Warren Buffett attacked the US’s stress tests of 19 large banks, saying they failed to properly assess the industry’s health, and that he would buy more shares in three big banks owned by Berkshire Hathaway Inc.

Buffett and Berkshire vice chairman Charlie Munger held a press conference a day after Berkshire’s annual meeting, which brought 35,000 shareholders to Omaha to hear the two field questions on the company, the economy, and other matters. The weekend is known as Woodstock for Capitalists.

Three Berkshire holdings, Wells Fargo & Co., US Bancorp and SunTrust Banks Inc are among 19 large banks the US government is stress testing to gauge whether they need more capital to survive a deep recession.

Buffett said Wells Fargo, US Bancorp, and a third Berkshire holding, M&T Bank Corp., do not need more equity capital, and “we would buy stock in any of the three banks at present prices.”

He expressed no opinion on SunTrust’s capital needs. M&T is not being tested. Berkshire also invests in Bank of America Corp. in a portfolio run by a different executive.

Buffett said the government is taking the wrong approach in assessing banks by ignoring differences in lenders’ business models. Wells Fargo, he said, has a different model from Citigroup Inc., which has had multiple bailouts.

“The question is whether the people conducting tests have a bunch of markers” to write down a variety of assets, requiring new capital, Buffett said. “You get the impression from reading it, there will be percentage whacks (at various assets). That is not a very sophisticated way of looking at it.”

Munger added, “This one-size-fitsall reasoning in the case of bank stress tests is very likely to be done poorly.”

Buffett nevertheless endorsed government efforts to stabilize the financial system, and that the government would find a home for big banks in trouble.

“There is no reason ever in the US to have a run on the bank,” Buffett said. While equity investors do not deserve protection, Buffett said, “The US government has demonstrated that whatever it takes is what is going to get done, and they are right to do so.”

On the financial crisis, he added, “The most important lesson is that the world needs a whole lot less leverage.”

Pandemic

Berkshire would consider writing insurance policies for pandemics, including one that Buffett said assumes the US mortality rate rises by 25 percent in 2010, equivalent to roughly an additional 600,000 deaths.

The company paid out billions of dollars on claims losses from Hurricane Katrina, but will still assume big risks for the right price.

“You could get us to quote a policy on the present potential pandemic,” Buffett said, though “you may not like” how much Berkshire would charge. “You need someone with a real sense of the probabilities” to write such policies, he said.

Buffett said Berkshire has reduced the amount of bond insurance business it writes, though not because it recently lost its “triple-A” ratings from two credit rating agencies.

“We basically don’t like the pricing,” he said. “We’ve written some business, and we’ll write more tomorrow if the price is right. It depends on what our competition is doing.”

Source: Reuters