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Warren Buffett to CNBC: "I Apply My Own Stress Test" to Wells Fargo

Published: Saturday, 2 May 2009 | 1:46 PM ET

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By: Alex Crippen
Executive Producer

Berkshire Hathaway 2009 Shareholder Meeting
Warren Buffett told CNBC's Becky Quick today that he "applies his own stress test" to Wells Fargo and it "passes with flying colors."

Berkshire Hathaway owns a large stake in Wells, and Buffett has been praising the bank publicly in recent weeks.

He also highlighted Wells in his comments today to Berkshire shareholders gathered in Omaha.

Here's the video clip of Becky's brief conversation with Buffett this morning on the floor of the exhibit hall, before he went into the Qwest Center arena to answer shareholders' questions.

BECKY: There's a report out that says Citi needs an addition 10 billion dollars. Does that come as a surprise to you?

BUFFETT: Well, it wouldn't come as a surprise to me. I don't know anything about it, but, you know, Citi has needed some money from time to time. Citi - the real question is their earning power going forward. Citi is not - nothing bad is going to happen to people who have their money with Citi. Nothing is going to happen bad with any of the big banks. Or the small banks. There has not been any money lost with an insured bank since the FDIC started in 1934. So people's money are totally safe in banks now. How much capital the people who supervise them want them to have, is up to the supervisors.

BECKY: Do you know how Wells Fargo fared in the stress test?

BUFFETT: No, I don't.

BECKY: OK. If you take a look at the stock prices -

BUFFETT: I can tell you, I apply my own stress test and they passed it with flying colors.

BECKY: You apply your own stress test to Wells Fargo? How do you do that?

BUFFETT: Sure. Well, I do it by looking at the details of their operation. Wells Fargo obtains their money, which is the raw material, they obtain their money cheaper than anybody else. You can look at the figures for every bank and you would be startled at the trillion dollars, roughly, that Wells Fargo gets from depositors, and to some extent from debt -- how much more cheap, how cheap that is compared to most of the other big banks. If you're a copper producer, and copper is selling for two dollars a pound, and you want to measure the stress of copper going to $1.30, for a guy whose production cost is $1.50, you know, he's got problems. If his cost is a dollar, he doesn't have problems. And Wells, in terms of its raw material costs, is better situated than any large bank, by some margin. So, it's built to sustain a lot.

Current Berkshire stock prices: