WARREN BUFFETT Quote : Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
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Wednesday, June 5, 2013

Warren Buffett on 'Slowing' Global Economy and 'Salivating' For Deals

BUFFETT: And return on assets is not going to go up particularly. USB has done the very best on that. They're at about 1.7 percent. Wells is between 1.4 and 1.5 percent. But most banks are lower. Now, if you have 20 times leverage and you're getting 1.5 percent on assets, you're making 30 percent on equity.

BUFFETT: And that was not lost on people a few years back. And they pushed balance sheets, and they're still pushing them in Europe. But they've cut back on that here. So they will not be having the leverage in the banking system. It'll be even more restricted among the bigger banks as part of the new rules, and you won't be able to earn more on assets than before, and so with less leverage in the same return on assets, you will have a lower return on equity. Banks were —banks were earning 25 percent on tangible equity not so many years ago. And really, that's kind of a crazy number. You know, for a basic semi-commodity business, you really don't want to allow that. But that was allowed because people felt that their bank deposits, and they were, were guaranteed by the government; and, therefore, there was no market force that would look at the —at the shape of a —condition of a bank and say, `Well, I won't put my money there because they look kind of dangerous with all this leverage.' And therefore, people got to push and push it and push it, and then the government says, `Listen, we got a vested interest in this. You're using our credit, in effect, and if you want to play, you're only going to have 10-to-1, or some number like that. So the returns on banks have come down. It's still a good business. - in CNBC