In the past, Warren Buffett (Trades, Portfolio) has tried to make it clear that Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) is not interested in taking its ownership interest in publicly traded companies above 10%. But it seems as if the Oracle of Omaha has shifted his stance over the past 12 to 24 months.
At the beginning of the year, it emerged that Berkshire's investment in Delta Air Lines Inc. (DAL, Financial) had increased above this threshold, a development Buffett later labeled a "mistake."
However, only a few months after this so-called mistake emerged, at the 2019 Berkshire Hathaway annual meeting of shareholders, the conglomerate's CEO declared that this might not be a one-off. Here's what Buffett said at the time:
"You'd probably see us at more than 10% in more things. And if the Fed should change its rules, there will be companies where we drift up over 10% because they're repurchasing their shares. That's been the case with Wells, and it's been the case with an airline or two in the last year or so. If we like 9.5% of a company, we'd like 15% better. You may see us behave a little differently on that in the future."
The Fed hasn't changed its rules yet, but it has announced that it's planning to change the rules. New proposals suggest that investment groups could acquire up to 25% of a bank before triggering the additional disclosure requirements currently required at 10% mark. At this point, it is unclear if the Federal Reserve will apply these rules and how Berkshire will be affected. However, it appears as if Buffett isn't going to wait to find out.
Increasing the position
According to a regulatory filing with the Securities and Exchange Commission dated July 25, Berkshire has increased the number of shares it owns in Bank of America (BAC, Financial) to more than 950 million, crossing the 10% ownership threshold. According to my calculations, this implies Berkshire has acquired 56 million shares in the lender since the end of March 2019, according to the group's 13F SEC filing, spending around $1.5 billion in the process.
Could this be a sign that Buffett has changed his 10% rule? I think it is. In the past, with Wells Fargo, Berkshire has strayed over the 10% rule because of share buybacks. As the bank has repurchase shares, the number of shares outstanding has declined.
This means the percentage of the business owned by Berkshire has increased without the conglomerate buying any additional shares. Buffett has been carefully managing the position to make sure this does not become a regular occurrence. That's why Berkshire has been steadily selling off shares in the lender over the past couple of years.
With Delta, Buffett said that he didn't realize he had gone over the 10% limit when he was buying shares, and just kept on going when he discovered.
Considering the rules and regulations surrounding ownership of banks, it is highly unlikely Buffett would have made a mistake in calculating whether or not he was near or over the 10% limit. At the same time, because the number of shares owned by Berkshire has increased by 56 million since the end of March, it doesn't look as if buybacks have pushed him over the line either.
Conclusion
So, the evidence suggests that Buffett has made a concerted effort to increase his position in Bank of America substantially, and is not worried about the extra regulatory requirements of doing so. Either that or he believes that the Fed will change its rules soon.
Whatever the case, it seems as if the Oracle of Omaha still believes that Bank of America is substantially undervalued, and he is putting his money where his mouth is.
Disclosure: The author owns shares in Berkshire Hathaway.
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Warren Buffett: The Only Reason to Sell a StockÂ
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