Warren Buffett Is Making Plans for a Lower Tax Rate -- 2nd Update

By Nicole Friedman and Erik Holm Features Dow Jones Newswires

Berkshire Hathaway Inc. is already examining ways to benefit from the lower corporate tax rate proposed by President Donald Trump, Chairman Warren Buffett said at the company's annual meeting Saturday.

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The company had a "slight preference" for taking a tax loss on some of its investments in the first quarter, Mr. Buffett said, because it expects that such a loss would be less valuable to Berkshire in the future if taxes are lower. Berkshire said Friday that its first-quarter net earnings fell 27%, hurt by weaker investment gains.

The Trump administration unveiled a plan last month to lower taxes on all businesses to 15%. Most of Berkshire's revenue comes from the U.S., so it would expect a large benefit from lower taxes.

Some of those benefits would be passed along to the company's customers, especially in its heavily regulated utility businesses and in the more-competitive industries in which it operates, Mr. Buffett said. But shareholders would benefit too, especially due to lower taxes on Berkshire's investment gains.

Mr. Buffett, a longtime Democrat, supported Hillary Clinton in the presidential campaign. But he has said Berkshire's long-term performance won't depend on who is president.

Mr. Buffett and Berkshire's vice chairman, Charles Munger, answered questions from shareholders, analysts and journalists for hours on Saturday in Omaha, Neb. Tens of thousands of Berkshire fans traveled from around the world to hear Messrs. Buffett and Munger speak and to shop at Berkshire businesses, including See's Candies, Fruit of the Loom and Dairy Queen.

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The enthusiastic crowd, many of whom stood outside for hours to get prime seats inside the arena, responded to Messrs. Buffett and Munger's familiar stories and jokes with laughter and applause.

The two men touched on everything from the effect of accounting policies on Berkshire's balance sheet to their regret at not investing in Amazon.com Inc. or Alphabet Inc.'s Google.

The company's shareholders voted to re-elect the board of directors and rejected three shareholder resolutions. The proposed resolutions asked for more disclosure on Berkshire's political contributions and methane emissions and for divestment from oil- and gas-related businesses.

Also at Saturday's meeting, Mr. Buffett suggested that his successor as Berkshire's chief executive could take over while Mr. Buffett is still alive, and that his successor's chief responsibility will be spending Berkshire's cash.

In a key development for shareholders Saturday, Mr. Buffett suggested that Berkshire could pay a dividend in the next few years, an acknowledgment that the company's cash pile is growing faster than he can spend it. Berkshire said Friday that it held $96.5 billion in cash at the end of the first quarter, up from $86 billion at year-end.

Berkshire and Brazilian private-equity firm 3G Capital made a $143 billion approach to take over Unilever PLC in February, but Unilever declined.

Mr. Buffett revealed Saturday that Berkshire and 3G were each going to pitch in $15 billion to help Kraft Heinz buy Unilever. Each company owns about a quarter of Kraft Heinz. But Berkshire's participation was contingent on the deal being a friendly offer, Mr. Buffett said.

Mr. Buffett defended 3G for another year as he faced questions about how its penchant for cutting costs and laying off employees aligns with Berkshire's values. Mr. Buffett said 3G makes necessary cuts for its businesses.

Concerning Wells Fargo & Co.'s 2016 sales-tactic scandal, Mr. Buffett blamed former Wells Fargo Chief Executive John Stumpf for failing to respond immediately to the problem.

"The moment the CEO heard about it he had to act. He didn't," said Mr. Buffett

Berkshire is Wells Fargo's biggest shareholder and didn't sell any of its shares after the scandal. Berkshire sold some Wells Fargo shares this year to keep its ownership under 10% but said its investment view on the bank hadn't changed.

Wells Fargo had a bad incentive system, Mr. Buffett said, and the bank's executives should have responded to reports of wrongdoing earlier. Mr. Buffett made similar comments last year.

"We agree with Mr. Buffett's comments and value Berkshire Hathaway as a long-term shareholder and customer," said a spokesman for Wells Fargo. "We have taken decisive actions to fix the problems, make things right for customers, and build a better Wells Fargo."

The Wall Street Journal has reported that new Wells Fargo Chief Executive Timothy Sloan told some employees in November that the bank found "some instances" where reports by employees of bad behavior to its ethics line weren't handled appropriately.

Though Berkshire's dozens of companies operate independently, its strong culture and managers help minimize problems, Mr. Buffett said.

"You will have better results that way, in terms of behavior, than if you have a 1,000-page guidebook," he said.

He noted Berkshire has a hotline for employees to call to report misbehavior that gets about 4,000 calls a year. Employees have also sent anonymous letters to Mr. Buffett directly, he said.

While many calls are frivolous, the hotline has repeatedly caught behavior that Mr. Buffett stepped in to stop. And three or four anonymous letters "have resulted in major changes" at a subsidiary over the past several years, Mr. Buffett said.

Mr. Buffett also admitted a mistake of his own. "I was wrong" on Berkshire's investment in International Business Machines Corp. in 2011, he said. Mr. Buffett told CNBC on Thursday that Berkshire has sold about one-third of its IBM stake, as the business didn't perform as well as it expected due to strong competition.

Mr. Buffett also said that autonomous vehicles pose a threat to Berkshire's BNSF Railway and its Geico car-insurance business, but he wasn't too concerned. "My personal view is that they will certainly come, " he said, but "I think they may be a long way off."

In one political area, Mr. Buffett was critical, noting concerns about the proposed Republican tax plan.

"My federal income taxes would have gone down 17%" last year based on the bill that just passed the House of Representatives, he said. "It was a huge tax cut for guys like me."

On health care, he provided both political and more general economic concerns, with both Mr. Buffett and Mr. Munger saying that health-care costs had gotten out of control.

"Medical costs are the tapeworm of American economic competitiveness," said Mr. Buffett.

Write to Nicole Friedman at nicole.friedman@wsj.com and Erik Holm at erik.holm@wsj.com

(END) Dow Jones Newswires

May 06, 2017 18:16 ET (22:16 GMT)