Buffett sets big goals for CEO of Bezos-Dimon health-care venture
NEW YORK (Reuters) – Warren Buffett on Monday said the health-care company being set up by Berkshire Hathaway Inc., Amazon.com Inc. and JPMorgan Chase & Co. will a new chief executive officer within a year have, and he set an aggressive goal to cut costs.
Speaking on CNBC television, Buffett said: “We can’t afford to make a mistake” in finding the right CEO to help combat spiraling health-care costs that now account for close to 18% of US gross domestic product, or $10,000 per person.
He said it would not be difficult to “shave” off 3 or 4 percentage points, contrasting the situation to 1960, when he said health-care costs accounted for just 5% of GDP, or $170 per person.
“We are at a huge competitive disadvantage in American business” relative to other industrialized countries because of the costs, Buffett said. “The question is whether we can come up with something better. I’m hopeful, but don’t expect any miracles.”
Berkshire, Amazon and JPMorgan last month said they would start a health-care venture for their workers.
While few details were provided, shares of several insurers and pharmacy benefits managers fell on the news because investors worried how the venture might disrupt the industry.
Buffett said that in starting the venture, “we have the perfect partnership” with JPMorgan CEO Jamie Dimon and Amazon CEO Jeff Bezos. Todd Combs, an investment manager for Buffett and a JPMorgan, will spearhead Berkshire’s involvement.
WELLS FARGO
The interview occurred two days after Buffett released his shorter-than-usual annual letter to Berkshire shareholders, which had little discussion about the company’s investments.
One is Wells Fargo & Co., the third-largest US bank, which was surprisingly ordered this month by the Federal Reserve to curb asset growth while it tries to rebound from scandals over how it treated customers.
Buffett, whose Omaha, Nebraska-based conglomerate owns nearly 10% of Wells Fargo, on Monday said: “I have confidence in Tim Sloan,” the bank’s CEO.
He likened the situation to 1991, when Buffett was installed as chairman of Salomon Brothers Inc. amid a bond-trading scandal that nearly landed that company in bankruptcy.
Buffett also discussed other means to deploy Berkshire’s $116 billion cash stake, after saying in the letter he desired one or more “huge” acquisitions of noninsurance businesses.
He said he would be “more inclined” to buy back stock than pay dividends and might raise the repurchase threshold from 1.2 times book value. Berkshire’s stock traded at roughly 1.44 times book value based on Friday’s market close.
“I am fairly confident we will find ways to deploy” excess cash, Buffett said. “The best chance to deploy money is when things are going down.”
Also helping Berkshire will be the recent cut in the US corporate income-tax rate, which gave Berkshire a one-time $29.11b. net income boost by reducing its potential tax bill on stocks it owns.
The cut is a “huge tailwind” for US companies and is “really good for Berkshire,” Buffett said.
He also said while stocks remained a better bet than bonds over the long term, it remained “crazy” for ordinary investors to use margin, or borrowed cash, to load up on stocks.
Investors might get a “euphoric surge” if they double their money in stocks, but they would not be “happier,” Buffett said.