Bear Stearns shares shot up over 8% yesterday after reports surfaced that the Wall Street bank in serious talks with Warren E. Buffett about selling the Oracle of Omaha as much as 20 percent of the firm. But is Warren really riding to the Bear’s rescue? We’re skeptical.
It’s hardly news that Bear Stearns has been out shopping a 20% stake to potential investors. There’s been talk of several US bidders and, of course, a Chinese take-out bank making bids. But does Warren make sense? That old guy made out decently with Salomon Brothers but he still hates on them. Yesterday Bess quoted him as saying he how much he found the “brash Salomon culture of big egos, big risks and even bigger salaries to be out of step with his down-to-earth demeanor.” Do you want to be the person who sells him the story that Bear is totally different? We’d rather tell him why Bess Levin was called DQ in high school than try to explain Bear’s internal culture to him.
More importantly, there’s little about Bear Stearns to suggest that Buffett would look to put in that kind of money. Trading below book value? You’re going to tell us anyone knows what Bear Stearns book value is? Even Bear Stearns admits its guessing about the value of some of the assets it owns. Reliable revenue stream? This company makes much of its money trading securities.
It’s also hard to see what Buffett brings to Bear Stearns apart from money and a reputational boost. Bear Stears needs a large cash infusion and a partner that can help it build global exposure. How does Buffett add value to the business? We don’t see it.
Probably the strongest point in favor of the rumor is that Buffett is unpredictable. And so that wascaly wabbit might have something this wacky up his sleeve. Just when you thought he was buying trains, he turns around and buys traders.
Yesterday, CNBC’s “simple country reporter” Charlie Gasparino sounded a skeptical note. Nothing we heard would cause us to think that the Old Man of Omaha is anywhere close to buying a huge chunk of Bear Stearns. We do a lot of rumor sorting here at DealBreaker, and we call bullshit on this rumor.
Warren Buffett
Warren Buffett’s petition for membership to the egalitarian brotherhood of People Who Are Fucking Nuts has been officially accepted. Last year, he decided that Berkshire Hathaway-owned Geico would not take part in the Caveman sitcom. Last week he reduced his company’s investment in genocide to an embarrassingly trivial 8.93 percent. Today comes the news that he’s in serious talks to buy a stake in Bear Stearns. Three times = a trend, this one being WB’s insanity.
The New York Times reports that Buffett first approached James Cayne about the purchase last month, when the bank’s stock was about to celebrate its one-year low of $100. Deals have faltered in the past because the bridge player (first, CEO second) has often insisted on premiums as high as 40 percent above share price from outside investors. This time, and no one can say for certain but it may have something to do with two failed hedge funds, a 61 percent decline in third quarter profits and the fact that BSC can no longer afford its much-needed cleaning staff, Cayne is reportedly holding out for a premium of only around 20 percent.
Bear’s shares jumped on the rumors of possible sale this afternoon, with the stock trading up over 8 percent. Punk Ziegel analyst Richard Bove upgraded BSC from “sell” to “market perform.” Spokesmen for both Bear and Buffett declined to comment, which generally means they’re up to something, though CNBC’s Charlie Gasparino said that he “doubts” the reports are true. (Gasparino also noted with what sounded like hurt feelings that “Jimmy Cayne has not returned my calls,” presumably because it’s a beautiful day for golf.)
In 1987 Buffett took a 12 percent stake in Salomon Brothers, a move he later regretted, finding the “brash Salomon culture of big egos, big risks and even bigger salaries to be out of step with his down-to-earth demeanor.” Hopefully he can be reminded of the bad taste SB left in his mouth, which not even a dozen Oreo Blizzards could purge, before it’s too late. Carney’s got the keys to his house– everyone meets there tonight at 8 for an intervention (power of attorney papers have already been drawn up). We lost him on the Sudan. Let’s not lose him on this.
Earlier: Why Doesn’t Warren Buffett Want To Fund Genocide Anymore?
Buffett Among Those Said to Consider Bear Stake [New York Times]
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Posted in:
Berkshire Hathaway
Why Doesn’t Warren Buffett Want To Fund Genocide Anymore?
By Bess LevinFor reasons totally lost on us, Warren Buffett has once again scaled back Berkshire Hathaway’s stake in PetroChina. In July, Berk sold holdings in the company worth $27 million. Last week, it was $136 million. And just today, 28 million shares valued at $40 million, reducing BRK’s interest to a paltry 8.93 percent from over 11 percent this year.
For those of you who don’t know what this means, we’ll tell you what this means: slowly but surely, Warren Buffett is distancing himself from a government-run company that human rights activists claim has extensive involvement with the Sudan oil industry, and perpetuates what they call “the humanitarian crisis” in Darfur. (This is an overly dramatic way of spinning the truth, which is simply that the region is going through a restructuring of its population.)
Until fairly recently, Buffett had stood up to the anti-genocists, including BRK shareholder Judith Porter, who told WB that cutting ties with PTR would “send a signal to China and to the Sudan that there are costs for continuing this destruction.” Buffett argued that he and Berkshire had nothing to do with the “situation,” and that Judy and everyone else ought to quit their bitching. And when asked if today’s and last week’s and July’s sale had anything to do with a decision to take responsibility for aiding and abet serial killers, he said no. And analysts are in agreement: they think it’s just about “the money.”
But we know they’re lying. Nobody wants to admit it, but something’s going on with that old kook, and he’s going soft. Is it the new, young, probably liberal wife’s influence? A sudden fear that John Carney, against all odds, might’ve been onto something when he asked, “is Warren Buffett going to hell?” The fact that in May, two months before he started selling, we called him an “Equal Opportunity Genocide Supporter”? (That was a compliment!) A near-death, life-changing experience? An Oreo Blizzard epiphany?
Don’t answer that. ‘Cause we don’t want to know why this happening, we just want it fixed. Let things go back to the way they were, and no one gets hurt (except maybe the Sudanese. Whatever: details). If we isolate the problem now, we may be able to salvage this thing, but we have to act fast. Today he sells a percentage of his stake in PetroChina for allegedly purely monetary reasons. Tomorrow it could be standing up in a local Dairy Queen and saying “not on my watch.” I just pray it’s not too late.
Earlier: Warren Buffett Is An Equal Opportunity Genocide Supporter
Warren Buffett Trims PetroChina Stake for Third Time [CNBC]
Despite what many in the business media seem to believe, Warren Buffett did not spring fully formed from the mind of Zeus. He too was born of woman and today the old guy celebrates his 77th birthday. As a gift to him, we’re opening up our special vault of Warren Buffett posts. Some very special items can be found inside.
There’s the time we wondered whether Warren Buffett is going to Hell. That prompted him to write a letter about DealBreaker. Let’s not forget the time some Australian called him a ‘notorious tightwad.’ Or the day we learned he had disowned his granddaughter.
Looking back on that list, we have to admit it looks like we’ve been a bit harsh on the guy. (Maybe that’s why no-one at Berkshire returns our calls when we ask for interviews or even just glimpses of the Oracle.) But we’re pretty sure Warren’s not too broken up over these DealBreaker posts. He’s got a lot to cheer him up. A lot of women. Look at all the ladies who seem to have crushed on him in the last year: Liz Claman, Becky Quick and WallStrip’s Lindsay Campbell. The girls at Hooters loved him too. And last year, on his birthday, the Dub-Bee got hitched to his longtime sweetheart.
So happy 77th birthday, Warren. Enjoy that Dairy Queen sundae!
An Irvine, California based investor won the charity auction for a lunch with Warren Buffett on Friday night. His $650,100 winning was around 4.8% higher than last years winning bid. But year-over-year growth in the bidding has slowed dramatically, perhaps suggesting that the market for lunch with Warren Buffett is maturing or plateauing. Last year’s winning bid was 76% than the previous years.
As is usually the case with these sorts of things, bidding remained relatively tame for most the auction, but surged almost $250,000 in the last hour.
The winning bid came from Mohnish Pabrai, who manages more than $600 million at his hedge fund. Another hedge fund manager, He said Guy Spier, staked around one-third of his winning bid.
Warren Buffett Power Lunch to Benefit Glide Foundation [eBay.com]
Warren Buffett lunch sells for record $650,100 [Reuters]
It’s that time of year again. Just one year after Warren Buffett announced he was buying his way into paradise by donating the bulk of his fortune to a charity run by his friend Bill Gates, the annual auction of lunch with the Oracle of Omaha is back. You now have just four days and twelve hours to place your bids. The auction benefits the San Francisco charity the Glide Foundation.
The winner gets lunch with seven of his or her closest friends at Smith & Wollensky. And, of course, Warren Buffett gets a seat at the table too.
Warren Buffett Lunch Auction [eBay.com]
Nice pump up speech for hedge funds in today’s Hedge Week (we’re not going to make our ‘hedge’ quota by 5 without your help). Despite industry leaders “prophesying an end to the industry,” George Soros saying hedge funds are too over-exposed, Stevie Cohen (immune to self-inflicted irony) noting that the days of big returns are over, Warren Buffett taking hedge funds to task for their high fees in his annual letter to shareholders, and performances in general being down, Hedge Week’s Shoham Cohen still thinks everything will work out if we just think positively!
There are good managers (James Simons) and there are bad managers (Tom Hudson, the guys who do Goldman’s Alpha), Cohen perceptively notes, but given the hotness of HFs, the look-on-the-bright-side news is that every day a new manager emerges (today: Tim Sykes, tomorrow: Tom Sikkes). 1 pt: hedge fund sustainability.
Yes, there are a lot of strategies performing quite badly, of late. But that just means managers will have to work harder to diversify. This is not an obstacle for Cohen, this is an opportunity. And how about numbers, those are always good. First quarter of 2007: $60 billion from global investors. Since hedge funds were invented: $1.6 trillion managed. Big numbers—that’s got to mean something.
The person whose job is predicated on the survival of hedge funds also predicts that the future will allow “personal hedge funds pools to be created” and that there will be room for “tailored managed funds whereby fund managers will open private hedge funds.” Cohen wants you to know that this new era will be an exciting one, and if all you would-be managers out there will peel yourselves up off the bathroom floor, pump yourself full of some happy pills, “overcome the psychological barrier in setting up a fund, and come out with new strategies” and tell yourselves, “I will sell this house today!” we can begin our journey. Together, assembled brotherhood of Neo-HF’ers.
An Apocalyptic Turn for Hedge Funds? [Hedge World]
A long time ago NYT writer Austan Goolsbee had a thing for Warren Buffett, and for Berkshire Hathaway. In a “moment of weakness,” he bought one Class B share of BK. Oh, what a beautiful, moving, fulfilling day that was. One for the books, as they say. Why did he do it? Because he believed in Mr. Buffett and in Berkshire Hathaway, a “mutual fund but without the bad incentives.” Buffett was this great, wonderful man in Goolsbee’s life, who didn’t do things at the expense of shareholders. If one person, a God among plebes had the ability to beat the market, it was the beacon of light shining bright from Omaha. But you know how these things go: to shit.
Well, I still own that share, but it hasn’t worked out as well as I had hoped. My share has underperformed the S.& P. 500 since I have owned it. My colleagues have mocked me incessantly, but I have remained a closet romantic, hoping that Mr. Buffett would renew his secret formula and prove my colleagues wrong.
From there, it’s downhill, and fast. One minute you’re picking out curtains, the next it’s, “No, those in fact are not my underwear, and I’d be interested, thrilled even to know who they belong to.”
Then I found out that the 76-year-old Mr. Buffett had asked for applications from people wanting to become his successor. Many hundreds applied. So at the annual shareholders’ meeting in Omaha this month, he announced his new search strategy: rather than decide from old-style résumés and interviews, he planned to choose three or four top candidates and then give each $5 billion or so to manage and see how they do. The winner gets the job.
When I heard about this, the romance died. For all of Mr. Buffett’s reputation as the ultimate nonmutual fund, he may have just fallen into one of the biggest mutual fund traps of all — forgetting how incentives affect fund managers’ behavior.
Then it gets ugly. Really ugly. Don ugly.
On the show, Donald Trump would fire someone from the team that earned less money, whether $1 less or $1 million less. That gave the contestants an incentive to do crazy things for the camera. But it’s no way to pick an investment manager.
The whole benefit of Berkshire Hathaway was that Warren Buffett’s investment choices weren’t driven by the kinds of crass manager-level incentives that seem to pervade the mutual fund business. By announcing he intends to pick a manager through a contest, Mr. Buffett will have transformed the ultimate nonmutual fund into something very much like a mutual fund. It’s a move straight from the playbook of The Donald himself.
In a show of support, Carney even considered withdrawing his application for a second, to send a message to Buffett that this is not how you treat people you love. (But then he remembered his boyhood dream of living in Omaha and decided against it. Can’t really blame him, either).
‘The Apprentice: Omaha Edition,’ Starring Warren Buffett [NYT]
Equal opportunity genocide supporter Warren Buffett scored another point for the good guys when he refused to meet with representatives from the Yurok, Karuk and Hoopa Valley Tribes several weeks ago to discuss why he won’t stop savagely murdering salmon. The group was capping off its cross country pilgrimage to Omaha on May 5 with a protest outside of Berkshire Hathaway’s annual shareholder meeting and what they’d hoped (in vain) would be a few minutes to plead their case with the old boy. Unfortunately, Buffett is a hands-on chairman of the board and Buffettstock required his full attention: there were capitalists to pat on the back for making money again this year and hits to be taken from bongs made out of Coke cans and Bic pens.
If he had been able to draw himself away from the fun for one or two secs, Buffs would’ve been able to continue to defend Berkshire Hathaway’s vote against a resolution to reverse the actions of PacifiCorp, a Berkshire subsidiary, that is purportedly endangering the salmon population (and lowering the water quality) in the Northwest. The Yurok, Karuk and Hoopa Valley Tribes were attempting to demand, specifically, the removal of four Klamath damns that PacifiCorp owns, which they believe are responsible for the “decades-long decline of salmon, steelhead and other species on the Klamath River.” One commercial salmon farmer’s wife from the Klamath area, Ronnie Pellegrini, commented that her husband and his colleagues are “barely hanging onto their livelihoods because of the Klamath River crisis.” (The Pellegrini family lost 95% of its income last year).
Buffett has said that there are too many parties involved in the issue for Berkshire Hathaway to take any sort of substantive stand. One protestor (/many) don’t buy it and noted, “It would have been more heroic to agree to meet with the people affected and to put his weight behind a fair and proper solution. We all know the immense influence Buffett has; he personally saved Salomon Bros. from liquidation.” So close and yet, sO far.
Next up on Buffett’s plate to snub: Holocaust survivors. He’s lucky we love those Cavemen so much or we’d probably have a problem with that.
Warren Buffett Refuses to Meet with Klamath River Tribes and Fishermen [Indy Bay]
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BonusBumper
Every 42 seconds, the BEST first year analyst at Goldman makes a dollar
By Keith HahnOr 0.59 tubes of ChapStick, which considering how much this person is going to suck, will be sorely needed. What is the real purchasing power of these bloated analyst bonuses, or at least how long will it take to save up for that Phantom Drophead convertible?
Thanks to Forbes’ “Money Meter” you can find out, and compare yourself to semi-significant people (or at least celebrities) in the process. Let’s say that the BEST first year analyst at Goldman (aiming high, as he/she (well, it’s Goldman, so he) should) wants to buy…Berkshire Hathaway.
The BEST Goldman first year makes $170k a year with that top tier bonus of $110k and a base of $60k. Berkshire Hathaway’s market cap is around $170bn, which means that it will only take one million years (in a special version of hell) as the BEST Goldman first year IB analyst to buy Buffet’s bloated baby (assuming no taxes, no growth, no premium, and that Buffet consumes the souls of the living (salmon) to stay eternally youthful). This combines the dreams of the BEST first year analyst at Goldman – he gets to be an IB analyst forever, and one day be a super big deal, or at least full of folksy wisdom.
The average American, on the other hand, makes only 22 cents on the dollar of every BEST Goldman first year. Warren Buffet makes almost $600 in this time.
The Money Meter [Forbes]
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Planespotting
Bush Vows to Crush Small Aviation (Big Airlines to Sleep in Lincoln Room)
By Dealbreaker
President Bush has moved onto a new, more worthy target and his name is Warren Buffett. Bushie is currently proposing a major cut in federal taxes paid by passenger carriers every year by $1.68 billion. The burden would fall on smaller operators like General Motors Corp. and NetJets Inc, Berkshire Hathaway’s business-jet charter company to make up the difference. Right now, the government gets $2,015 each time a full Boeing Co. 757-200 jet travels between New York and Florida, and $236 from a General Dynamics Corp. G4. Bush would like those numbers to change to $1,298 and $837, respectively.
Shockingly, James May, the president of the Air Transport Association, a Washington lobbyist group for major airlines, told Bloomberg: “We absolutely have been overpaying. Our passengers should not be forced to continue to subsidize corporate aircraft.”
Ed Bolen, with the National Business Aviation Association trade group, believes that the change in law, should it be enacted, would be “significant,” and that sizeable amount of small-jet users would drastically reduce their flying. (Which, on a personal note, would not be good news for DB, as we’re planning on bringing back Planespotting in the very near future).
Buffett did not respond to a request for comment by Bloomberg or Dealbreaker; his silence can only be explained by this bit of BS. Bigger fish to fry, indeed. (And that was in no way a comment on his hatred of salmon, but if you want to take it there, by all means. We’ll be riding that horse for at least another couple of weeks).
Buffett Battles Bush as Corporate-Jet Owners Fight Tax Increase [Bloomberg]
Cavemen pilot called ‘astoundingly awful’ [AdFreak]
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