Buffett's Bold Exit: Unraveling the Bank of America Stake in a High-Stakes Market Shift
1min read Warren Buffett has recently made a significant move by almost entirely liquidating his shares in Bank of America. According to a disclosure by the U.S. Securities and Exchange Commission (SEC), Buffett's Berkshire Hathaway reduced its holdings by approximately 11.68 million shares between September 25th and 27th, cashing out roughly $461 million.
This reduction brought Berkshire's stake in Bank of America down to about 10.3%, just above the 10% regulatory threshold. Once this threshold is crossed, Berkshire would no longer be required to disclose its trades within two business days, switching instead to quarterly reporting.
Starting in July, Buffett has been consistently reducing his position in Bank of America, accumulating over a dozen such transactions. Despite cashing out around $9.4 billion, Berkshire remains the largest shareholder in the bank, with residual holdings valued at approximately $32 billion according to Friday's closing price.
Buffett's relationship with Bank of America dates back to 2011, when he invested $5 billion through preferred stock and warrants, leading the bank to become Berkshire's second-largest holding, following Apple.
Beyond Bank of America, Berkshire has divested from several banks over recent years, including US Bancorp, Wells Fargo, and BNY Mellon. Moreover, Buffett made substantial reductions to his position in Apple earlier this year, slashing holdings from 789 million shares at the end of Q1 to approximately 400 million by Q2, a nearly 50% reduction.
The market has speculated on Buffett's motivations, particularly focusing on the Federal Reserve’s recent rate cuts. The Fed initiated this rate-cutting cycle with a 50 basis point reduction, impacting banks like Bank of America that are sensitive to interest rate fluctuations. Bank of America previously benefited from rate hikes but now faces potential challenges with rate cuts reducing net interest income.
Bank of America's recent financial results also warrant attention. Their Q2 earnings report, released on July 16th, revealed revenues of $51.195 billion and a net income of $13.571 billion, surpassing expectations. However, net interest income, a critical revenue component, fell by $300 million to $13.7 billion, missing forecasts.
Observers suggest Buffett might be steering towards safer assets amidst market uncertainties, such as cash and government bonds, aligning with his prior statements about the attractiveness of holding cash. Berkshire's cash reserves reached an unprecedented $277 billion by the end of June, as per their Q2 report.