measures.
“There was a period right before the Fed acted, we were starting to get calls,” Buffett said at Saturday’s meeting. “They weren’t attractive calls, but we were getting calls. And the companies we were getting calls from, after the Fed acted, a number of them were able to get money in the public market frankly at terms we wouldn’t have given.”
Buffett’s cautious reaction to the latest crisis drew plenty of attention from investors. While Berkshire bought back US$1.7 billion of its shares in the first quarter, it was a net seller of stocks through April as it shed stakes in four major U.S. airlines.
The approach seems to put him in the camp of other notable investors who think markets may not have seen the worst of the impact from the pandemic. Buffett said the prospect of buying back Berkshire’s own stock isn’t much more attractive than it was in January, even as the share price dropped.
“He received much more demanding questions,” said Tom Russo, who oversees investments including Berkshire shares at Gardner Russo & Gardner LLC.
The sale of stakes in Delta Air Lines Inc., Southwest Airlines Co., American Airlines Group Inc. and United Airlines Holdings Inc. continues Buffett’s tumultuous history with the industry. He swore off the sector years ago after a troubled bet on USAir, then in 2016 he dove back in. In March, he told Yahoo Finance that he wouldn’t be selling airline stocks.
“Well, he just rejoined Airlines Anonymous,” said Bill Smead, chairman and chief investment officer of Smead Capital Management, which owns Berkshire shares.
Buffett, Berkshire’s chairman and chief executive officer, gained fame for turning a struggling textile company into a conglomerate now valued at US$444 billion. But as Berkshire swelled in size, the billionaire investor struggled to supercharge its growth amid soaring valuations in the recent bull market. That’s weighed on Berkshire’s stock price, as the Class A shares fell 19 per cent this year, more than the 12-per-cent decline in the S&P 500 Index, and have trailed the benchmark’s returns over the past decade.
In the meantime, Berkshire’s companies keep throwing off earnings, building the US$137 billion cash pile that’s equal to nearly 31 per cent of Berkshire’s market value. Buffett acknowledged that Berkshire doesn’t need that much on hand, adding that he still aims to keep his company as a “Fort Knox,” stout enough to weather the pandemic.
Buffett said he couldn’t promise Berkshire would outperform the S&P over the next decade, but he could vow not to be reckless. Maintaining that discipline is gratifying to longtime investors, said James Armstrong, who manages money, including Berkshire shares, as president of Henry H. Armstrong Associates.
“He bears a lot of responsibility and he never has any trouble remembering that Berkshire isn’t his,” Armstrong said. “Despite the criticism in the press and the public eye that he should deploy that cash, he continues to, every day, make his calculation of price to value and say, ‘I either see a good investment or I don’t.”’
Berkshire’s meeting lacked the familiar presence of his longtime business partner, Charlie Munger, as well as the thousands of audience members who normally attend the event in Omaha, Nebraska. Buffett said that Munger, 96, was still in fine health, but it didn’t make sense for him to travel from California or to have another vice chairman, Ajit Jain, come in from the East Coast in this age of social distancing.
Buffett, 89, instead was joined by a top deputy who lives just hours from Omaha, Greg Abel. A vice chairman overseeing the non-insurance units, Abel is considered a candidate to take over the CEO job someday. While Buffett still dominated the time, Abel spoke up about incoming calls before the Fed acted and gave investors a taste of his leadership style and his knowledge of Berkshire’s varied operations.
Buffett’s businesses haven’t been spared the effects of the shutdowns. The railroad BNSF reported reduced volumes as COVID-19 disrupted commerce, while footwear and apparel businesses were hit with a 34-per-cent decline in first-quarter earnings.
Munger said earlier this year that some small Berkshire units might not reopen after the pandemic. Buffett clarified the point, saying Berkshire was never willing to prop up a business amid unending losses. “There are businesses that were having problems before and that have even greater problems now,” he said.
Buffett remains cautious about the current crisis, saying that the range of economic possibilities was “extraordinarily wide.” Still, he ended the meeting on his classic optimistic note that people should never bet against America. And he left open the possibility that Berkshire’s dealmaking days will return.
The panic in markets “changed dramatically when the Fed acted, but who knows what happens next week or next month or next year? The Fed doesn’t know. I don’t know and nobody knows,” Buffett said. “There’s a lot of different scenarios that can play out. And under some scenarios, we’ll spend a lot of money. And under other scenarios, we won’t.”
Profit falls at TD and CIBC as loan loss provisions soar – CBC.ca
Canadian Imperial Bank of Commerce (CIBC) and TD Bank Group missed quarterly earnings expectations on Thursday, as they set aside billions to cover future loan losses due to the COVID-19 outbreak.
The massive jump in provisions took the total amount set aside by Royal Bank of Canada, Bank of Montreal , Bank of Nova Scotia, National Bank of Canada , CIBC and TD Bank to $10.93 billion.
The money set aside for credit losses on both performing and impaired loans as a result of the COVID-19 pandemic and continued pressure on oil prices has added to pressure on Canada’s biggest lenders from decade-low interest rates.
Canadian banks have grown their oil and gas loan books faster than total lending in recent quarters, and their business loan books overall expanded during the second quarter as borrowers unable to access debt markets drew down credit lines.
CIBC posted an adjusted profit of 94 Canadian cents per share for the quarter ended April, compared with analysts’ expectations of $1.58 per share.
TD Bank, Canada’s second-biggest lender, reported an adjusted profit of 85 Canadian cents per share, missing estimates of 89 Canadian cents.
Net income was $1.5 billion at TD, down 52 per cent from last year. Net income was $392 million at CIBC, down 70 per cent from last year.
CIBC also reported lower net income across divisions and higher expenses. Controlling costs is particularly vital for CIBC, which has already said it expects expenses to grow this year at about double the rate of its rivals.
It flagged layoffs earlier this year to aid its efforts to cut costs and become more efficient.
CIBC set aside $1.41 billion in the quarter for future loan losses, compared with $255 million a year earlier, while total provisions for TD Bank jumped to $3.22 billion, compared with $633 million a year earlier.
Irving Oil Purchasing North Atlantic Refining Corp. – VOCM
A tentative deal has been struck for Irving Oil to take over North Atlantic Refining and the Come by Chance oil refinery.
Irving Oil signed the agreement with Silverpeak to acquire North Atlantic, subject to a regulatory review and the conditions of sale being met.
Silverpeak purchased the facility from the Korea National Oil Company back in 2017 amid widespread speculation that Irving was also eyeing the refinery at the time.
Operations at the refinery were idled in March due to a downturn in the industry and concerns around the COVID-19 pandemic.
The refinery shutdown came ahead of planned upgrades and expansion work that officials had indicated would extend the life of the facility.
New Brunswick-based Irving says North Atlantic Refining provides a “reliable supply of fuel products to businesses and consumers across Newfoundland.”
There’s no immediate word on Irving’s plans regarding a possible restart of operations at Come by Chance.
Irving signs purchase agreement for dormant Come by Chance oil refinery – CBC.ca
In another shakeup in the Newfoundland and Labrador oil sector, Irving Oil announced Thursday that it has reached an agreement to purchase the idled refinery at Come by Chance.
In a news release late Thursday morning, New Brunswick-based Irving confirmed it will acquire North Atlantic Refining Corp. from U.S. investment firm Silverpeak, with the deal subject to regulatory review and conditions of sale being met.
The agreement includes the refinery in Placentia Bay, which has the capacity to refine 135,000 barrels per day of oil, and North Atlantic’s network of retail sites and other marketing assets.
“As a family-owned international refining and marketing company based in Atlantic Canada, Irving Oil has proudly served the people of Newfoundland and Labrador since 1950, providing a secure supply of energy to its customers across the province,” states the news release.
The refinery stopped making fuels in March because of the pandemic, and a resulting collapse in the oil market. Hundreds of workers have been laid off.
A source tells CBC News that Irving plans to keep the refinery in “care and maintenance” mode for now.
It’s yet another chapter for a refinery that has had a checkered past since it opened in the 1970s, including five different owners, an extended closure and a political scandal at the outset.
But prior to the pandemic, the refinery was riding a wave of optimism, with performance and environmental upgrades, and plans for more.
“We are coming from what we call a basket-case refinery to become a refinery of the future,” Thomas Jenke, former CEO at North Atlantic, said prior to his departure late last year.
If approved, the deal will represent another large investment by the Irving family in Newfoundland and Labrador.
Irving Oil Limited is already a powerful player in the retail gasoline market, with a chain of gas stations and restaurants, including its iconic Big Stops. J.D. Irving Limited operates a chain of Kent home improvement stores in the province, and owns Atlantic Towing, a company that operates a fleet of supply vessels in Newfoundland and Labrador’s offshore oil sector.
Meanwhile, North Atlantic provides fuel products to businesses and consumers across the province, and is a major contributor to the province’s economy, with some estimates putting its value to the gross domestic product at three per cent.
It has a deepwater terminal that welcomes oil tankers from around the globe, and a network of retail assets.
“Irving Oil would look forward to the opportunity to continue to provide a secure supply of energy to customers across the province,” says the press release.
Most workers at the refinery are represented by Local 9316 of the United Steelworkers. CBC has requested comment from union president Glenn Nolan.
This is not new territory for Irving. The company operates Canada’s largest oil refinery, in Saint John.
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