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Buffett Exits Deposit Insurance Business

Written By Brian Hicks

Posted September 10, 2008


beach house


With 117 banks now on the official FDIC troubled list and many more on the way, Warren Buffett has now headed for the hills when it comes to insuring any of them.

His Berkshire-owned Kansas Bankers Surety is exiting the business entirely, which is not exactly a vote of confidence from the “world’s greatest investor” for banking industry.

In fact, it’s just the opposite. He has judged it is simply too risky to insure.

Sort of like an ocean front beach house in hurricane country.

From Bloomberg by Linda Shen and Erik Holm entitled: Berkshire Unit to Phase Out Bank-Deposit Insurance

“Warren Buffett’s Berkshire Hathaway Inc. plans to stop insuring lenders through its Kansas Bankers Surety Cos. as U.S. banks fail at the fastest pace in 14 years.

The unit will no longer insure accounts beyond the Federal Deposit Insurance Corp.’s $100,000 limit per depositor and $250,000 limit on some retirement accounts, said Chuck Towle, a senior vice president at Kansas Bankers. The company will exit the business entirely over time, Towle said.

“Eventually, we aren’t going to be covering any deposits in banks,” Towle said in an interview today.

The move reduces Omaha, Nebraska-based Berkshire’s risk from bank failures and will affect customers in 38 states. Eleven U.S. lenders have been seized by state and national regulators this year as mortgage markets collapsed. The FDIC counted 117 banks as”problem” lenders in the second quarter. The agency typically doesn’t say which companies are on its list.

Towle said there was no set period for phasing out the business and wouldn’t comment on existing relationships with banks. The Wall Street Journal reported earlier today that the unit was scaling back, saying the order came from Buffett.

Towle declined to comment on Buffett. Jackie Wilson, a spokeswoman for Buffett, declined to comment.

The move may signal that Buffett expects further banking losses after saying in June that he believes the U.S. is experiencing “stagflation,” a slowing economy with rising inflation.”

Connect the dots folks….we are nowhere near a market bottom.