Buffett blasts corporate America's crooks and their Wall Street allies
By Chris Hughes, Financial Editor
The Independent
06 May 2002
news.independent.co.uk
Warren Buffett, the legendary US investor, has launched a blistering attack on sloppy accounting, corporate greed and Wall Street investment banks, while warning that coming years will see poorer investment returns.
The chairman of Berkshire Hathaway, aged 71, supported by his deputy and long-standing business partner Charlie Munger, told the US investment group's annual meeting in Omaha that fraud was rife in US businesses.
The actions of Enron were "grotesque" Mr Buffett said, with Mr Munger, describing the collapsed US energy trader as "the most disgusting example of a business culture gone wrong".
Wall Street and the accountancy profession should share in the blame, the pair went on. Investment banks had no concern for investors, and the only question they asked when dealing with stocks and shares was "can it be sold?". Auditors had been too pliant to their clients' demands, and had succumbed to "dubious accounting".
"Many of the crooks look like crooks," said Mr Buffett. "Wall Street loves them as long as they are pushing out securities." Mr Buffett, known affectionately as the Sage of Omaha, said a good way to spot possible frauds was to keep a close eye on those companies that reported results using Ebitda (earnings before interest, tax, depreciation and amortisation).
Mr Munger, 78, also sounded a warning over companies involved in derivatives, saying. "To say derivative accounting in America is in the sewer is an insult to sewage," he fumed.
Mr Buffett also backed a call made last week by Alan Greenspan, the chairman of the US Federal Reserve Board, to clamp down on the "shameful" way that companies inflated their profits by excluding employee share options from the main body of their accounts.
He did not expect regulators to heed Mr Greenspan's call, however, because chief executives were lobbying hard in Washington and "get what they want every year".
Despite his displeasure with corporate America, Mr Buffett said he could not recall ever having had more fun than he was at the present time.
The pair took questions for six hours after completing the formal business in 15 minutes. One investor among the 14,000 gathered called Mr Buffett "a hero", a sentiment echoed in the auditorium's applause.
Some shareholders were less adoring. Two questioned whether Berkshire's continuing investment in Coca-Cola – one of its largest holdings alongside American Express and Gillette – was sensible, given stiffening competition from Pepsi. Mr Buffett countered that he would be surprised if Coca-Cola surrendered market share in the next five or 10 years.
Mr Buffett admitted the performance of Berkshire's core insurance operations during 2001 had suffered due to the mispricing of policies for terrorist attacks, but he expected the group to benefit from strengthening premiums hereon. He warned that it was hard to find suitable investment opportunities. In the present low interest-rate environment, investors should not expect returns to exceed 6 or 7 per cent.
Areas of interest were companies bankrupted by asbestos claims, but only if it was possible to insulate Berkshire Hathaway from all liabilities. |
