And it’s a very happy 87th birthday for Warren Buffet overnight as he ‘celebrated’ by crystalising another of his now legendary coups – a $US13 billion ($US16.4 billion) profit becoming the biggest shareholder in the huge Bank of America.
His stake is now worth more than $US16 billion and the 700 million shares he picked up were a result of the $US5 billion in preferreds (with attached warrants) that he injected into a shaky Bank of America back in 2010 as it battled to escape the clutches of the GFC, huge fines and losses on a host of products and plays.
His move to the top of the Bank of America share register has been coming for months – ever since the bank boosted its ordinary dividend to 48 cents a share – which made it more financially attractive for Buffett to pick up the 700 million shares and their $US348 million in dividends than stay with the preferred and their slightly lower interest rates.
The Bank of America shares were converted at $US7.14 each, a third of the present market value of more than $US23.
And we have to remember that Bank of America isn’t the only bank Buffett supported in the GFC.
He also injected $US5 billion via preferred shares into Goldman Sachs, saving it as well from a big crunch (he also did the same for General Electric with a $US3 billion investment). Buffett sold all 10.6 million GE shares in the June quarter.
He converted the Goldman Sachs prefs to shares and sold some in 2015 making a profit of $US3.1 billion. Buffett is now the largest shareholder in Bank of America, and in Wells Fargo – the second and third largest banks in America respectively, and a large shareholder in Goldman Sachs, and US Bancorp. Berkshire is also the biggest shareholder in American Express.
When he finally dies, his death will shake US and global financial markets and systems like no other individual’s departure will.
So what sort of 12 months has Buffett and Berkshire Hathaway had in the past year – well the share price is up from just over $US225,000 for the voting shares to just under $US270,000 – a rise of nearly 19% against a rise in the S7P 500 of 9.2%. They hit an all time high of just over $US271,000 last week.
He has had a couple of stumbles though – the ill-thought out involvement (to the tune of a $US15 billion investment) in the Kraft Heinz play for control of Unilever (huge $US140 billion offer) that was rejected by the Dutch/UK company with some derision and damaged Buffett’s image.
Last week Berkshire refused to lift its $US9 billion offer for Texas energy utility Oncor and lost out to a higher offer from a west coast utility with the support of activist hedge fund group, Elliott Management. Sempra bid $US9.45 billion (and there is debt of another $US9 billion), but Buffett and Berkshire refused to get into an auction, and the shares rose.
The investment coup of the past year was to start buying Apple shares at low prices and load up as the shares surged and the story that Apple was ‘gone’ suddenly was replaced with ‘Apple’s comeback”.
Berkshire is now the single largest investor in Apple and Apple’s valuation is over$US840 billion. Berkshire started buying Apple shares when they were less than $US100 each back in the second quarter of 2016. The shares closed above $US162 yesterday.
Berkshire also bought big stakes in America’s major airlines – United, American, Southwest and Delta – on a big departure from his long time opposition to the business as a source for his funds.
Berkshire also bought $US520 million worth of shares in Synchrony, the store credit card business of GE that was spun off to lower GE’s exposure to financial services (which is why it got into trouble in The GFC). Selling out of GE provided a nice example of Buffett’s preferences – finance rather than manufacturing.
Berkshire also bought a 9.8% or $US418.1 million stake in Store Capital, a medium sized US real estate trust with exposure to retailers and companies that won’t be hit by Amazon and other online giants.
And it bailed out Canada’s biggest subprime mortgage lender – a company called Home Capital Group in a $C2 billion plus deal that involves $C400 million of equity and a $C2 billion line of credit (with an interest rate of 9%).
The biggest deal was to spend $US10.2 billion buying a whole lot of long tail insurance business from AIG – it is a form of reinsurance. That boosted Berkshire’s surplus cash float to just on $US100 billion.
The value of the share portfolio was $US162 billion at June 30, up from $US148 billion at December 31 and nearly 25% above the $US129.7 billion value at June 30, 2016.
To mark his 87th birthday, Buffett did a series of TV interviews and hit the share prices of several companies.
According to a report, he rejected the idea of Kraft Heinz acquiring snack company Mondelez International. Buffett owns 26.7% of Kraft Heinz, and when asked if he would be interested in such an acquisition, Buffett told CNBC: “I think the answer is no on that.”
Buffett also quashed rumors that Kraft Heinz would go after a Unilever takeover again. He said the first attempt was a "misunderstanding."
"We will not make hostile takeover offers, and we did not intend that to be hostile," Buffett said. "But it turned out it was, and we immediately — the next day when I learned about it — we called it off. It was a misunderstanding."
Buffett also told CNBC that he wasn’t surprised to see further woes at Wells Fargo & Co , in which Berkshire is the largest shareholder.
“What you find is there’s never just one cockroach in the kitchen when you start looking around,” he said. Wells Fargo CEO Timothy Sloan earlier this month told employees to prepare for more adverse headlines as it conducts a review of its consumer sales scandal.
In the second quarter Berkshire earlier this year sold some Wells Fargo shares to keep its stake below 10%.
Buffett told CNBC that his long-term view on the bank was unlikely to be shaken. Wells Fargo is a “terrific bank,” he said. “There were some things that were done very wrong but they are being corrected.”
Buffett also told CNBC that he hasn’t sold Apple shares, but wouldn’t say if Berkshire was doing any more buying
