Warren Buffett sold his stakes in several banks after spotting “red flags” in their financial reports.
The famous investor said bank bosses acted recklessly and misled investors and analysts.
Here’s a closer look at what Buffett has said and the bank stocks he’s sold over the past several years.
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Warren Buffett dumped his stakes in several banks because their bosses were taking “stupid” risks and boosting profits through fraudulent accounting. He believed that they would eventually pay for their misdeeds, as he did recently in one CNBC-Interview explained.
The famous investor’s revelation that he predicted trouble in the banking sector is notable given the current turmoil in the sector. The sudden collapse of Silicon Valley Bank and Signature Bank in March has raised concerns of an international banking crisis.
Here’s a closer look at what the CEO of Berkshire Hathaway and the bank stocks he’s sold in recent years.
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Those were the “Red Flags”
Buffett found that several banks valued their assets at cost rather than market value, artificially inflating their profits and misleading investors and analysts, Buffett told CNBC.
They also made a fundamental mistake by not matching their assets and liabilities. For example, they took customer deposits that could be withdrawn immediately and used them to buy long-dated government bonds and mortgage-backed securities. Silicon Valley Bank did just that and brach in March under a wave of withdrawals together.
“I don’t like it when you get too focused on the winning numbers and forget what I think are basic banking principles,” Buffett said of his decision to reduce his bank bets.
“I felt like banking could get in trouble just because of the things they were doing,” he continued, “I didn’t like banking as much as I used to.”
Buffett also appeared to be specific about his bet with Wells Fargo. The 92-year-old billionaire invested in the 1989 scandalous Wall Street titan and counted him among the for many years cornerstones of his stock portfoliobut sold the last of its shares in the first quarter of 2022.
“I’ve sold banks that we’ve owned for 25 or 30 years,” he said, “I just don’t think the system is set up right in terms of punishing the guilty…it’s incredibly important that the banking system is running well.” “
exit
Berkshire has divested its holdings in JPMorgan, Goldman Sachs, Wells Fargo, M&T Bank and PNC Financial over the past three years, according to the Securities and Exchange Commission filings emerges.
The stake in BNY Mellon was also reduced by 69 percent and that in the US bank by 95 percent. The divestments reduced the total value of these holdings from nearly $12 billion at the end of 2019 to less than $1.5 billion at the end of 2022.
On the other hand, new positions were taken in Citigroup, Ally Financial, Jefferies and NuBank. He also increased his stake in Bank of America by more than 9 percent and still ranks the lender as the second most important position after Apple.
Speaking to CNBC, Buffett explained that he’s sticking with Bank of America because he made a “very good offer‘ that he likes CEO Brian Moynihan and he just didn’t want to sell her.
The chart below shows Berkshire’s portfolio of banking stocks and how sharply they have fallen in value over the past three years:
Despite Berkshire’s purchases, the total value of its banking stock has fallen 49 percent over the past three years, from $75 billion to $39 billion.
Berkshire reports the combined value of its banking, insurance, and financial stocks quarterly. This value is of 102 billion dollars end of 2019 end up at $70 billion 2022 dropped. In addition, the proportion of this stock category fell from 41 percent of the entire stock portfolio to less than a quarter.
Falling share prices were partly responsible for this sharp drop in value. The main driver, however, was Berkshire’s divestments, as the company’s cost base for its banking, insurance and financial assets fell from $40 billion to $26 billion over the three-year period.
It’s important to note that Buffett didn’t say which banks had “red flags” in their financial reports. He also stressed that the fact that he sold a bank’s shares does not mean that it is badly run. However, the investor clearly saw problems with some banks in his portfolio and decided to divest them before they ran into trouble.
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