3 interesting things about the stock purchase of Warren Buffett's bank – The Motley Fool

Warren Buffett Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) has a lot of money in the bank. It also has a lot of cash in the bank stocks – only $ 80 billion among the banks that are on the list of its top 10 holdings in stocks.

And Buffett is not finished buying it anymore. In a regulatory filing, Berkshire revealed that he had added new banks to his portfolio, realizing a $ 4 billion stake in JPMorgan Chase (NYSE: JPM) while increasing its existing bets of a billion dollars on Bank of America (NYSE: BAC), United States Bancorp (NYSE: USB), and Goldman Sachs (NYSE: GS).

By browsing through his portfolio of bank stocks, three clear themes emerge.

1. Buffett is not difficult

The banking sector is one where it is generally advantageous to be selective. But Buffett's bank bets are starting to look like his foray into the airline industry, where he bought billion-dollar stakes in major airlines, saying everything would be fine, even if he could not not choose which one.

Data source: 13F.

Berkshire Hathaway's banking portfolio is very similar to the banking sector in that it holds a $ 1 billion stake in five of the seven largest US banks by assets. Of the five largest banks owned by Berkshire Hathaway, all banks, except perhaps Goldman Sachs, could be considered rather boring, like mundane banks that accept deposits and make loans on a large scale.

I view Berkshire's approach as a fund close to the banking sector as an obvious sign that it likes all major banks, or even all banks, at current market prices. (Beyond the banks of the monetary centers, the small banks are just too small for Buffett to put large sums of money in the service of their actions.)

2. Buffett loves US banks

Buffett's holdings correspond to the largest American banks. What he does not have is perhaps as interesting as he has.

Berkshire's banking assets are a glaring exception: it owns the four major US banks, with the exception of Citigroup (NYSE: C). This may be due to the international presence of Citi, as the bank generates the majority of its revenues and benefits from its activities abroad (only about 37% of the sector profits are realized on Citi). the internal market).

In the United States, Citi's business consists primarily of credit cards and personal and commercial banking in major metropolitan areas. Citi is nothing like Bank of America, Wells Fargo or JPMorgan, which play a leading role in retail, mainly in the larger coastal metropolitan areas. They touch the map and affect a majority of American states. Berkshire already has a large exposure to American credit cards thanks to its disproportionate participation in American Express.

Despite trading the lowest multiple of the material book value of any of the big four banks, the well-known value investor does not have a penny in Citi.

3. Buffett likes banks "too big to be acquired"

In the second place only after having incurred bad debts, the main problem of the banks is to pay too much to acquire their rivals. The banking history is cluttered with transactions that have gone awry, most of them being done by the banks that make up a good portion of Berkshire Hathaway's portfolio (think about the purchase of Countrywide Financial by Bank of America or Bear Stearns by JPMorgan Chase).

Today, however, many Berkshire portfolio banks are actually too important to grow by acquisition, eliminating one of the most significant risks associated with owning a bank. Bank of America, JPMorgan Chase and Wells Fargo all control about 10% or more of the country's deposits, which prohibits them from entering into large transactions with a view to acquiring other depository institutions.

Given the current regulatory framework, the big banks are supervised. They can keep their profits to grow, pay dividends and / or buy back shares, subject to Federal Reserve approval.

Well capitalized, subject to stricter regulation and too big to make acquisitions, investors have often claimed that the big banks have become almost utilitarian. Buffett seems to have also adopted this point of view.