Buffett also praised the banks for their large deposit bases, saying that that is fundamentally where their earnings are going to be driven from.
While Buffett has not revealed Berkshire Hathaway (BRK.A)(BRK.B)’s fourth quarter portfolio yet, his third quarter holdings show just three banks worthy of inclusion in the portfolio: Wells Fargo (WFC), M&T Bank Corp (MTB) and U.S. Bancorp (USB). Together, they have a 22.8% weighting in it.
Wells Fargo (WFC)
Of his three bank holdings, Buffett has been purchasing Wells Fargo the most aggressively by far. Between the first quarter of 2009 and the third quarter of 2012, he has amassed 12,230,677 Wells Fargo shares at prices ranging from about $16 to $34. In total he has 422,549,545 shares, or 8.03% of the company.
According to its fourth quarter results announced today, Wells Fargo had the following levels for the three salient metrics Buffett mentioned in the interview indicated the strength of banks:
Tier 1 common equity: 10.12%, compared to 9.46% a year previously
Tier 1 capital: 11.75%, compared to 11.33%
Total risk to assets: 11.17%, compared to 10.78%
Total average core deposits: $928.8 million, compared to $864.9 million
Nonperforming assets: $24.5 billion, compared to $25.3 billion in the third quarter 2012
Wells Fargo also has had a revenue growth rate of 9.8% and EBITDA growth rate of 4% annually over the past five years. Book value grew at 14.6% over the past five years.
M&T Bank (MTB)
Buffett’s stake in M&T Bank predates 2010. He sold almost 1.5 million shares of the stake in the first half of that year, and didn’t touch the holding again until he added 18,219 shares in the third quarter of 2011. With no further trades since then, he owns a total of 5,382,040 shares, or 4.2% of shares outstanding.
With approximately $78 billion in assets, M&T Bank is one of the nation’s 20 largest commercial bank holding companies, with over 700 domestic branches in seven states.
As of Sept. 30, 2012, M&T has the following levels for Buffett’s three metrics:
Tier 1 common ratio: 7.47%, compared to 6.87% a year previously
Total tangible common equity to tangible assets: 7.04%, compared to 6.65% a year previously
Total deposits: $64 billion, compared to $59.5 billion
Nonperforming assets: $1.04 billion, compared to $1.26 billion
MTB has also in the past five years grown revenue at a rate of 4.4%, free cash flow at 18.6% and book value at 6%, annually. Its EBITDA has over the past five years declined at an annual rate of 0.3%.
U.S. Bancorp (USB)
Buffett’s position in USB predates 2008. When he added 4,306,100 in the third quarter of 2008, he rid himself of the shares and then some in the next quarter. He added almost 1.5 million more in the first quarter of 2009 when the price plunged to $15 per share, and has been reducing the stake in the past three quarters as the price increased. Buffett at the end of the third quarter owned a total of 61,264,601 shares of USB, of 3.26% of shares outstanding.
Tier 1 capital ratio: 10.9%
Tier 1 common equity to risk-weighted assets ratio: 9%
Total risk-based capital ratio: 13.3%
Total average deposits: $239.3 billion, compared to $215.4 billion in the third quarter of 2011
Total nonperforming assets: $2.19 billion, compared to $3.04 billion
USB’s annual revenue has declined at a rate of 0.6% over the past five years, and EBITDA declined at a rate of 10.5%. Its free cash flow grew at a rate of 16.8%, and book value grew at a rate of 8.3% over the same period. It also paid a $0.195 per share dividend in the third quarter of 2012, which increased from $0.125 in the third quarter of 2012.
In addition to common shares of these banks, Buffett owns $5 billion of preferred shares of Bank of America (BAC) and $5 billion in warrants to buy Goldman Sachs (GS), which he has not exercised yet.
See Warren Buffett’s portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Warren Buffett.