New York: Warren Buffett, chairman and CEO of Berkshire Hathaway Inc, said his conglomerate, which is sitting on $116 billion of cash, is “more inclined" to repurchase stock than pay dividends as a means to use excess cash.
Speaking on CNBC television on Monday, Buffett said the corporate income tax rate cut signed into law by US President Donald Trump in December is a “huge tailwind" for US companies and that it is “really good for Berkshire."
Berkshire attributed roughly $29.11 billion of its net income last year to the reduction of the corporate tax rate to 21% from 35%. Many US companies’ reported results have been skewed by the law’s impact.
In his annual letter to Berkshire shareholders on Saturday, Buffett lamented his inability to find big companies to buy and said his goal is to make “one or more huge acquisitions" of non-insurance businesses to bolster results at Berkshire.
Buffett said finding things to buy at a “sensible purchase price" has become a challenge and is a major reason Berkshire is awash with $116 billion of low-yielding cash and government bonds, whose average maturity was 88 days as of the end of 2017.
“I am fairly confident we will find ways to deploy" Berkshire’s excess cash, Buffett said on CNBC. “The best chance to deploy money is when things are going down."
Buffett says he has confidence in Wells Fargo & Co. chief executive Tim Sloan, as he tried to move the third-largest US bank past scandals over how it treated customers including by creating unauthorized accounts.
Berkshire owns nearly 10% of Wells Fargo. Earlier this month, the Federal Reserve surprised many by imposing limits on the San Francisco-based bank’s asset growth until it addresses problems.
Buffett likened the situation to when he was installed in 1991 as chairman of Salomon Brothers Inc. after a former chief executive failed to tell regulators that a trader was submitting fake bids at Treasury auctions.
“Digging your way out of it takes time," Buffett said. “He’s got a lot to clean up."
Buffett raised red flags about ordinary investors using borrowed cash to buy stocks, or buying “on margin."
Buffett said it was “crazy" to borrow money to buy stocks and that “it is insane to risk something you have and need" for the sake of leveraging up on stocks. Buffett said investors might get a “euphoric surge" if they double their money in stocks, but would not be “happier." Reuters