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Warren Buffett Defends Goldman Sachs At Berkshire Shareholders Meeting, "Loves" Investment

Warren Buffett is defending Goldman Sachs before shareholders at the Berkshire Hathaway annual meeting in Omaha, saying, "It's hard for me to get terribly sympathetic" with the alleged victim in the SEC's case against the Wall Street giant.

He began his marathon 5-hour (excluding lunch break) question-and-answer session with a lengthy explanation of the Goldman transaction at the center of the SEC's fraud allegations against the firm, using a Berkshire deal involving Lehman as an example.

While he concedes the SEC's accusations have "hurt" Goldman's reputation, he does not "hold against Goldman" the fact that it has been sued by the SEC. The Justice Department has also opened a criminal inquiry into Goldman's trading.

Buffett says it shouldn't matter who is on the other side of a deal, and adds it's "hard for me to get terribly sympathetic" for ABN Amro, the firm identified by the SEC as the victim in the Goldman case.

CNBC/Lacy O'Toole

Asked whether the controversy will affect Berkshire's investment in Goldman, he replies that ironically it is helping. He thinks it has become less likely Goldman will completely pay off the loan, a move that would cut off the stream of large dividend payments Berkshire is getting. "We love the investment."

Berkshire loaned $5 billion to Goldman in September of 2008 and receives a dividend of 10 percent a year. Berkshire also got warrants to buy Goldman shares at $115 each. Their value fluctuates with Goldman's common stock price. The loan dividends are not affected by the stock price.

Buffett does say he might change his mind about Goldman if the SEC charges "lead to something more serious."

He also expressed strong confidence in the leadership of Goldman CEO Lloyd Blankfein. Asked who he would want to run the company other than Blankfein, Buffett replied, "If Lloyd had a twin brother, I would vote for him."

Appearing with Buffett, Charlie Munger says if he was on the SEC he would have voted against bringing the case against Goldman and also expressed confidence in Blankfein, although there are "plenty" of other corporate CEOs he's like to see replaced.

Neither Buffett nor Munger would have considered the Wells Notice Goldman received nine months ago as material, and thus the firm was not obligated to reveal publicly that it had received it.

MORE MEETING HIGHLIGHTS

HIGHLIGHTS FROM WARREN BUFFETT AND CHARLIE MUNGER'S Q&A WITH SHAREHOLDERS AT BERKSHIRE'S 2010 ANNUAL MEETING

ECONOMY IMPROVING BUT WATCH INFLATION

  • Buffett says the economy has shown significant improvement starting in March, with Berkshire companies "picking up steam."
  • But prospects for "significant inflation" have increased, a view he's expressed before
  • "If you had to bet your life on higher or lower inflation I'd bet on higher, and maybe a lot higher."
  • "Weaning ourselves from the medicine" of government economic stimulus may be very difficult
  • Nation faces "significant unemployment" that won't "go away fast, although it is going to go away." Berkshire shouldn't be a "social safety net."

KRAFT UNDERVALUED

  • Buffett: Kraft paid "fancy price" for Cadbury but Kraft "still selling for considerably less than the value of its constituent parts"
  • Kraft's deal to sell pizza unit to Nestle was "particularly dumb"
  • Kraft CEO Irene Rosenfeld is "perfectly capable manager"
  • Buffett jokes that since Berkshire has had its share of "dumb" deals in the past, he's become more tolerant of other people's bad decisions

GREECE CRISIS

  • Buffett says the Greece debt crisis "will be high drama" and possibly a "test case" for bailing out a country using a common currency. "I really don't know how this movie ends, and I try not to go to movies like that."
  • Buffett is "more bearish" on whether currencies will be able to hold their value in coming years
Shopping for books on the sales floor at Berkshire Hathaway's shareholder meeting
CNBC/Lacy O'Toole
Shopping for books on the sales floor at Berkshire Hathaway's shareholder meeting

INDIA

  • Buffett: "We do not rule out India" as a place to buy companies or marketable securities
  • "People in India will be living a lot better 20 years from now."
  • Buffett plans trip to India in March on behalf of subsidiary Iscar, and another visit to China in September for BYD, the Chinese electric-car company in which Berkshire has invested

FINANCIAL REFORM

  • Buffett says Berkshire would comply if Congress passes a financial reform bill that requires the posting of collateral on its existing derivative contracts, but says, "We would lose substantial money." He would be concerned if finreg had "some sweeping requirement that all companies have to post collateral " on existing contracts.

RATINGS AGENCIES

  • In response to question about whether Berkshire will accelerate sales of its stake in Moody's and unload entire position, Buffett says while Berkshire doesn't pay attention to ratings on bonds when it makes investment decisions, the credit rating agencies still have excellent business model with strong pricing power

BERKSHIRE EARNINGS IMPROVE

  • Buffett gives a preview of next Friday's first quarter earnings release. Berkshire expects Q1 earnings of $3.633 billion, reversing last year's $1.5 billion Q1 loss, and operating earnings of $2.222 billion.
  • The company racked up $1.411 billion in investment and derivative gains in the quarter.
  • Repeats his belief that investors shouldn't focus on quarterly earnings.
  • Berkshire has issued a news releasewith its preliminary earnings summary for the quarter.

BERKSHIRE'S STOCK AND CULTURE

  • Gates Foundation sales of donated Berkshire stock are not affecting the stock's price
  • Buffett: Berkshire's culture is very strong. Anyone coming into Berkshire and trying to change it would find that the culture would reject those changes.
Camera operators chase Warren Buffett at Berkshire Hathaway annual shareholders meeting
CNBC/Lacy O'Toole
Camera operators chase Warren Buffett at Berkshire Hathaway annual shareholders meeting

ON BUYING HARLEY-DAVIDSON DEBT

  • Buffett: "I kind of like a business where customers tattoo your company name on their chest."

NETJETS

  • Buffett says NetJets now operating at a "very decent" profit, earning more than $50 million pre-tax in the first quarter
  • MidAmerican Chairman David Sokol, brought in to replace NetJets founder Richard Santulli as CEO, has done a "tremendous" job that deserves "big thanks" from shareholders
  • Operating costs had been allowed to "get out of line"

THE WISDOM OF CHARLIE MUNGER

  • Munger: The secret to happiness is to lower your expectations
  • Asked whether one should be worried about the future after hearing Buffett's forecast of higher inflation, "If I can be optimistic when i'm almost dead, surely the rest of you can handle a little inflation."

THE WISDOM OF WARREN BUFFETT

  • Buffett: "Find your passion and then don't let anything stop you."

THE MOVIE

  • The movie shown to shareholders before the Q&A featured a cameo of Buffett in a trailer for the upcoming Wall Street movie sequel, a fantasy sequence of Buffett striking out the Yankees' A-Rod to win the pennant for the Boston Red Sox, and a section with the stars of Desperate Housewives.

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