Warren Buffett's thoughts on bank stress tests

At Berkshire Hathaway's (BRK.A) annual meeting, Warren Buffett told his stockholders that he didn't think much of the stress tests for the 19 major banks. Instead he said, “I think I know their future, frankly, better than somebody that comes in to take a look, (who) may be using more of a checklist-type approach.” BRK has substantial investments in banks such as Wells Fargo (WFC) & US Bancorp (USB). BRK has felt selling pressure in the stock market like most other financial issues.

However, a former bank examiner, said regulators will require banks to maintain tangible common equity (a conservative measure of capital) equal to 4% of their risk-weighted assets over the next 2 years, to withstand losses if the recession worsens. There is a lot of talk that Bank of America (BAC) & Citigroup (C), among others in the group, could each need $60+B of added capital, with the potential of diluting existing shares substantially. Bank stocks can be expected to be under a lot of pressure until stress test results are announced on Thurs.


•Buffett Dismisses Value of Government Stress Tests in Making Investments
•Fed's Stress Test May Compel 14 Banks to Raise Capital, FBR's Miller Says


Berkshire Hathaway --- 2 years