Warren Buffett’s Banking March 9 Prediction

“This is a great time to be in banking,” Warren Buffett said on CNBC, one month ago today.

His statement was dismissed at the time by several of his critics as a non-event, arguing that Buffett’s line of thinking, in terms of the market’s dynamics and the banking industry, didn’t make much sense nor constituted enough of a reason for investors to buy into the sector. But, it certainly made sense today.

Wells Fargo (WFC) shares soared nearly 32% on Thursday before the opening bell, surprising the market with an early profit report that blew past analysts’ expectations thanks to a strong increase in its lending business. The bank said it expects a record $3 billion in earnings for its Q1. Back on March 9, Wells Fargo stock was at mid $8 levels. At the closing bell today (Thursday) , the stock was up $4.72 to $19.61 a share.

During his March 9, three-hour live appearance on Squawk Box, Buffett also talked about how banks could take advantage of the low cost of money to make very profitable loans:

“The spreads have never been wider. This is a great time to be in banking, you know, if you just get past the past and they are getting past the past. I mean, right now every time a loan is made to somebody to buy a house–and we’re making, you know, making millions of loans–four and a half million houses will change hands this year out of a total stock of less than 80 million. So those people are making good mortgages. You want those assets on your books and you get a great spread in putting them on now. So it’s a great time to be in banking, but you do have to get past this past.” [via CNBC]

Buffett’s transcript available here »

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