Warren Buffett’s Berkshire Hathaway continues to make it clear he and his managers are not enamored with most American banks except Bank of America.
Late Friday, (US time) Berkshire revealed it had sold more shares in what was one of Buffett’s so-called ‘pillar’ stocks – Californian-based Wells Fargo bank.
It continues the sell-off started earlier this year that has now seen Berkshire lighten or sell down shareholdings in a host of big bank names – Goldman Sachs, Wells Fargo, JP Morgan Chase, Bank of New York Mellon, and PNC, plus the likes of Visa and Mastercard.
The only bank Buffett and Berkshire seem to want to hold is Bank of America, the country’s number 2 behind JPMorgan.
Berkshire said on Friday it had cut its Wells Fargo stake to 3.3%, further reducing what had once been a $US32 billion investment in the bank.
Berkshire said in a regulatory filing it now owned about 137.6 million shares, worth $US3.4 billion, of the fourth-largest US bank by assets.
That’s down about 100 shares million from the end of June.
Wells Fargo has been replaced in the core shareholdings in Berkshire’s portfolio by Bank of America where Buffett’s company is the largest shareholder with 11.8%. That stake was topped up in July with $1.7 billion more shares bought.
The June quarter fund managers filing with the US Securities and Exchange Commission revealed that Berkshire has sold down some of its holdings in JPMorgan Chase (62% of a small stake), sold more Well Fargo and Bank of New York.
Berkshire also reduced positions in other financial-services firms including PNC Financial Services, M&T Bank Corp, Bank of New York Mellon Corp, Mastercard, and Visa. Berkshire all but exited Goldman Sachs in the first quarter — in the first of Buffett’s worrying signals — and the remainder in the June quarter.
Buffett began investing in Wells Fargo in 1989 but started reducing Berkshire’s stake in April 2017 when the Fed would not allow him to go any higher. Berkshire had asked the central bank for approval to go higher.
Buffett decided to stay put at just under 10% but then Well Fargo was ensnared in scandals of its own making over its treatment of customers, including the opening of accounts without their knowledge.
Staff complained they were pressurised to open these accounts and some were sacked when they refused. Senior managers were awarded tens of millions of dollars in bonuses and salary on the basis of these illegal accounts (later taken away) and the then CEO and chair departed, along with several other managers and directors.
New management was appointed but the Fed slapped a billion-dollar fine on Well Fargo and capped its ability to grow.
More problems with management saw Buffett lose confidence and in February of this year he criticised the company and revealed Well Fargo was no longer a core asset in his company’s $US200 billion investment portfolio and accelerated the sale of Wells Fargo shares.
Now it wouldn’t surprise if Berkshire rids itself of the remaining shares by the end of this year.
Last week wasn’t a good time for Well Fargo. Berkshire’s filing with the US Securities and Exchange Commission came two days after Moody’s Investors Service lowered its rating outlook on the bank to “negative” from “stable”, citing the bank’s slower-than-expected ability to resolve governance and oversight issues from previous years.
The shares rose on Friday and were up 0.4% for the week. News of the Berkshire filing came after the closing bell.
A week ago Berkshire revealed that it spent an estimated $US6 billion taking shareholdings in Japan’s five major trading houses – Sumitomo, Mitsui, Mitsubishi, Itochu, and Marubeni.
The further sale of Well Fargo shares will add to the speculation that Buffett and his managers are re-positioning Berkshire’s investment orientation to a more global focus.
