Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.A)(BRK.B), issued his 2011 shareholder letter and spent three hours on CNBC over the last three days. One of the themes of the discussions was his optimism about the financial sector of the U.S. “The banking industry is back on its feet,” he said in his shareholder letter. Three banking stocks that he talked about in particular were Bank of America (BAC, Financial), JP Morgan (JPM, Financial) and Wells Fargo (WFC, Financial).
Bank of America (BAC)
Buffett bought $5 billion worth of Bank of America warrants to buy 700 million shares at $7.14 each until they expire in 2012, and perpetual preferred stock that yields $300 million a year. In his annual letter, Buffett said, “Our warrants to buy 700 million Bank of America shares will likely be of great value before they expire.” Bank of America trades for $8.04 on Monday, giving Buffett a paper profit of $656 million already.
Bank of America had mixed financial results in 2011. Deposits declined from $13.6 billion in 2010 to $12.7 billion in 2011, as 9.6 percent of all bank customers switched banks, compared to 8.7 percent in 2010. Bank of America particularly suffered customer backlash from its attempt to raise fees in order to generate revenue. Revenue declined from $52.7 billion in 2010, to $45.6 billion in 2011. Net income increased to $1.4 billion in 2011 from a net loss of $2.2 billion in 2010.
Brian Moynihan, who Buffett extols in his shareholder letter, introduced Project New BAC, which aims to streamline the business. Phase one, which began in 2011, included the elimination of 30,000 jobs and reduction of costs by $5 billion per year by 2014. The company does not yet know where it will make reductions for Phase 2.
“At Bank of America, some huge mistakes were made by prior management. Brian Moynihan has made excellent progress in cleaning these up, though the completion of that process will take a number of years,” Buffett added in his letter.
Bank of America’s P/E, P/B and P/S ratios:
JP Morgan (JPM)
Buffett praised JPMorgan (JPM) on his recent interview with Becky Quick on CNBC. While he does not own the stock for Berkshire Hathaway, he said he bought it for his personal portfolio. The stock hit a low of $27.85 in November last year, but has since rallied to $39 per share.
Buffett did not go into detail about this holding, only mentioning that he admires CEO Jamie Dimon’s shareholder letters. “He thinks well, and he writes extremely well,” Buffett said. He also said in his shareholder letter that he and Dimon share similar views on valuation. “The first law of capital allocation – whether the money is slated for acquisitions or share repurchases – is that what is smart at one price is dumb at another. (One CEO who always stresses the price/value factor in repurchase decisions is Jamie Dimon at J.P. Morgan; I recommend that you read his annual letter.)” Buffett said.
The bank has also been steadily growing revenue and earnings. Revenue increased from $67.3 billion in 2008, to $100.4 billion in 2009, and $102.7 billion in 2010. For the full year 2011, revenue slipped to just under $100 billion. Earnings increased from $5.6 billion in 2008 to $9.3 billion in 2009, to $17.4 billion in 2010. For the full year 2011, it generated record net income of $19 billion. It also still pays a dividend, which it has increased for the last three years and that most recently reached $3.96 per diluted share in 2010. Return on tangible common equity was approximately 15 percent for 2011.
JPMorgan’s P/E, P/B and P/S ratios:
Wells Fargo (WFC)
After the fourth quarter, Buffett owns 7.6 percent of Wells Fargo (WFC), a stake for which he paid $9.1 billion and that is now worth $11 billion. The total holding includes a $1 billion addition he made to the position in the fourth quarter.
Buffett said of the bank in his annual letter, “The banking industry is back on its feet, and Wells Fargo is prospering. Its earnings are strong, its assets solid and its capital at record levels.”
Most recently, in the fourth quarter, Wells Fargo grew earnings, revenue, loans, deposits and capital. It has grown in most areas over the long term. Wells had been increasing its revenue since 2006, but it fell slightly from $88.7 billion in 2009 to $85.2 billion in 2010, and is at $81.2 billion for the trailing 12 months. Earnings have increased each year since 2008 and reached a record $15.9 billion in 2011, a 28 percent increase from 2010. In spite of the high bank-switching levels for the year, it grew deposits by $72 billion, or 9 percent.
The bank repurchased 86 million shares of its common stock and redeemed $9.2 billion of its high-cost trust preferred securities. The year also marked the completion of the conversion of its Wachovia retail banking stores, which was the largest conversion in banking history. By the second quarter of 2012 it expects its expenses to decline by $500 million to $700 million from the first quarter due largely to the elimination of merger expenses.
Wells Fargo’s P/E, P/B and P/S ratios:
See Warren Buffett’s fully updated portfolio here or check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Warren Buffett.
Bank of America (BAC)
Buffett bought $5 billion worth of Bank of America warrants to buy 700 million shares at $7.14 each until they expire in 2012, and perpetual preferred stock that yields $300 million a year. In his annual letter, Buffett said, “Our warrants to buy 700 million Bank of America shares will likely be of great value before they expire.” Bank of America trades for $8.04 on Monday, giving Buffett a paper profit of $656 million already.
Bank of America had mixed financial results in 2011. Deposits declined from $13.6 billion in 2010 to $12.7 billion in 2011, as 9.6 percent of all bank customers switched banks, compared to 8.7 percent in 2010. Bank of America particularly suffered customer backlash from its attempt to raise fees in order to generate revenue. Revenue declined from $52.7 billion in 2010, to $45.6 billion in 2011. Net income increased to $1.4 billion in 2011 from a net loss of $2.2 billion in 2010.
Brian Moynihan, who Buffett extols in his shareholder letter, introduced Project New BAC, which aims to streamline the business. Phase one, which began in 2011, included the elimination of 30,000 jobs and reduction of costs by $5 billion per year by 2014. The company does not yet know where it will make reductions for Phase 2.
“At Bank of America, some huge mistakes were made by prior management. Brian Moynihan has made excellent progress in cleaning these up, though the completion of that process will take a number of years,” Buffett added in his letter.
Bank of America’s P/E, P/B and P/S ratios:
BAC pe,ps,pb Interactive Chart
JP Morgan (JPM)
Buffett praised JPMorgan (JPM) on his recent interview with Becky Quick on CNBC. While he does not own the stock for Berkshire Hathaway, he said he bought it for his personal portfolio. The stock hit a low of $27.85 in November last year, but has since rallied to $39 per share.
Buffett did not go into detail about this holding, only mentioning that he admires CEO Jamie Dimon’s shareholder letters. “He thinks well, and he writes extremely well,” Buffett said. He also said in his shareholder letter that he and Dimon share similar views on valuation. “The first law of capital allocation – whether the money is slated for acquisitions or share repurchases – is that what is smart at one price is dumb at another. (One CEO who always stresses the price/value factor in repurchase decisions is Jamie Dimon at J.P. Morgan; I recommend that you read his annual letter.)” Buffett said.
The bank has also been steadily growing revenue and earnings. Revenue increased from $67.3 billion in 2008, to $100.4 billion in 2009, and $102.7 billion in 2010. For the full year 2011, revenue slipped to just under $100 billion. Earnings increased from $5.6 billion in 2008 to $9.3 billion in 2009, to $17.4 billion in 2010. For the full year 2011, it generated record net income of $19 billion. It also still pays a dividend, which it has increased for the last three years and that most recently reached $3.96 per diluted share in 2010. Return on tangible common equity was approximately 15 percent for 2011.
JPMorgan’s P/E, P/B and P/S ratios:
WFC pe,ps,pb Interactive Chart
Wells Fargo (WFC)
After the fourth quarter, Buffett owns 7.6 percent of Wells Fargo (WFC), a stake for which he paid $9.1 billion and that is now worth $11 billion. The total holding includes a $1 billion addition he made to the position in the fourth quarter.
Buffett said of the bank in his annual letter, “The banking industry is back on its feet, and Wells Fargo is prospering. Its earnings are strong, its assets solid and its capital at record levels.”
Most recently, in the fourth quarter, Wells Fargo grew earnings, revenue, loans, deposits and capital. It has grown in most areas over the long term. Wells had been increasing its revenue since 2006, but it fell slightly from $88.7 billion in 2009 to $85.2 billion in 2010, and is at $81.2 billion for the trailing 12 months. Earnings have increased each year since 2008 and reached a record $15.9 billion in 2011, a 28 percent increase from 2010. In spite of the high bank-switching levels for the year, it grew deposits by $72 billion, or 9 percent.
The bank repurchased 86 million shares of its common stock and redeemed $9.2 billion of its high-cost trust preferred securities. The year also marked the completion of the conversion of its Wachovia retail banking stores, which was the largest conversion in banking history. By the second quarter of 2012 it expects its expenses to decline by $500 million to $700 million from the first quarter due largely to the elimination of merger expenses.
Wells Fargo’s P/E, P/B and P/S ratios:
WFC pe,ps,pb Interactive Chart
See Warren Buffett’s fully updated portfolio here or check out the Undervalued Stocks, Top Growth Companies, and High Yield stocks of Warren Buffett.
