Halls of Shrewd'm / US Policy❤
No. of Recommendations: 0
Buffett displayed two plates showing "available for sale, held to maturity" when answering a question about banks. My take on the phrase is "it's a good buy now, but you need patience". Am I wrong?
No. of Recommendations: 1
No. of Recommendations: 26
The immediate reference is to SVB and friends, presumably.
By GAAP reporting rules they were nicely solvent, because their bonds were to be "held to maturity", hence not marked to market.
At booked value they looked like they were worth a lot.
But when a bank run starts, NOTHING is really held to maturity--anything might need to be sold, so they were really available for sale.
As soon as they are (correctly) categorized that way on the books, they get pegged at mark-to-market prices instead of historical cost.
SVB's balance sheet was (ahem) not sufficient in this suddenly necessary approach.
The meaning I take from the two signs at the meeting:
I presume Berkshire is going to hold onto Charlie until he reaches maturity.
Warren, on the other hand, can apparently be shipped off to the highest bidder at any time.
Jim
No. of Recommendations: 0
Thanks for the reply. I understand the meaning of "Available for sale, held to maturity" for bank securities. I was trying to understand why Buffett displayed it. He seems to imply something else. Maybe just a joke "I'm available for sale, Charlie should be held to maturity". Maybe he meant if the banks securities were held to maturity it would be fine, but have to be sold at lower price, and that's the essence of the current banking crisis. For large banks that have sufficient capitals and unlikely to see deposit outflow, their stocks maybe a good buy.
No. of Recommendations: 24
Buffett was using a double entendre with the "available for sale, held to maturity" signs. The reason he sold long-held USB and other regional banks over the last year was that they were moving bonds and other fixed rate assets from "available for sale" status to "held to maturity" status in order to avoid having to report losses that would have been required of their "available for sale" assets as their market value declined with interest rate increases, and thus would have reduced their capital. A detailed review of the banks' 10Q's sold by BRK over the the last year shows their efforts at hiding their deteriorating capital amounts from losses due to interest rate increases by shifting long duration bonds from "available for sale" to "held to maturity". Buffett told Becky Quick that he told those banks that enquired why he sold their stock: They were masking their decreasing capital and increasing exposure to a bank run in a legal manner that exploited the weakness of the "held to maturity" status they were provided by the fed. The G-SIBS have to report mark to market changes for all "held to maturity" assets. The regional banks don't have to. I'm guessing that will change and the change phased in over the coming few years, therefore the declining stock prices of the regionals and the continued exposure to bank runs that SVB and other regionals have show they are vulnerable to. With i-phone apps you don't have to stand in line at the bank to move your money to a perceived safer location. Deposit stickiness has been eliminated (or at least greatly reduced). Buffett pointed out that as bank customers we don't understand that our deposits are safe. Politicians are exploiting that fear. Banks, the Fed and the media are not adequately communicating that our deposits are safe (even those over $250,000), so the risk of more bank runs still exists, albeit the risk level is unknown currently.
