- Warren Buffett’s Berkshire Hathaway may have sold its whole stake in Wells Fargo, David Kass, a finance professor at the University of Maryland, told Business Insider.
- The billionaire investor’s company held a $9.3 billion position in the banking titan at the last count, making it the fifth-biggest holding in its stock portfolio.
- Berkshire’s stock sales, its list of top holdings, Wells Fargo’s fake-accounts scandal and balance-sheet restrictions, and Buffett’s $2 billion spending spree on Bank of America stock all support a disposal, Kass said.
- “The bottom line appears to be that Buffett views Bank of America and JPMorgan as being better-managed banks with many fewer problems than Wells Fargo,” Kass said.
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Warren Buffett’s Berkshire Hathaway may have dumped its entire stake in Wells Fargo, according to David Kass, a finance professor at the University of Maryland who has closely followed the famed investor and his company for more than three decades.
Kass pointed to several elements of Berkshire’s second-quarter earnings, published on Saturday, as evidence that it slashed or completely sold the fifth-biggest position in its stock portfolio. He highlighted them in an email to Business Insider.
Here are the 4 pieces of evidence:
Firstly, Berkshire sold a total of $13.6 billion of stock in the second quarter, and bought $800 million worth, meaning its net stock sales were about $12.8 billion.
Berkshire netted around $6.1 billion when it sold the “big four” airline stocks in April, leaving roughly $6.7 billion in net proceeds unexplained.
The company owned 323 million Wells Fargo shares valued at $9.3 billion at the end of March, the last time it disclosed its stock portfolio — it is expected to reveal its holdings as of June 30 later this week.
Berkshire may have sold those shares for $7.3 billion to $10.8 billion, based on the bank’s stock-price range last quarter. That would account for the $6.7 billion in unexplained sale proceeds, Kass said.
Secondly, Berkshire listed Wells Fargo as one of its five largest holdings in the first quarter, but only named its top four holdings in its latest earnings with no mention of the bank, Kass continued. The implication, he said, is that Wells Fargo is no longer one of its top five positions.
Thirdly, Berkshire has pared its Wells Fargo stake in recent years. It may have been preparing to eliminate it entirely, Kass added.
Fourthly, Berkshire reported a roughly $9.3 billion decline in the value of its banks, insurance, and finance stocks on a cost basis last quarter, suggesting the sales were mostly in that part of its portfolio. Wells Fargo fits the bill there too.
Scandals and restrictions
There are several reasons why Buffett may have soured on Wells Fargo’s prospects and decided to sell his stake, Kass told Business Insider.
The bank’s reputation took a big hit when news broke that its employees opened about 1.5 million bank accounts and 565,000 credit cards without customers’ permission between 2011 and 2015.
Buffett has criticized the bank’s bosses for their slowness in acknowledging and addressing the scandal, Kass pointed out.
The professor also highlighted the cap on Wells Fargo’s balance sheet of $1.95 trillion, which federal regulators imposed in early 2018 as punishment for the fake-account scandal. The limit continues to restrict the bank’s growth.
The alternatives — it may have sold JPMorgan …
It’s possible that Berkshire sold some or all of its 57.7 million JPMorgan shares instead of dumping Wells Fargo, Kass said.
The JPMorgan shares would have fetched between $4.8 billion and $6.5 billion based on their trading range last quarter, and Berkshire also trimmed its stake in the bank in the first quarter.
However, Kass argued that Wells Fargo is the more likely target.
He highlighted the contrast between Buffett’s negative comments about Wells Fargo’s management and his frequent praise of JPMorgan CEO Jamie Dimon. Buffett also partnered with Dimon on a healthcare venture, Haven, in 2018.
Or swapped Wells Fargo for Bank of America
The investor may have decided to concentrate his portfolio by selling Wells Fargo and using some of the proceeds to bolster Berkshire’s second-biggest holding after Apple, he continued.
“The bottom line appears to be that Buffett views Bank of America and JPMorgan as being better-managed banks with many fewer problems than Wells Fargo,” Kass said.