Warren Buffett ploughs $800m into BofA shares

Warren Buffett’s Berkshire Hathaway increased its stake in Bank of America by more than $800m this week, in a sign of confidence for the beaten-down US banking sector.

Berkshire’s purchase of 34m shares in the US’s second-biggest bank represents a 4 per cent increase in its holding, which is now worth some $24.1bn. That amounts to an 11.3 per cent stake in the Charlotte-based lender.

Both BofA’s shares and the KBW Bank index, one of the most widely tracked measures of the performance of the US banking sector, have fallen about 30 per cent since coronavirus first shook markets in February.

Bank stocks have been hit by concerns about potential loan losses and the Federal Reserve’s sharp interest rate cuts, which compress banks’ lending margins.

The purchase of more BofA shares comes after Berkshire sold off the vast majority of its stake in Goldman Sachs earlier this year and trimmed its position in JPMorgan Chase. It also slightly reduced its exposure to US Bancorp and Bank of New York Mellon in the first quarter. 

Last week, BofA reported second quarter net income of $3.5bn, half the prior year’s level, driven down by $5bn in loan loss charges linked to the pandemic.

But its provisions were significantly smaller, relative to the size of its balance sheet, than those of its big peers. JPMorgan, for example, took loan charges totalling $10.5bn. BofA attributed the difference to more conservative lending.

15% Berkshire Hathaway share price decline in 2020

Mr Buffett made billions investing in Bank of America immediately after the financial crisis, buying preferred shares that came with warrants attached. Those warrants gave Berkshire the right to purchase 700m shares for just over $7 apiece — which it did in 2017 when the shares were trading at $24.

The new BofA purchases and Berkshire’s $10bn takeover of Dominion Energy’s natural gas transmissions business this month show Mr Buffett has found some assets appealing enough to buy.

His sprawling conglomerate, which owns the jet rental business NetJets and car insurer Geico, had gone more than four years without one of the blockbuster acquisitions for which it became known. 

Disclosures with US securities regulators have also suggested that Berkshire may have repurchased some of its own shares in the second quarter. Investors have criticised the relatively slow pace of dealmaking by Berkshire as its cash pile has ballooned to more than $137bn. 

Its heavy concentration in financial stocks, which made up more than a third of its $181bn equity portfolio in the first quarter, has weighed on its performance.

Berkshire shares are down 15 per cent this year, lagging the broader market and putting the company on course for one of its worst annual showings against the benchmark S&P 500 over the past two decades.