The Berkshire-Buffett Bailout

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 |  Includes: BRK.A, BRK.B, MTB
by: Ira Stoll

Toward the end of today's front-page New York Times article headlined "Federal Report Faults Banks on Huge Bonuses" comes this:

Mr. Feinberg then approached each of the 17 companies with his proposed remedy during conference calls over the last two weeks. The 11 companies that have fully repaid their bailout money are American Express, Bank of America, Bank of New York Mellon, Boston Private, Capital One Financial, Goldman Sachs, JPMorgan, Morgan Stanley, PNC Financial, US Bancorp and Wells Fargo.

The six companies that have not fully repaid their bailout funds are A.I.G, Citigroup, the CIT Group, M&T Bank, Regions Financial and SunTrust Banks.

The name that struck me there as interesting was M&T Bank (NYSE:MTB). After all, at AIG, Citi (NYSE:C), and CIT, managements have been ousted. But, according to Yahoo! Finance, as of March 31, 2010, the no. 2 institutional holder of M&T shares was Warren Buffett's Berkshire Hathaway, with 4.68% of the outstanding shares, worth $441,613,245 at the time.

The latest TARP transactions report shows a $151.5 million government capital injection into M&T Bank Corporation (Provident Bankshares Corporation/Baltimore) on November 14, 2008, and a $600 million government capital injection into M&T Bank Corporation (Buffalo) on December 23, 2008. Not a single dime of the $751.5 million total has been repaid.

When we've written here in the past about the government's aid to Mr. Buffett, one of the world's richest men, we've mentioned the high-speed rail stimulus money to the Burlington Northern and Santa Fe Railroad, and, in relation to his other holdings:

The taxpayer put $25 billion into Wells Fargo, $6.6 billion into U.S. Bancorp, and $3.38 billion into American Express through the Troubled Asset Relief Program. Berkshire invested $5 billion in Goldman Sachs on September 24, 2008; on October 28, 2008, Goldman agreed to take $10 billion in TARP money. Berkshire invested $3 billion in General Electric on October 1, 2008; on November 12, 2008, GE Capital announced it had received approval from the Federal Deposit Insurance Corporation's Temporary Liquidity Guaranty Program to issue up to $139 billion in debt backed by a government guaranty. Granted, Mr. Buffett claims Wells Fargo was forced to take the TARP money (a claim reinforced by other accounts) and that the TARP money hurt his interests by diluting him.

But until now we hadn't noticed or mentioned the $751.5 million, still unpaid, in aid to M&T. It's hard to articulate just how outrageous this is. Why should you or I be taxed to bail Warren Buffett out of a bad investment? If Mr. Buffett wants to borrow money from the Chinese to capitalize his bank, let him do it himself (I bet either Goldman Sachs or GE Capital would be happy to help arrange the deal), rather than through the U.S. Treasury Department.

The argument that the taxpayers will eventually make money on this investment when it is repaid with interest by M&T is not persuasive. If it was such a great risk-adjusted return to invest more money in this bank, why didn't Mr. Buffett or Berkshire (NYSE:BRK.A) (NYSE:BRK.B) do it themselves?