Finally, financial investors and taxpayers alike can sleep easier at night. Warren Buffett, one of the most respected investors in the world, has taken stock of the U.S. banking system and proclaimed it sound. Not only that, he personally guarantees it.
According to Bloomberg, the CEO of Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) said in a recent interview that steps taken by the country's largest banks since the financial crisis -- such as cost-cutting, and improving capital cushions -- have made the financial system so safe that it is no longer a threat to the U.S. economy.
A little overdone?
As grandiose proclamations go, this is a doozy. However, the Oracle is on target in his assertions that the banks are healthier than they have been in years, have cut much of the fat put on during pre-crisis acquisitions, and have heartier capital reserves -- particularly Bank of America (NYSE:BAC).
Buffett talks about banks as if he owns them -- and, in fact, he does. Bloomberg points out his well-publicized stake in Wells Fargo (NYSE:WFC), warrants to buy Goldman Sachs (NYSE:GS) shares, and last but not least, his $5 billion infusion into B of A during the dark days of 2011, when confidence in the big bank was running low.
Still, a personal guarantee is strong stuff, but Buffett is one of the few individuals who can actually stand behind such a promise. His propping up of Bank of America was a rerun of a similar lifeline extended to Goldman Sachs in 2008, and to General Electric (NYSE:GE), as well. Some have recently questioned whether B of A might want to repay Mr. Buffett soon, since it is looking and feeling so robust lately. For his part, the Oracle leaves that decision up to the bank.
One Fool's take
Obviously, it would behoove Buffett to see banks do well, and sweet words from his lips will doubtless be given some weight, particularly by investors. Not exactly window dressing, though it is notable that he doesn't address the core reason for the financial meltdown: the failure of the triparty repurchase market, which is largely unregulated, and very resistant to being reined in.
Then, again, Buffett is correct about how far the big banks have come since the crisis, and for that they should be lauded. As the time nears for the Fed's stress tests, their condition will be uppermost in investors' minds. And, if they get a little boost from the words of Warren Buffett -- well, there's nothing wrong with that.