Warren Buffett is bullish on banks
He says the banking system is 'in the best shape in recent memory.' Still, the 'Oracle of Omaha' can afford to be more patient than most investors.
"The banks will not get this country in trouble, I guarantee it," the Oracle of Omaha told Bloomberg News. "Our banking system is in the best shape in recent memory."
Buffett, whose Berkshire Hathaway (BRK.B) has positions in at least four of the seven largest banks by assets, clearly knows what he is talking about. As Bloomberg noted, banks including Bank of America (BAC) and Citigroup (C) have been selling assets and slashing payrolls. They also are benefiting from a rebound in the real estate market.
The 82-year-old has invested in the sector for decades and done remarkably well. In 2008, Buffett made a $5 billion investment in Goldman Sachs (GS), giving the venerable Wall Street firm a needed vote of confidence at the height of the worst financial crisis since the Great Depression. His purchase of preferred shares paid off handsomely. In 2011, Goldman paid Berkshire $5.6 billion. Berkshire retains warrants to buy $5 billion worth of Goldman Sachs shares.
Though Buffett's views are widely respected, investors need to remember that he can afford to be more patient than most investors. Many on Wall Street remain skeptical about the sector even though shares of many banks have surged by double digits over the past year.
"Even after last year’s stock rally, Citigroup, Bank of America, Goldman Sachs and JPMorgan (JPM) all trade at less than book value, a calculation of how much a lender’s assets would be worth minus liabilities," according to Bloomberg.
--Jonathan Berr does not own shares of the listed shares. Follow him on Twitter @jdberr.
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