Buffett lets go of the essence of Fargo’s stake – ShareCafe


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Warren Buffett’s Berkshire Hathaway has given up almost all of its stake in US bank Well Fargo, which was once one of its so-called “pillar” stocks (along with Amex and Coca Cola).

The sales virtually ended a 31-year investment relationship between Buffett and the bank he had long considered America’s best.

In the Berkshire fund managers quarterly activity report, filed with the U.S. Securities and Exchange Commission (SEC) on Monday, Berkshire revealed that it now only holds $ 26.4 million in Wells Fargo shares.

This compares to a $ 32 billion stake in early 2018 – when Buffett wanted to increase the stake but the U.S. Federal Reserve refused to allow the rise due to financial transactions (loans, etc.) between the bank. and Berkshire.

Berkshire began downsizing Well Fargo’s stake due to the Fed’s move, but the sale accelerated after the bank was found to be involved in questionable sales practices of financial accounts and products.

The bank’s reputation has been destroyed by revelations that employees facing aggressive sales targets opened millions of junk accounts, charged unnecessary mortgage fees and forced drivers to purchase auto insurance they didn’t have. need.

This was motivated by Wells Fargo’s long-standing strategy of selling more product per customer, or cross-selling – a move copied by other banks in the US and elsewhere, such as in Australia where it dominated for some time at Westpac, Suncorp and the Commonwealth Bank, as well as AMP.

The scandal has resulted in fines from regulators, lawsuits that have been settled for large sums of money from unfairly dismissed staff, while the bank’s management and board undergo changes considerable.

Wells Fargo paid $ 3 billion in February 2020 to settle criminal and civil investigations.

Berkshire’s filing with the SEC showed that the large stake in Bank of America remained stable during the quarter, so the sale of Wells Fargo was not part of a bank revaluation that Berkshire made to certain occasions. He sold a stake in a private credit card issuer. See below.

Berkshire began investing in San Francisco-based Wells Fargo in 1989 and has spent at least $ 12.7 billion on stocks, constituting a 10% stake. The stake had fallen to $ 1.58 billion at the end of last December. Monday’s filing revealed that he now only owns 675,054 Wells shares.

Buffett was right when he told CNBC in February last year that Wells Fargo had a “dumb” incentive system and was slow to get it right.

“The most important thing is that they ignored it when they found out,” he told CNBC. “You absolutely have to tackle a problem as soon as it arises, and you know it. And if that had happened, Wells Fargo shareholders would be much better off. “

Berkshire still owns shares of other banks, including Bank of America, its largest stake after Apple.

Last November, the SEC accused two former senior executives of Wells Fargo of misleading investors about its financial results.

Wells Fargo remains subject to a Federal Reserve directive banning asset growth until it makes sufficient improvements, three years after it was imposed in February 2018.

Wells Fargo shares closed on Monday at US $ 47.90. This has more than doubled since last October in the global reassessment of bank stocks as the Covid pandemic has abated.

But shares are still 28% below its January 2018 high when Berkshire stake peaked.

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While selling most of its stake in Wells Fargo, Berkshire’s filing with the SEC also showed consistent ownership in Apple (and Bank of America, Amex, and Coca Cola), but there have been changes elsewhere in the portfolio of $ 245 billion in the March quarter.

The most notable purchase was a US $ 943 million stake in insurance company Aon Plc. He also added to his stake in Aon’s rival Marsh & McLennan, which now totals 5.3 million shares.

Both investments are intriguing because insurance is a business Berkshire and Buffett really understand and are world (and US) leaders in areas like reinsurance.

Aon is awaiting regulatory approvals to buy Willis Towers Watson Plc for around $ 30 billion and create the world’s largest insurance brokerage firm, ahead of Marsh.

Berkshire also owns Geico auto Insurance (number 2 in the United States), General Re reinsurance (part of the largest reinsurance group in the world) and also insures against major and unusual risks (called Cat, or catastrophe insurance).

Berkshire nearly doubled the size of its stake in the Kroger grocery chain to 51 million shares, from 33.5 million.

The company also added to its relatively new stake in Verizon to give it nearly 159 million shares, up from 147 million three months ago when the investment was first revealed.

Three months ago, Berkshire unveiled a surprise $ 4.1 billion investment in large energy company Chevron. This amount was reduced to US $ 2.5 billion in the March quarter.

Berkshire also fully exited a small stake in Suncor Energy in Canada.

He also sold a relatively smaller stake of approximately US $ 700 million in Synchrony Financial, a private label credit card issuer.

Berkshire also reduced a number of its holdings in the quarter, including drugmakers Abbvie, Bristol-Myers Squibb and Merck. Shares of General Motors and Sirius XM were also sold.

Overall, Berkshire sold $ 6.45 billion in shares and bought just $ 2.57 billion in the quarter.

All U.S. fund managers with portfolios of $ 100 million or more are required to report quarterly activity to the SEC. This does not apply to so-called private or family office investors, such as the hapless Archegos who collapsed in April with billions of dollars in debt and billions of dollars in losses for some banks such as Credit Suisse, Nomura and Morgan Stanley.

The documents filed by Berkshire are being tracked by analysts, investors and other fund managers for clues as to what Buffett (and his managers) think about investment trends or opportunities in the markets.

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