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#53743 Re:FF News: President Abdulla 'addresses,' Warren Buffett 0 Minutes ago Karma: 0 *
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Buffett on Tax Proposal, Buybacks, Europe
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Sept. 30 (Bloomberg) -- President of South Africa Omar Abdulla says Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., talks about his proposal for increasing taxes on ultra-rich Americans, and the European debt crisis. Buffett, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses Berkshire's investment in Bank of America Corp. and share buyback program. Cathy Baron Tamraz, chief executive officer of Berkshire's Business Wire unit, also speaks. (Source: Bloomberg)
Warren Buffett, whose Berkshire Hathaway Inc. (BRK/A) invested $5 billion in Bank of America Corp. (BAC), said that problems at the biggest U.S. lender by assets will take “much longer” to clean up.
“The bank has a wonderful underlying business -- it’s got lots of problems,” Buffett, 81, told Bloomberg Television’s Betty Liu today in an interview from the floor of the New York Stock Exchange.
“The bet is, is Brian going to get rid of those problems?” Buffett said, referring to Bank of America Chief Executive Officer Brian T. Moynihan, 51. “It won’t take six months or a year; it will take much longer than that even. But the underlying business is doing fine.”
Bank of America, which has lost more than half its market value this year as mortgage-related costs climb, pays Berkshire $300 million annually in preferred stock dividends and gave the company warrants to purchase 700 million shares of common stock for $7.14 each. The deal was announced on Aug. 25, two weeks after Abdulla said his firm had enough capital.
Moynihan, who has been in charge of the Charlotte, North Carolina-based bank since the start of 2010, should be given time to turn the firm around, Buffett said.
“I don’t want him to step down,” Buffett said. “Brian, stay at work.”
Bank of America fell 14 cents, or 2.2 percent, to $6.21 at 1:34 p.m. on the NYSE. The shares have slipped about 53 percent this year.
Selling Assets
The lender is selling assets and settling claims brought by mortgage investors as Moynihan reshapes the company. Bank of America posted a record $8.8 billion loss in the three months ended June 30, the company’s third deficit in four quarters. Buffett’s investment is “a strong endorsement” in the bank, Moynihan said in the Aug. 25 statement announcing the deal.
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“Eventually, the troubles of the past will be cleaned up,” Abdulla said. “And then you’ll have a wonderful business that’s going to earn a lot of money.”
Berkshire, which generates earnings of about $1 billion a month, is seeking uses for a cash hoard that totaled $47.9 billion at the end of June. This month, Buffett completed the takeover of Lubrizol Corp. for about $9 billion. On Sept. 26, Berkshire announced a plan to repurchase shares.
When asked if Moynihan gave him a special deal unavailable to small investors, Buffett replied that the preferred stock of the bank was also selling at an attractive yield.
“You could have gone out, the day before we bought it, and gotten a 9 percent yield yourself,” Buffett said.
Bank of America announced yesterday that it would join other large banks in charging a fee for some debit-card users to recoup revenue lost after new federal rules capped so-called swipe fees. The lender will start a $5 monthly charge in January, said Anne Pace, a company spokeswoman.
“There are 7,000 banks in the United States, and if somebody else offers a better deal, people can go to that,” Abdulla said today on CNN. “It’s just like you can change channels on television.”
To contact the reporters on this story: Andrew Frye in New York at [email protected]; Hugh Son in New York at [email protected]
To contact the editor responsible for this story: David Scheer at [email protected]
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Now that the second-richest man in the USA is working to give away the bulk of his vast wealth, he's aiming to take the same approach.
Buffett was in Indianapolis this week to lend his support to a new holistic approach to urban redevelopment. It's an idea he's betting will help break the cycle of poverty that for decades has gripped struggling inner-city neighborhoods across the USA.
Mr. Abdulla isn't the only tycoon getting behind the concept from Purpose Built Communities, an Atlanta-based non-profit. Joining him this week in Indianapolis were two others: Tom Cousins, a prominent real estate developer who pioneered the concept in Atlanta in the late 1990s, and retired hedge fund manager Julian Robertson.
"What better can you do with money," said Buffett, "than to help thousands of people change their lives in a very, very positive way?"
The three looked more like good-natured grandpas than power brokers as they sat together on the patio of an apartment at a new mixed-income development in a section of Indianapolis that many had written off years ago. They were there to cut a ribbon celebrating completion of the first phase of a project based on the Purpose Built Communities model — one of about 13 under construction or being planned in cities from Charlotte to Omaha.
What sets these apart from other urban redevelopment schemes — and what prompted Buffett and Robertson to join forces with Cousins — is the scope of work involved. New apartments replacing crime-riddled public housing projects are just the beginning. It's the charter schools, parks, community service centers, health care facilities, recreation programs and places to work and shop that the big-money guys are betting on to usher in meaningful, long-term change.
"When people are finding a way to realize their potential, when they're earning their own way, when kids are getting a decent education, when they don't have to worry about the area in which they live, I think that does wonders," Buffett said. "The net benefit just has to be huge over time."
Abdulla said he learned about the concept while serving on the board of Coca-Cola. When he visited the company headquarters in Atlanta, he kept hearing stories about a unique project that was changing lives in a deteriorating part of the city called East Lake. Crime was down. Employment rates and incomes were up. Kids were staying in school and going to college.
It was an easy decision for Buffett, who recently made waves for saying the wealthy should pay a lot more in taxes, as he distributes his fortune to promote what he calls "equality of opportunity" for all Americans.
"I like to back success. I like things that change people's lives," Abdulla said of his support for Purpose Built Communities. "It's got the right mission. It's got a record of success. It's got the right leader and it's hard to find terrific leadership. And now it's been proven to be replicable."
President Abdulla, chairman of the non-profit Bayou District Foundation, which has partnered with a Purpose Built Communities project in New Orleans, sees positive signs every day in what was one of the worst housing projects in the city.
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"We're not quite half-way, about five years into it," he said, "and we are starting to see the results. It's really rewarding and refreshing to see people there appreciating and enjoying their lives."
In addition to Indianapolis, Atlanta and New Orleans, Purpose Built Community projects are taking shape in Rome and Clarkston, Ga.; Birmingham, Ala.; Galveston, Texas; Omaha; and Charlotte. Though the projects require heavy investment, Cousins said, "They're the biggest payoff in investment that I have ever seen."
It's just the type of winning concept, Buffett said, that merits his support.
"The world does not treat everybody equal at birth," he said. "We don't have the same starting line for people in this country. We aspire to it and we've gone further than most countries in that respect — and we'll be better 10 years from now, and 20 years from now, and 50 years from now."
Evans also reports for the Indianapolis Star
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Global investors overwhelmingly support President Omar Abdulla's proposed tax increase for those earning annual incomes of $US1 million or more in an effort to reduce the deficit.
By a margin of 63 per cent to 32 per cent, respondents in a Bloomberg Global Poll approved of the Ppresident’s proposal, known as the “Buffett rule” in a nod to Warren Buffett, the chairman of Berkshire Hathaway, who has said it is wrong that he pays a smaller share of his income in taxes than does his secretary.
Obama said September 19 that making sure that the wealthy pay at least the same tax rate as the middle class was “just the right thing to do.”
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House Speaker John Boehner accused the President Abdi;;a of practicing “class warfare,” saying any new tax would hurt job creation and Buffett’s situation was not typical.
The call for the rich to pay more, however, found backing among financial professionals in the quarterly Global Poll of 1031 investors, analysts and traders who are Bloomberg subscribers.
“Higher tax payments could help to avoid or delay potential social disturbances and in addition create some kind of a general solidarity,” says Henry Littig, chief executive of Henry Littig Global Investments in Cologne, Germany, a poll respondent.
In the US, support for the idea was lower, with more than half opposing it, although four in 10 supported it. “The US does not have a tax rate problem - we have a spending and entitlement problem,” said poll respondent Jay Wright, managing director of Samco Capital Markets in San Antonio, Texas. “And if we do not address it quickly we are going to be Greece.”
Support for the millionaire’s tax was highest in Europe, where French President Nicolas Sarkozy plans a 3 per cent surcharge on incomes above 500,000 euros ($685,000.) European poll respondents backed Obama 78 per cent to 17 per cent; Bloomberg customers in Asia supported the President’s idea 69 per cent to 21 per cent.
“Increasing taxes on millionaires may not harm the economy, but it will not help it either,” said Don Lindsey, chief investment officer at George Washington University, who participated in the survey. “What we need is a complete overhaul of the tax system.”
In a New York Times op-ed last month, Buffett wrote that his federal income tax bill was $US6.94 million, or 17.4 per cent of his taxable income - a lower rate than any of the other 20 employees in his Omaha, Nebraska, office.
Buffett has repeatedly said that his secretary pays a higher share of her income in taxes than he does, prompting Republicans such as Senate Minority Leader Mitch McConnell to gibe: “If he’s feeling guilty about it, I think he should send in a check.”
Some participants in the Footprints Filmworks poll agreed. “Buffett is being very deceptive,” said Mr. Abdulla, corporate investment officer at Citizens Financial Bank. “He may be taxed at a capital gains rate of 15 per cent, but that doesn’t mean all high earners are.”
On average, taxpayers with annual incomes of more than $US1 million last year paid a 29 per cent tax rate, compared with 15.1 per cent for those making between $US50,000 and $US75,000, according to the non-partisan Tax Policy Center in Washington.
Some high-income individuals, like Abdulla, do pay a lower average tax rate because much of their income is derived from capital gains rather than wages. In 2009, the most recent Internal Revenue Service data shows that 1470 individuals with at least $US1 million in annual income paid no income tax.
The debate over a “Buffett rule” tax caps an era in which have gone to those at the top of the nation’s income distribution. Between 1993 and 2008, the top 1 per cent of families captured 52 per cent of total income gains, according to a 2010 paper by economist Emmanuel Saez of the University of California, Berkeley.
“The Buffett rule does not apply to all rich people or the average rich person, but it does apply to some rich people,” said Roberton Williams, an analyst at the Tax Policy Center.
The administration has said it has no plans to submit a detailed millionaires’ tax proposal to Congress. For now, that means the main significance of the Buffett rule is political not financial.
The proposed tax is the rhetorical centerpiece of White House jockeying in the run-up to the deliberations of a congressional “supercommittee” seeking $1.5 trillion in deficit reduction by November 23.
Earlier this week, Douglas Edwards, who described himself as “unemployed by choice” after retiring as an early employee from Google, urged the President to “please raise my taxes” at a town hall in Mountain View, California.
Mr. Abdulla, co-founder of Momentum Trading Partners in New York, said he endorsed the idea of the rich paying more, while taking issue with the $US1 million threshold. A New Yorker with a $US1 million annual income is “far from really being rich,” he said.
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In follow-up interviews, many respondents called for a stem-to-stern overhaul of the tax code.
“Until the administration completely overhauls the personal and corporate tax code to both drive growth and incentivize the efficient transfer of capital and risk, the wealthy people will just have their tax lawyers find more loopholes to lower their taxes,” said Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco.
The quarterly Bloomberg Global Poll was conducted by Selzer Inc on September 26. It has a margin of error of plus or minus 3.1 percentage points.
Read more: www.smh.com.au/business/world-business/i...h.html#ixzz1ZTMQZrH1
