Best One Liners from Buffett’s 2010 Shareholder Letter
Mar/100
I always enjoy getting up the first Saturday in March to read Warren Buffett’s annual letter to Berkshire hathaway shareholders. Here are my favorite one liners from this year’s letter:
“I subtly indicated that I was older and wiser…I was just older.”
“If Charlie, I and Ajit are ever in a sinking boat – and you can only save one of us – swim to Ajit.”
“We shouldn’t expect our regulators to live up to their end of the bargain unless we live up to ours.”
“It’s clear that I failed you in letting NetJets descend into this condition. But, luckily, I have been bailed out.”
“There were three ways to cure this overhang: (1) blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the “cash-for-clunkers” program; (2) speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers or; (3) reduce new housing starts to a number far below the rate of household formations.”
“Our first venture was also christened Berkadia. So let’s call this one Son of Berkadia. Someday I’ll be writing you about Grandson of Berkadia.”
“It’s been an ideal period for investors: A climate of fear is their best friend.”
“In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.”
“It has not been shareholders who have botched the operations of some of our country’s largest financial institutions.”
“In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control.”
“Charlie and I enjoy issuing Berkshire stock about as much as we relish prepping for a colonoscopy.”
“our recommendation in respect to the use of advisors remains: ‘Don’t ask the barber whether you need a haircut.’”
“P.S. Come by rail.”
If you didn’t see your favorite Buffett one liner from this year’s letter, please tell me yours and why in the comment section below.
Interesting GSE Article at Housing Wire
Mar/100
Paul Jackson, the publisher of HosuingWire magazine, wrote an interesting article about the lack of a political solution to the GSEs.
I find this article interesting because there is a growing realization that the path of least resistence for resolving the GSEs Conservatorship is to simply allow them to exit in their current form when they return to profitability.
New LinkedIn Group for Fannie Mae Shareholders
Feb/100
I formed a new LinkedIn group for Fannie Mae and Freddie Mac shareholders. Please join the group by following this link:
http://www.linkedin.com/groups?home=&gid=2780934
The purpose of the group is for shareholders to network with each other and to discuss ways to increase shareholder value. The group is open to common and preferred shareholders of both companies.
Paul Pilecki Moves to Kilpatrick Stockton
Feb/100
Paul Pilecki moved to a new law firm, Kilpatrick Stockton, last week. He specializes in bank regulatory law. If you know any bankers who need help dealing with their regulators, Pilecki can help them. Here’s the press release from Kilpatrick:
Kilpatrick Stockton’s Financial Institutions Team Adds Prominent Partner
WASHINGTON, DC (February 16) - Kilpatrick Stockton announced today that Paul S. Pilecki and Michael A. Mancusi have joined Kilpatrick Stockton’s leading Financial Institutions Team. Mr. Pilecki and Mr. Mancusi, who will be resident in the Washington, DC office, are joining from Winston & Strawn.
“We are thrilled to have attorneys of Paul and Michael’s caliber join our nationally-recognized practice serving the financial services industry,” stated Paul Aguggia, Chair of Kilpatrick Stockton’s Financial Institutions Team and Member of the Executive Committee. “Their combined practice, which provides deep bank regulatory expertise for both top foreign and domestic banks, is a perfect complement to our existing practice and will provide clients with another outstanding resource. Their expertise will help keep Kilpatrick Stockton on the cutting edge of this constantly changing area of law.”
“Michael and I are excited to join one of the leading practices in bank M&A and capital transactions,” stated Mr. Pilecki. “The Kilpatrick Stockton Financial Institutions Team is well-positioned for what should be an active period in corporate transactions in the banking industry.”
Paul S. Pilecki concentrates his practice in the representation of foreign and domestic banking organizations on regulatory and corporate matters, and has extensive experience in helping banking organizations plan new activities and corporate structures for their U.S. activities.
Mr. Pilecki’s experience includes matters under the Bank Holding Company Act, the Federal Reserve Act, the Federal Deposit Insurance Act, the International Banking Act, and other federal and state banking and securities laws. He also represents financial institutions on supervisory and enforcement matters, including conducting internal investigations, fashioning remedial programs, and advising on compliance with formal enforcement actions and supervisory agreements. Mr. Pilecki advises diverse clients on compliance with the Bank Secrecy Act and implementing anti-money laundering and anti-terrorist financing measures. He has served as an expert witness on bank regulatory issues, including matters under the Bank Holding Company Act, the Edge Act, and the Bank Merger Act. Mr. Pilecki began his professional career as a bank examiner for the Federal Reserve Bank of Philadelphia and was a member of the Legal Division of the Federal Reserve Board in Washington.
He currently chairs the Executive Council of the Federal Bar Association’s Banking Committee and is an active member of the International Banking Subcommittee of the American Bar Association’s Banking Law Committee. Mr. Pilecki is a contributing author to the multi-volume treatise Banking Law and is a frequent speaker on bank regulatory issues. He was named a Client Service All-Star for the second time in 2010 and is included in Who’s Who of Banking Lawyers.
Michael A. Mancusi represents foreign and domestic banking organizations in regulatory, compliance, and enforcement matters, and has substantial experience representing clients in government and corporate internal investigations.
Mr. Mancusi counsels diverse clients on corporate issues that relate to banking organizations and structures, including corporate governance, national banking associations, operating subsidiaries, and holding companies under the National Bank Act, the Federal Reserve Act, the Bank Holding Company Act, the Federal Deposit Insurance Act, and the Bank Merger Act. He also has experience with issues related to interstate branching and main office relocations as well as merger-related activities, including bank/thrift combinations, antitrust issues, and affiliate transactions.
In addition, Mr. Mancusi’s experience includes matters related to preparing for, and responding to, examination issues, and compliance with anti-money laundering and foreign assets control requirements. His internal investigations experience involves the Bank Secrecy Act as amended by the USA PATRIOT Act, Office of Foreign Assets Control compliance, the Foreign Corrupt Practices Act, accounting improprieties and misleading financial disclosures, compliance strategy, and civil antitrust issues. Mr. Mancusi has served as an attorney for the Comptroller of the Currency, where he handled federal banking law enforcement actions such as civil money penalties, suspensions and removals, and temporary cease and desist orders.
He currently serves as Chair of the American Bar Association Banking Law Committee’s Enforcement, Director Liability, and Problem Banks Subcommittee. Mr. Mancusi also serves as a member of the Federal Bar Association’s Banking Committee Executive Council. He served as the Chair of the District of Columbia Bar Financial Institution Committee.
About Kilpatrick Stockton
Kilpatrick Stockton LLP is a full-service international law firm with nearly 500 attorneys in nine offices across the globe: Atlanta and Augusta, GA.; Charlotte, Raleigh and Winston-Salem, NC.; New York, NY; Washington, D.C.; Dubai; and Stockholm. Kilpatrick Stockton’s delivery of innovative business solutions provides results-oriented counsel for corporations, from the challenging demands of financial transactions and securities to the disciplines of intellectual property management. Collaboration among Kilpatrick Stockton’s corporate, litigation and intellectual property attorneys provides knowledgeable and proactive guidance for companies at every stage of the business life cycle. For more information, please visit www.kilpatrickstockton.com.
GSE Critic Ed Pinto Has No Idea on GSE Loan Losses
Feb/101
There was a Fox Business news article criticizing the Obama Administration for lowering its loss estimate on the GSEs. Mr. Pinto has no factual basis behind his claim that the Obama Administration is just being “optimist” in lowering its projections of losses for Fannie and Freddie. He has no how well or poorly the credit losses of the GSEs are going to play out over the next few years. The critics of these companies continue to spread negative propaganda that the mainstream press is too happy to publish. The reality is the companies have built up massive loan loss reserves that they’ll never fully utilize. For example in the 3rd quarter of 2009, Freddie Mac provided for $7.6 billion of credit losses, but the company only charged off $2.3 billion of loans.
This over-reserving made Freddie’s net income statement look weaker than necessary. Freddie added $5.3 billion to its loan loss reserve in Q3. In its most recent quarter, Wells Fargo only added $0.5 billion to its loan loss reserve. Freddie would’ve reported a profit in Q3 had it not overly added to its loan loss reserve.
The over-reserving also hides Freddie’s balance sheet strength in the loan loss reserve, instead of the capital account. Freddie’s loan loss reserve now stands at 3.28x their run rate of net charge-offs. This compares to Well Fargo’s loan loss reserve which only stands at 1.16x charge-offs or JP Morgan Chase’s at 1.01x charge-offs.
This raises the question in my mind whether the regulator is forcing Freddie to over-reserve for loan losses to make the company look weaker than it really is. They may be doing this to hide the fact that the company should not have been placed into conservatorship. Or maybe, the regulator knows that over-reserving will deplete the company’s capital accounts and force it to take-down more of the Treasury’s senior preferred stock at the usury 10% rate.
Negative comments about the GSEs must be taken with a heavy grain of salt. The relentless pounding of these companies is part of the big bank/Wall Street agenda to control the mortgage market. Here’s an example of poor the analysis behind the criticism of the GSEs: http://blog.gatorcapital.com/126/rebuttal-to-gse-worthless-analysis/