Warren Buffett is Making Plans for a Lower Tax Rate -- Update

By Nicole Friedman 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 come 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 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.

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.

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Other proposed Trump administration policies could benefit Berkshire businesses, including increased infrastructure spending.

Also at Saturday's meeting, Mr. Buffett lamented Berkshire's growing cash pile, saying his money is earning "peanuts" right now and he is looking for places to 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.

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.

A representative for Wells Fargo didn't immediately respond to a request for comment.

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. And there have been allegations some employees faced retaliation for reporting issues that later came to light as part of its scandal.

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 1000-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.

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

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."

Erik Holm contributed to this article.

Write to Nicole Friedman at nicole.friedman@wsj.com

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.

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 come 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 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.

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.

Other proposed Trump administration policies could benefit Berkshire businesses, including increased infrastructure spending.

Also at Saturday's meeting, Mr. Buffett lamented Berkshire's growing cash pile, saying his money is earning "peanuts" right now and he is looking for places to 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.

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. And there have been allegations some employees faced retaliation for reporting issues that later came to light as part of its scandal.

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 1000-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.

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

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."

Erik Holm contributed to this article.

Write to Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

May 06, 2017 14:28 ET (18:28 GMT)