OMAHA, April 30 -- Berkshire Hathaway Inc. chief executive Warren E. Buffett, the world's second-wealthiest man, sat down before 20,000 of his shareholders here Saturday for the company's annual meeting and told them he could not offer details about his involvement in a questionable reinsurance transaction at the center of state and federal regulatory probes.
"There's two and half things we can't talk about," said Buffett, flanked on stage as he always is at these annual rituals by his long-time investing partner Charlie Munger. He listed University of Nebraska football and companies Berkshire may be buying or selling as two of the off-limits topics.
Regarding the investigation of a transaction between a Berkshire Hathaway subsidiary and American International Group Inc., Buffett said: "I can't talk about what I or other people associated with Berkshire have disclosed to investigators, and there is a very simple reason for that. To protect the integrity of any investigation like this, investigators do not want one witness talking to other witnesses because people can tailor their stories. Talking in a public forum could be a way of signaling to people what you've said."
Beyond the AIG issue, Buffett and Munger sharply criticized attempts to partially privatize Social Security, blasted the New York Stock Exchange's plans to go public and said Berkshire lost money on foreign currency contracts in the first quarter of 2005 but would maintain its bet against the U.S. dollar.
On Social Security, Munger, a self-described conservative, said Republicans are "out of their cotton-picking minds" to make radical changes to a program he called "one of the most successful things the government has ever done." Buffett, a Democrat, said he would support raising the retirement age, boosting the cap that currently limits income subjected to Social Security taxes to $90,000 and paying more in benefits to poorer retirees. "I have great trouble with people who say this system can't be sustained," he said.
Buffett said Berkshire's currency bets cost the firm $310 million in the first quarter after providing $1.8 billion in pre-tax gains last year. He said the firm has about $21 billion in foreign currency contracts and he continues to believe the dollar will fall. He said he fears that the growing U.S. trade and budget deficits could cause foreign investors to abandon dollar-denominated assets.
Buffett said he believed investors would be better served if the New York Stock Exchange continued its role as a quasi-public trust. "The exchange has done a very good job over the centuries," he said. "It is one of the most important institutions in the world. And the enemy of investment performance is activity. And the creator of profit in a profit-minded NYSE is activity.
Buffett also repeatedly lamented that the company is having difficulty finding opportunities to deploy $43 billion in cash. He said private equity firms and hedge funds bidding for companies are driving acquisition prices too high. He said if Berkshire cannot find a way to use its money soon the firm might pay a cash dividend, something Berkshire almost never does. He also said he might soon announce an insurance company acquisition worth nearly $1 billion.
Buffett, a long-time member of the board of The Washington Post Co., declined to discuss details of his role in the insurance deals being examined by regulators, but he did address the issue more broadly.
Buffett testified in the investigation on April 11, telling investigators he was briefed on a transaction that took place in two parts in late 2000 and early 2001 between General Re, a Berkshire subsidiary, and AIG, the world's largest insurance company. He said he was not aware of details of the deal, which is at the heart of a probe into a number of complex insurance transactions.