The conversation with Berkshire Hathaway’s CEO has been focused on him potentially investing in the regional bank sector, and he has also reportedly provided guidance and advice to the administration, Bloomberg reported.
“My sense is Buffet/Berkshire is probably one entity being considered as an investor as part of the regional bank intervention plan that is likely underway,” said Cathy Seifert, vice president at CFRA Research.
Seifert added that her sense is also that if Buffett/Berkshire were to strike a deal, it would likely be structured similarly to previous deals, whereby he would purchase newly issued preferred stock with warrants to acquire common shares over time.
In terms of whether this could be a good investment, Seifert said she couldn’t “say whether other investors should follow suit since I don’t know what banks are involved and whether the terms of any potential Berkshire deal could be replicated by another investor.”
As Bloomberg reported, the Oracle of Omaha’s role would be similar to the one he played during the 2008 financial crisis, when he stepped in and made a $5 billion investment in Goldman Sachs.
The quick collapse of Silicon Valley Bank — followed by the closing of crypto-friendly bank Signature Bank, because of a “similar systemic risk”– and the ensuing measures regulators took to avoid more damage on Sunday evening March 12, have prompted contagion fears and created chaos in the markets. The Federal Reserve and the Treasury Department also announced a new Federal Reserve lending program to help assure banks have the ability to meet the needs of all their depositors. And a few days later, 11 banks announced they had injected $30 billion in deposits into embattled First Republic Bank.
If Buffett were to end up injecting dollars into the banking system this time, it might reassure depositors that their money is indeed safe, and it might also prompt investors to invest in regional banks or hold their stocks in them.
This week, the regional banking sector was still struggling. There were signs of a comeback on the morning of March 21, however, following the release of Treasury Secretary Janet Yellen’s speech at the American Bankers Association, set to take place later in the day. It is expected that Yellen will indicate the administration has a plan in place if more banks were to collapse.
“The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system,” she will say in her speech, according to CNBC. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
Shares of First Republic closed down 47% on March 20 but were up 18% in pre-market trading. The shares are down a staggering 90% year-to-date.
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