Warren Buffett is still confident about owning banks despite the ongoing coronavirus problems. Perhaps that's good news for ASX banks like Commonwealth Bank of Australia (ASX: CBA).
Berkshire Hathaway recently held a very different annual meeting with only a few people in the room so that Warren Buffett could broadcast his thoughts on the situation to shareholders and the world.
Of course, he had a lot of wise words to say as always. He pointed to the fact that when you look at the US over the centuries it has continued to grow over the long-term. If you could choose to be born in 2020, 1920 or any other time, you'd probably choose today.
We learned that he had completely sold out of the airline shares, saying it was a mistake to buy them. Not a great sign for investors of Qantas Airways Limited (ASX: QAN).
Why Warren Buffett is still confident about banks
Warren Buffett indicated that he was comfortable being a large bank investor because this situation is different to the issues faced a decade ago. In the GFC it was the financial system that collapsed, whereas the banks are in a much better position now with better balance sheets.
The same can be said about CBA, Westpac Banking Corp (ASX: WBC) National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ). The big four ASX banks came into this crisis as among the most capitalised banks in the world.
Whilst Westpac, NAB and ANZ have already outlined large increases in bad debt provisions, at this stage it seems the major banks will be able to ride out this period fairly comfortably.
So, are ASX banks buys?
If I had to pick one bank to buy it would be CBA, I think quality and safety is very important in this environment. The CBA share price is down 33% since 21 February 2020. It's a cheaper buy than it was three months ago.
But to me it seems banks can't win. In the GFC banks saw economic pain, dividend cuts and heavy share price falls. This time, when it wasn't the banks causing the problem, the banks are seeing economic pain, dividend cuts and heavy share price falls. A lot of money has gone up in smoke in both scenarios.
I understand why Warren Buffett is a bank investor. Banks offer cheap share prices, attractive dividends and (historically) long-term growth. But with interest rates so low, profit could be lower for some time. I wouldn't buy banks.
