After another quarter of selling bank stocks, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) and its legendary President and CEO, Warren Buffett, are clearly becoming more selective in the industry. As a result, there is a new pecking order among Berkshire investment banking.
By reducing its position in Wells fargo from 237.6 million shares after the second quarter to 127.4 million shares at the end of the third, Berkshire knocked out the former frontrunner from its three major banks. But which banks survived the cut?
As banks face high borrowing costs and weaker income prospects in an ultra-low rate environment, let’s take another look at Berkshire’s three favorite banks at the end of September.
1. Bank of America
If you follow Buffett, it shouldn’t surprise you. At the start of the third quarter, Buffett went on a huge buying spree, buying over $ 2 billion worth of Bank of America (NYSE: BAC) shares and increasing Berkshire’s stake in the company to redress approximately 12% of the outstanding shares.
Bank of America has weathered relatively well during the coronavirus pandemic, generating revenues of around $ 12.4 billion in the first three quarters of 2020, despite setting aside more than $ 11 billion to prepare for potential future loan losses. Buffett seems extremely pleased with the way CEO Brian Moynihan has transformed the bank since the Great Recession, and the relative stability of the balance sheet.
Bank of America is now Berkshire’s second largest stake just behind Apple, and you can see the Oracle of Omaha looking to buy more. Recently, Berkshire received approval from the Federal Reserve Bank of Richmond to purchase up to 25% of the outstanding shares of Bank of America.
2. American Express
You might know it as a credit card company with great rewards points, but American Express (NYSE: AXP) is first and foremost a bank. And this is the one Buffett adores. At the end of the third quarter, Berkshire maintained its position in the company, holding more than 151 million shares. This is exactly the same position Berkshire had in the business at the end of 2019. At Friday prices, American Express accounted for almost 7% of Berkshire’s portfolio.
This is a big sign of Buffett’s confidence. Credit card companies can be exposed to higher loan losses, especially during downturns, and a decent share of American Express’s business is in the travel and entertainment industry, which has seen significant activity. extremely limited this year due to the coronavirus pandemic. But consumers have fared better than expected during the coronavirus pandemic, and American Express has built up enough reserves to cover future losses equivalent to more than 8% of its total loan portfolio. In mid-March, around the onset of the pandemic, Buffett called the American Express brand “special,” and his actions so far support that belief.
3. US Bancorp
Buffett also essentially maintained his position during the pandemic in $ 540 billion in assets. US Bancorp (NYSE: USB), based in Minneapolis.
Berkshire currently owns nearly 132 million shares of the company, which equates to just under 10% of the bank’s outstanding shares (and around 2.6% of Berkshire’s portfolio). This is a real testament to US Bancorp, as Berkshire this year sold much of its stake in other regional banks with strong track records, such as PNC Financial Servicesand M&T Bank. But it’s hard to disagree with that decision, as US Bancorp is one of the best in the business. Year after year, the bank generates solid and consistent returns for investors.
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