Several bank holdings of Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) surged on Thursday on announcements that the Federal Deposit Insurance Commission (FDIC) laxed restrictions regarding bank investments in venture capital funds.
Shares of Bank of America Corp. (BAC, Financial), Wells Fargo & Co. (WFC, Financial) and JPMorgan Chase & Co. (JPM, Financial), three of Berkshire’s top 10 holdings as of the March filing, soared over 3% to 4% on the FDIC’s announcements. Further, JPMorgan and Goldman Sachs Group Inc. (GS, Financial) helped propel the Dow Jones Industrial Average to a close of 25,745.33, up 299.39 points or 1.18% from Wednesday’s close of 25,445.94.
FDIC dials back restrictions from post-2008 financial crisis rule
The FDIC discussed in a board matters meeting that its officers have concurred changes to the Volcker Rule, a regulation part of the 2010 Dodd-Frank Act that prohibited banks from making potentially speculative investments using clients’ FDIC-insured deposits. Such investments included venture capital funds and other covered funds.
According to the FDIC’s Thursday memo, the new rules allow banking entities to “acquire or retain an ownership interest” in certain venture capital funds under otherwise applicable laws. Banking entities can also sponsor “qualifying” venture capital funds: The Securities and Exchange Commission detailed in a February 2020 document that venture capital funds must satisfy certain conditions regarding representation and leverage limitations to register as exempt reporting advisors.
CNBC added that Art Hogan, chief market strategist at National Securities, said the lax rules regarding venture capital investments and the removed requirement of setting aside cash for derivative traders between separate affiliates allowed markets to “breathe a sigh of relief” as banks may potentially free up working capital.
Bank shares dig markets out of early hole on resurging coronavirus cases
The late rallies in bank shares more than offset early losses, with the Dow trading over 200 points lower at the intraday low. Stocks were pressured in early trading as investors grappled near-record spikes in new coronavirus cases in several states in the southern and western U.S.
According to Johns Hopkins University statistics, global cases of Covid-19 topped 9.44 million as of Thursday, including over 2.38 million cases in the U.S.
As of the March-quarter filing, Berkshire gave equity portfolio weights of 11.19%, 5.28% and 2.96% to its holdings of Bank of America, Wells Fargo and JPMorgan Chase.
Disclosure: The author has no positions in the stocks mentioned. The mention of Berkshire’s equity portfolio holdings and pertinent statistical data are based on the March-quarter filing and does not consider any buys, sells or other trades made during April to June.
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