Warren Buffett (Trades, Portfolio) achieved a significant feat in 2017 – each of his financial stocks looks to be ending the year in the green.
Wells Fargo & Co. (WFC) gained 12.3%, Bank of America Corp. (BAC, Financial) rose 35% and American Express Co. (AXP, Financial) increased 35.6%. The behemoth institutions were outdone by several of their smaller peers in his portfolio, however. The best, Moody’s Corp., rose 60.9%, with MasterCard (MA, Financial) following, up 47%, and Visa Inc. (V, Financial) up 44.6%.
Some of the weaker performers were Synchrony Financial (SYF, Financial), increasing 6.8%, US Bancorp (USB, Financial), increasing 7.9%, and Goldman Sachs Corp. (GS, Financial), increasing 8.3%.
Wells Fargo
Buffett has enduring attachments to many of his financial positions, particularly his largest, Wells Fargo, which he began purchasing in 1989. He continues to hold 464,232,268, or 9.4% of the company’s shares, as of the end of the third quarter.
But Buffett seemed to sour on the position in mid-2017. The leader of Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) reduced it by 2.44% in the second quarter and 0.8% in the third quarter. He told CNBC that he reduced the position only to stay under the 10% limit the Fed places on bank ownership.
Buffett’s sales also came as the company continued to face negative headlines surrounding the discovery of approximately 3.5 million fake bank and credit card accounts throughout the year. In October, Wells also saw its quarterly profit sink 19%, sending its shares down.
When asked about Wells Fargo in August, Buffett told CNBC, "What you find is there's never just one cockroach in the kitchen when you start looking around.”
He seemed to support the way the bank handled the situation, however, as Wells Fargo CEO Tim Sloan prepared to give his testimony before the Senate Banking Committee in October. At the hearing, Sloan apologized for the bank’s actions. He also hired back workers fired in the wake of the scandal.
"Tim Sloan has my faith," said Buffett told CNBC in October. "When you find a problem, you have to jump on it."
For the third quarter, Wells Fargo saw revenue decline 2% to $21.9 billion from the comparable 2016 quarter, with net interest income up 4% to $12.5 billion. Total average deposits also rose 4% to $1.3 trillion. Wells Fargo reported 84 cents in earnings per share, down from $1.07 and net income of $4.6 billion compared to $5.81 billion from the prior year.
Shares of Wells Fargo have risen 10% year to date to trade around $55.07 Thursday afternoon. Buffett has watched his Wells Fargo position gain 85% over the past six years of data.
Bank of America Corp.
Seemingly Buffett’s youngest financial position, Bank of America became one of the guru’s biggest positions in the third quarter after he seized 679 million shares by converting warrants he purchased during the financial crisis.
Buffett exercised the warrants for $7.14 each, or about $5 billion. With shares trading around $24 the say of the conversation, Buffett’s stake totaled more than $17 billion in value, for a paper profit of $12 billion.
Buffett made the decision a day after the bank announced it would raise its annual dividend 60% to 48 cents per share. Bank of America was authorized to hike the dividend after passing two of the Federal Reserve’s annual stress tests.
"We will be holders of BofA stock for a long, long, long time," Buffett told CNBC in an interview in October.
In the third quarter, Bank of America net income increased 13% to $5.6 billion and EPS grew 17% to 48 cents per share. Net interest income increased 9% to $11.2 billion, driven by higher interest rates and loan and deposit growth. Average loan balances rose 4% to $1.27 trillion.
On Dec. 5, the bank announced plans to repurchase $5 billion more common stock by June 30, 2018. Bank of America had previously announced on June 28 that it would repurchase $12 billion in common stock in addition to enough shares to offset $0.9 billion in equity-based compensation.
Bank of America shares have risen 34% year to date and trade around $29.50 Wednesday afternoon.
American Express Co.
Buffett is also the top shareholder at American Express, where he owns almost 25% of the company, which he has held for decades.
In May, Berkshire reported that it requested the Federal Reserve lift the 25% limit it placed on investors of the credit card lending company. Buffett’s request came as American Express made share repurchases that ballooned the percentage of Berkshire Hathaway’s stake in the company.
When the company announced a leadership transition on Oct. 18, Buffett praised both the new chairman and CEO of the company, Stephen J. Squeri, and the executive he replaced, Kenneth I. Chenault.
“Ken’s been the gold standard for corporate leadership and the benchmark that I measure others against,” Buffett said. “He led the company through 9/11, the financial crisis and the challenges of the last couple of years. American Express always came out stronger. Ken never went for easy, short-term answers, never let day-to-day challenges distract him from what was right for the moderate to long term. No one does a better job when it really counts and he’s always done it with the highest degree of integrity.”
“American Express is a very special company, one in which I first invested 53 years ago. Ken built on its storied history – not by abandoning traditional strengths, but by building on them and adding new ones. He’s been a great CEO and Berkshire Hathaway shareholders owe him a huge thank you.”
“I’ve spoken with Steve and have been hearing about him from Ken. From everything I’ve heard, he’s absolutely the right person for the job. He knows the business, has a great track record and appreciates what makes American Express special. Ken and the board have picked someone who is going to build on a great legacy of service and success.”
For the third quarter, American Express reported a 9% revenue increase to $8.4 billion, with net income up 19% to $1.36 billion. Earnings per share also 25% to $1.50 per share. Amex also raised its guidance for full-year earnings per share to a range of $5.80 to $5.90 per share, up from $5.60 to $5.80.
Buffett has purchased no new shares of American Express in at least six years of data. Shares traded Wednesday afternoon around $86 each.
