(NYSE: BRK.B) on Tuesday, BRK released its quarterly report, which showed Buffett further reduced his stake in Bank of America Corp. Berkshire Hathaway Inc. This is the second time in as many years Buffett has bought into Bank for America Corporation (NYSE: BAC) and is Berkshire’s second-largest holding company. That makes it the third-largest bank in Buffett’s portfolio after Wells Fargo & Co.
The company has been in crisis for about nine years, when Buffett first invested in the company. Warren Buffett invested $5 billion in Bank of America Corp. last year and stepped in to shore up the largest U.S. bank, just as he did with Goldman Sachs and General Electric during the financial crisis.
Bank of America shares rose nearly 26 percent at times, but gave up most of the gains, closing 2.5 percent, or about $1.2 billion lower. Warren Buffett has bought into the stock in 12 trading days at a time, according to the New York Stock Exchange. Trading was so strong that Bank of America shares made their biggest one-day gain in more than a decade, rising to nearly $26 a share at midday and losing nearly half of that gain before closing at $23.00, down about 2 percent.
Wells Fargo analyst Mike Mayo, however, told CNBC during trading around the country that Buffett was on track because the bank’s stock could recover 50% over the next 18 to 24 months. Warren Buffett has shed more than $1.2 billion in Bank of America shares since increasing his stake in the banking giant to nearly 12% on August 4, or nearly $12.5 billion. Experts said Wednesday that it was too early for the billionaire investor and Berkshire Hathaway chief executive to see a material return.
Warren Buffett, the company’s chief executive and CEO, has dropped a stake in Goldman Sachs and sold more than $1.2 billion in Bank of America shares, or nearly $12.5 billion, since August 4, Reuters reported. Based on Berkshire’s second-quarter filings with the Securities and Exchange Commission, the company announced that Berkshire reduced its Wells Fargo stake by 26 percent to 237.6 million shares, reduced its stake in J.P. Morgan by 62 percent to 22.2 million shares, and sold the remaining 1.9 million Goldman shares. The plight of some of the country’s largest financial institutions was exacerbated by the collapse of Lehman Brothers, one of Berkshire Hathaway’s largest holdings, according to the Wall Street Journal.
The sale of bank shares is just the latest in a series of missed opportunities for Berkshire Hathaway. In addition to slashing long-standing holdings in Wells Fargo (WFC), Berkshire Buffett and his wife, Berkshire Chief Financial Officer Patricia Buffett, have also sold Bank of America shares worth $1.2 billion, or $12.5 billion, since August 4, according to Reuters.
Berkshire also exercised its warrants to accumulate more than $1.5 billion worth of Bank of America stock. Berkshire has sold its stakes not only in Wells Fargo, but also in Citigroup (C), Goldman Sachs (GS) and JPMorgan Chase (JPM).
While the company receives approximately $300 million in dividends annually from the bank’s preferred stock, Berkshire has earned more by exercising its warrants on its own bank common stock. Berkshire made an easy decision because Bank of America received more than $1.5 billion in annual dividends from its preferred stock, raising its common stock dividend.
The sale of JPMorgan Chase is notable because Berkshire has partnered with Jamie Dimon – the lead bank for a health insurance company called Haven that plans to launch in 2018 and which last month announced its plan to close. The company is clearly on the right track, a sentiment that many investors did not share six years ago. Buffett says Berkshire will hold the stock for a very long time.
Berkshire Hathaway also reduced its stake in the scandal-hit mining company, selling it in the fourth quarter.
The latter stock is a strange investment for Berkshire, given its well-known contempt for Apple and its high-tech products. His investment in Apple has become one of Berkshire Hathaway’s most prominent investments in recent years.
Buffett became Bank of America’s largest shareholder by exercising warrants and holding 700 million shares. Buffett has added a $1.5 billion investment in the bank to Berkshire Hathaway’s investment portfolio, as well as a $2.2 billion investment in Goldman Sachs.
Buffett admitted in an interview with CNBC on February 25 that he paid too much for Kraft but has no plans to buy or sell shares in the company. Warren Buffett, chairman of Berkshire Hathaway, walks through a corporate fair at the New York Stock Exchange on January 26, 2016 in Manhattan, New York.
Bank of America sells to Berkshire for an annual dividend of 6 percent, and the bank buys back the investment, paying Buffett about $1.5 billion a year in dividends and interest on his shares.
