Carlos Barria / Reuters
- Warren Buffett has spoken to the White House about investing in US regional banks, reports say.
- Buffett's Berkshire Hathaway provided critical funding to companies during the financial crisis.
- Berkshire made a fortune from those deals, but might have to agree less lucrative terms today.
Warren Buffett might come to the banks' aid once again — but he probably won't make as much money this time around.
The famed investor and Berkshire Hathaway CEO has reportedly spoken to senior White House officials about potentially investing in US regional lenders. He's also offered advice and guidance to the Biden administration on how to deal with the current turmoil in the banking sector, Bloomberg said.
Buffett may be gearing up for a similar role to the one he played during the financial crisis. He made vital investments in Goldman Sachs, General Electric, and other companies in late 2008, when fear froze credit markets. He also phoned Treasury Secretary Hank Paulson to suggest the government invest directly in banks instead of buying their assets — which it promptly did.
The billionaire's backing might help to quell fears of more bank failures, and shore up faith in the financial system. If Buffett shows he's willing to risk his money in regional lenders, that could give other investors the confidence to keep hold of bank stocks or buy them at bargain prices. It could also reassure depositors that their money is in safe hands.
Buffett stands to gain from calming the situation, as his financial stocks have been hammered in recent weeks. The combined value of Berkshire's Bank of America and American Express stakes has slumped by about $9 billion in the past month alone.
Moreover, Buffett negotiated lucrative terms on his crisis-era investments, and could do so again. Berkshire made over $3 billion in profit from its $5 billion bet on Goldman Sachs in 2008, and has more than doubled its money on paper since it piled $5 billion into Bank of America during the debt-ceiling fiasco in 2011.
In both cases, Buffett demanded preferred stock that paid a hefty dividend, and could only be redeemed at a significant premium. He also secured warrants that he could exercise to buy each bank's stock at a fixed price in the future, ensuring he could benefit if they made a comeback.
Buffett might seek to reach similar deals with struggling regional banks today. However, they would likely be less profitable given the lenders in trouble are smaller this time around, and both the federal government and Wall Street have shown they're willing to stump up cash in recent days.
In other words, Buffett might not be the only savior available, limiting his ability to extract the best terms possible for Berkshire.