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 the quarter, reducing its stake from 7.9 per cent to 5.8 per cent, according to a filing with US securities regulators. Berkshire also sold 35.5m shares of JPMorgan, which lowered its stake to 0.7 per cent from 1.9 per cent, and 3.8m shares of PNC Financial.
Mr Buffett also sold the last of his financial crisis-era investment in Goldman Sachs in the quarter and cut Berkshire’s stakes in M&T Bank, Bank of New York Mellon, US Bancorp, Mastercard and Visa.
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.
Berkshire, however, did 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.
The Covid-19 pandemic has forced US banks to take billions of dollars in provision 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 a direct negative effect on bank profits. When short-term interest rates approach zero, banks’ lending margins compress, as loan pricing falls faster than banks’ already low financing costs.
“For the large national banks, facing zero interest rates into the foreseeable future and the significant credit exposure, how can one be confident?” Bob Diamond, former chief executive of Barclays, said recently. “Please explain to me where earnings are coming from?”
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.