Warren Buffett · 1990 · Berkshire Hathaway Inc.
1990 Shareholder Letter
Buffett wrote that during a banking recession, the reported earnings of banks are not to be trusted at face value, because loan-loss provisions lag the deterioration of the underlying credits. He argued that a bank's economic earnings in a downturn are far below its reported earnings, and that the reverse is true in recovery. The lesson generalizes: accounting reflects what has already happened, while economic value depends on what the business will distribute in the future.
On bank accounting during the 1990 recession, with Wells Fargo in view.