Buffett Rules Out Double-Dip Recession Amid Growth; Berkshire Hathaway Bank Holdings: WFC, USB, MTB, BAC

Andrew Frye and Kelly Bit of Bloomberg reported that latest Warren Buffett’s remarks on the economy.


Excerpt:

Warren Buffett ruled out a second recession in the U.S. and said businesses owned by his Berkshire Hathaway Inc. are growing.


“I am a huge bull on this country,” Buffett, Berkshire’s chief executive officer, said today in remarks to the Montana Economic Development Summit. “We will not have a double-dip recession at all. I see our businesses coming back almost across the board.”

And more Buffett quote:

• “I’ve seen sentiment turn sour in the last three months or so, generally in the media,” Buffett said. “I don’t see that in our businesses. I see we’re employing more people than a month ago, two months ago.”
• “It’s night and day from a year, year and a half ago,” Buffett said. “I know Wells Fargo, they would love to have $50 billion more of loans now. Go in and talk to the banker.”

Read the complete articleat Bloomberg.com.


Controlling over a host of operating companies gives Buffett an advantage over other investors and economists in terms of timely information.


The article cited a number of Berkshire Hathaway’s bank and financial holdings such as Wells Fargo, Bank of America and Goldman Sachs. The Goldman Sachs shares are referring to the $5 billion perpetual preferred shares that Buffett bought from the companies during the financial crisis. In return, Berkshire gets 10% dividend as well as warrants of buying Goldman Sachs common shares at a prices way below today’s price.


On the common shares, these are the banks that Berkshire Hathaway own at the end of 2Q10, the most recent time such information is available to public:





While perhaps not all Berkshire Hathaway owned bank stocks the deeds of Warren Buffett himself. Buffett certainly has been rather choosing in buying into banks, as he wrote in his letter to shareholders in 1990, the year he bought into Wells Fargo (WFC, Financial) in large swing (emphasis mine):

Lethargy bordering on sloth remains the cornerstone of our investment style: This year we neither bought nor sold a share of five of our six major holdings. The exception was Wells Fargo, a superbly-managed, high-return banking operation in which we increased our ownership to just under 10%, the most we can own without the approval of the Federal Reserve Board. About one-sixth of our position was bought in 1989, the rest in 1990.


The banking business is no favorite of ours. When assets are twenty times equity - a common ratio in this industry - mistakes that involve only a small portion of assets can destroy a major portion of equity. And mistakes have been the rule rather than the exception at many major banks. Most have resulted from a managerial failing that we described last year when discussing the "institutional imperative:" the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so. In their lending, many bankers played follow-the-leader with lemming-like zeal; now they are experiencing a lemming-like fate.


Because leverage of 20:1 magnifies the effects of managerial strengths and weaknesses, we have no interest in purchasing shares of a poorly-managed bank at a "cheap" price. Instead, our only interest is in buying into well-managed banks at fair prices.

Here are the Berkshire’s holding histories of these stocks:

Wells Fargo & Company (WFC)

Wells Fargo & Company has a market cap of $134.76 billion; its shares were traded at around $25.75 with a P/E ratio of 15.24 and P/S ratio of 1.37. The dividend yield of Wells Fargo & Company stocks is 0.78%. Wells Fargo & Company had an annual average earning growth of 5.1% over the past 10 years.


As mentioned earlier, Buffett started to own this bank’s shares in 1989, before we have data for. In the financial crisis of 2008-2009, he bought additional 30 million shares.

U.S. Bancorp (USB, Financial)

U.S. Bancorp is a financial services holding company. U.s. Bancorp has a market cap of $43.39 billion; its shares were traded at around $22.63 with a P/E ratio of 16.28 and P/S ratio of 2.23. The dividend yield of U.s. Bancorp stocks is 0.88%. U.s. Bancorp had an annual average earning growth of 2.1% over the past 10 years.


This is another long-time holding, possibly since before we have history for:

M&T Bank Corp. (MTB, Financial)

M&T Bank Corp is a bank holding company. They have two primary bank subsidiaries: Manufacturers and Traders Trust Company and M&T Bank, National Association. M&t Bank Corp. has a market cap of $10.31 billion; its shares were traded at around $86.57 with a P/E ratio of 17.96 and P/S ratio of 2.73. The dividend yield of M&t Bank Corp. stocks is 3.23%. M&t Bank Corp. had an annual average earning growth of 1.3% over the past 10 years.


This is another long-time holding, possibly since before we have history for.

Bank of America Corp. (BAC, Financial)

Bank of America Corp. is one of the world's financial services companies. Bank Of America Corp. has a market cap of $135.96 billion; its shares were traded at around $13.55 with and P/S ratio of 0.9. The dividend yield of Bank Of America Corp. stocks is 0.3%.


Berkshire started to own BAC since 2007, when it was at much higher prices. Interestingly, the company did not buy more shares in 1Q09 when the stock was selling at a fraction of its historical high and that of its current prices. All in all, Berkshire lost some good money in this stock. We estimate it has lost at least $350 million in this one stock, or about 75% of the original investment.


The investment in BAC is one of the Berkshire’s less publicized investment mistakes.





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