Warren Buffett, through Berkshire Hathaway, is one of the single-biggest individual shareholders in US banks. Photo / AP
Warren Buffett, through Berkshire Hathaway, is one of the single-biggest individual shareholders in US banks. Photo / AP
Warren Buffett's Berkshire Hathaway significantly cut its stakes in some of the largest US banks in the second quarter, selling billions of dollars worth of stock in Wells Fargo, JPMorgan Chase and other financial institutions.
Berkshire Hathaway disclosed on Friday it had sold 85.6m shares of Wells Fargo in thequarter, reducing its stake from 7.9 per cent to 5.8 per cent of the lender, according to a filing with US securities regulators. Berkshire also sold 35.5m shares of JPMorgan, lowering its stake to 0.7 per cent from 1.9 per cent, and a substantial minority of its longtime holding PNC Financial.
Mr Buffett sold the last of his financial crisis-era investment in Goldman Sachs in the quarter, which was worth just under $300m at the end of March. He cut Berkshire's stakes in M & T Bank, Bank of New York Mellon, US Bancorp, Mastercard and Visa as well. In total, including both financial and non-financial stocks, Berkshire dumped $12.8bn worth of shares in the quarter.
Through Berkshire, Mr Buffett is one of the single-biggest shareholders in US banks and his decision to pare back his exposure will be parsed by investors globally, especially given the timing.
The same will be true of the decision to add exposure to gold in the second quarter, via a new holding in Barrick Gold, the world's second-largest miner of the precious metal. Shares in Barrick Gold were up 7 per cent in after-hours trading.
The Covid-19 pandemic has forced US banks to take billions of dollars in provisions for future credit losses. The 15 largest US banks alone have set aside $76bn since the crisis began.
In addition, Federal Reserve intervention, designed to protect the economy from the effects of the virus, has pushed short-term interest rates to nearly zero, compressing banks' lending margins as loan pricing falls faster than their already low financing costs.
Trading by Mr Buffett since the end of the second quarter is not captured in Friday's filing, and Berkshire has made at least one big positive bet on bank shares so far in the third quarter. Since late July, it has purchased more than $2bn of stock in Bank of America, the second-largest bank in the US, taking its stake above 11 per cent.
Shares in US banks have been hammered by the pandemic and have not recovered with the rest of the market. The KBW bank index is down 27 per cent since February.
Wells Fargo, still struggling to recover from its 2016 fake accounts scandal, has been hit particularly hard, with its share down by almost half since February.
In part because of its heavy exposure to financials, Berkshire's class A shares have fallen 6.9 per cent this year, lagging the 4.4 per cent advance by the broader US market.
At its annual shareholder meeting in May, Mr Buffett declared his long-term faith in the US economy without making any predictions for the immediate future.
"In 2008 and 2009, our economic train went off the tracks. And there were some reasons why the roadbed was weak, in terms of the banks and all that. This time we just pulled the train off the tracks and put it on a siding," he said.
"This is quite an experiment and we may know the answer to most of the questions reasonably soon but we may not know the answers to some very important questions for many years. It still has an enormous range of possibilities."
