Berkshire Hathaway Inc. (BRK\A)’s reputation as a lender of last resort will get stronger under its next chief executive officer because the company will have more capital to deploy in times of crisis, Warren Buffett said.
“Berkshire is the 800 number when there’s really sort of panic in markets,” Buffett, 82, the current CEO, said May 4 at the company’s annual meeting in Omaha, Nebraska, referring to digits used for toll-free telephone calls in the U.S.
Buffett boosted returns at his company in recent years by injecting a combined $8 billion into Goldman Sachs Group Inc. and General Electric Co. during the 2008 financial crisis and $5 billion in Bank of America Corp. in 2011 after the lender’s stock slumped. Investors have questioned whether similar opportunities will be available after the departure of Buffett, whose bets can boost market confidence.
The next CEO will have access to even more capital as Berkshire expands, he said in response to a question from Doug Kass, the investor who was invited to ask bearish questions at the meeting. At times when there are limited alternative sources of liquidity, a future Berkshire leader will have the chance to make investments on favorable terms, said Buffett, the second-richest man in the U.S.
“When that happens when I’m not around, it becomes even more attached to the Berkshire brand,” he said.
Buffett’s company will be able to demand attractive rates under new leadership, “assuming the guy at the end of the phone line is Ajit Jain,” said Jeff Matthews, an author of books about Berkshire and a shareholder. Jain, 61, built a reinsurance business at Berkshire that guards against large risks that others shunned, such as asbestos liabilities and earthquakes.
“Ajit already gets those calls from around the world,” Matthews said in an e-mail. “And he handles them just as profitably for Berkshire as Buffett does.”
Investors have speculated about who might replace Buffett atop the firm that he and Vice Chairman Charles Munger, 89, built into a business valued at more than $260 billion. The CEO, who’s also Berkshire’s chairman and largest shareholder, dodged a question at the meeting about whether Jain was his successor, while praising him and other executives who contribute to the company’s success.
If Ajit is ever not with Berkshire, “we won’t look as good,” Buffett said. “That’s true of a lot of other managers, too.”
Berkshire’s board is “solidly in agreement” as to who should be the next CEO, he said, without identifying the individual. Buffett has said his roles will be divided once he’s no longer leading the company.
Todd Combs, 42, and Ted Weschler, 51, former hedge-fund managers who were hired in the past three years, will oversee Berkshire’s investments. The company’s stock portfolio, valued at $97.2 billion as of March 31, includes the largest stakes in Wells Fargo & Co., American Express Co. and Coca-Cola Co.
Buffett said at last year’s meeting that the Coca-Cola investment and Berkshire’s operating businesses, including railroad Burlington Northern Santa Fe, were far more important to Berkshire’s growth than the Goldman Sachs or GE deals.
Buffett accumulated a stake in Coca-Cola for about $1.3 billion through 1994. The holding is now valued at more than $16 billion. BNSF, Buffett’s largest takeover, contributed $3.37 billion to Berkshire’s profit last year, more than 20 percent of the company’s total.
Goldman Sachs and GE preferred shares paid 10 percent dividends to Berkshire until they were redeemed in 2011. The deals also gave Buffett warrants to buy their common stock, which he agreed to settle this year.
Kass asked Buffett why he thinks his son, Howard, 58, a Berkshire director, farmer and philanthropist, is best qualified to be chairman. The elder Buffett reiterated that the role would involve protecting Berkshire’s culture and wouldn’t have operational responsibilities.
Boards often struggle to replace mediocre CEOs when the panels only meet a few times a year and there are social ties between directors and managers, Buffett said. Part of the non-executive chairman’s role at Berkshire will be to ensure that the company has a top-quality leader.
“I know no one who feels that responsibility more,” Buffett said of his son. The father said he’s seen plenty of examples where an average CEO “continues to run the business year after year when somebody else can do it a whole lot better.”
The billionaire also has dropped hints about how he would like his successor to behave, and the importance of minimizing interference with executives who run Berkshire’s businesses. In a March letter to shareholders, he pointed out how most of the Berkshire-owned daily newspapers that endorsed a presidential candidate last year opted for Republican Mitt Romney. Buffett voted to re-elect President Barack Obama, a Democrat.
“When I write that sort of thing, I’m trying to box in my successor,” Buffett said. “We don’t want someone who thinks of Berkshire as a power base.”
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