Warren Buffett Trims Bank of America Stake Again Selling $845M in Shares
Saturday, Aug 31, 2024 1:00 pm ET
Billionaire Warren Buffett's conglomerate, Berkshire Hathaway, has once again trimmed its holdings in Bank of America (BAC.US), as revealed by a regulatory filing late on Friday. The company sold shares worth about $845 million, thereby reducing its stake to 11.4%. Since July, Berkshire Hathaway has offloaded more than $6 billion worth of shares in the second-largest U.S. bank over seven rounds of sales.
As Bank of America's largest shareholder, Berkshire Hathaway disclosed that approximately 21.1 million shares were sold between August 28 and August 30.
Buffett, 94, began his investment in Bank of America in 2011 by purchasing $5 billion in preferred shares and warrants. His company grew to become the largest shareholder of the bank, holding shares worth around $36 billion based on Friday's closing price.
At that time, the purchase of $5 billion in preferred shares demonstrated Buffett's confidence in CEO Brian Moynihan's ability to revitalize the bank after the 2008 financial crisis. In April 2023, Buffett expressed his strong approval of Moynihan and stated that he did not intend to sell the bank's shares.
This year, Bank of America's stock price has risen 21%, while the S&P 500 Banks Index, which tracks the performance of large banks, increased by 22.6% over the same period.
It is essential to note that if Buffett continues to reduce his investment, Berkshire Hathaway wouldn't need to promptly disclose its sales of Bank of America shares. U.S. regulations mandate disclosure within a few days only if a company holds over 10% of the shares. With a smaller stake, the company could delay public notifications for several weeks, typically reporting them in the following quarter.
This adjustment could help stabilize Bank of America's stock price, which has experienced volatility since mid-July when Buffett unexpectedly initiated large-scale sales without offering any explanation.
Warren Buffett's recent moves have once again drawn the attention of the investment community. Over the last week alone, he sold Bank of America shares worth $982 million. Since mid-July, he has reduced his stake by about 13%, cashing out approximately $5.4 billion in total.
Despite these significant sales, Berkshire Hathaway still holds a considerable position, retaining roughly 882.7 million shares valued at around $35.97 billion after the latest sale.
Analysts speculate that Buffett's decision to sell may be influenced by expectations of upcoming Federal Reserve rate cuts, which could impact banks' net interest income. While higher inflation and interest rates generally benefit bank stocks, lower interest rates may prompt Buffett to reevaluate his stake.
As the Federal Reserve contemplates rate cuts, several factors may help mitigate potential adverse effects on Bank of America's net interest income. For instance, the devaluation of low-yielding bonds may become an advantage as rates fall, and maturing securities can be redeployed at current yields. Additionally, the expiration of cash flow swap hedges designed to protect against rate declines could boost net interest income in the latter half of next year.
Visible Alpha analysts project that Bank of America's net interest income could grow by at least 5% in 2025, compared to smaller increases or declines for peers like Citigroup, JPMorgan Chase, and Wells Fargo. This expectation is bolstered by the bank's relatively higher reliance on investment banking revenues, which may benefit from increased corporate activities spurred by lower interest rates.
Moreover, in the latest Federal Reserve stress test focused on severe economic downturns, Bank of America's projected loan loss rate stood at 5.5%, notably lower than the 7.1% average for the 31 large banks tested.
In summary, Berkshire Hathaway's continued sale of Bank of America shares highlights a strategic shift that could signal anticipation of broader economic changes. Despite the adjustments, Berkshire remains a significant stakeholder in the bank, suggesting that Buffett still sees substantial value in the institution.
As Bank of America's largest shareholder, Berkshire Hathaway disclosed that approximately 21.1 million shares were sold between August 28 and August 30.
Buffett, 94, began his investment in Bank of America in 2011 by purchasing $5 billion in preferred shares and warrants. His company grew to become the largest shareholder of the bank, holding shares worth around $36 billion based on Friday's closing price.
At that time, the purchase of $5 billion in preferred shares demonstrated Buffett's confidence in CEO Brian Moynihan's ability to revitalize the bank after the 2008 financial crisis. In April 2023, Buffett expressed his strong approval of Moynihan and stated that he did not intend to sell the bank's shares.
This year, Bank of America's stock price has risen 21%, while the S&P 500 Banks Index, which tracks the performance of large banks, increased by 22.6% over the same period.
It is essential to note that if Buffett continues to reduce his investment, Berkshire Hathaway wouldn't need to promptly disclose its sales of Bank of America shares. U.S. regulations mandate disclosure within a few days only if a company holds over 10% of the shares. With a smaller stake, the company could delay public notifications for several weeks, typically reporting them in the following quarter.
This adjustment could help stabilize Bank of America's stock price, which has experienced volatility since mid-July when Buffett unexpectedly initiated large-scale sales without offering any explanation.
Warren Buffett's recent moves have once again drawn the attention of the investment community. Over the last week alone, he sold Bank of America shares worth $982 million. Since mid-July, he has reduced his stake by about 13%, cashing out approximately $5.4 billion in total.
Despite these significant sales, Berkshire Hathaway still holds a considerable position, retaining roughly 882.7 million shares valued at around $35.97 billion after the latest sale.
Analysts speculate that Buffett's decision to sell may be influenced by expectations of upcoming Federal Reserve rate cuts, which could impact banks' net interest income. While higher inflation and interest rates generally benefit bank stocks, lower interest rates may prompt Buffett to reevaluate his stake.
As the Federal Reserve contemplates rate cuts, several factors may help mitigate potential adverse effects on Bank of America's net interest income. For instance, the devaluation of low-yielding bonds may become an advantage as rates fall, and maturing securities can be redeployed at current yields. Additionally, the expiration of cash flow swap hedges designed to protect against rate declines could boost net interest income in the latter half of next year.
Visible Alpha analysts project that Bank of America's net interest income could grow by at least 5% in 2025, compared to smaller increases or declines for peers like Citigroup, JPMorgan Chase, and Wells Fargo. This expectation is bolstered by the bank's relatively higher reliance on investment banking revenues, which may benefit from increased corporate activities spurred by lower interest rates.
Moreover, in the latest Federal Reserve stress test focused on severe economic downturns, Bank of America's projected loan loss rate stood at 5.5%, notably lower than the 7.1% average for the 31 large banks tested.
In summary, Berkshire Hathaway's continued sale of Bank of America shares highlights a strategic shift that could signal anticipation of broader economic changes. Despite the adjustments, Berkshire remains a significant stakeholder in the bank, suggesting that Buffett still sees substantial value in the institution.