Buffett Boosts Stake in Wells Fargo, Sending Shares Higher

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Shares of Wells Fargo (NYSE: WFC  ) are headed higher this afternoon following news that Berkshire Hathaway (NYSE: BRK-A  ) boosted its stake in the mortgage giant and that housing construction figures are demonstrably higher on a year-over-year basis. At the time of writing, stock in the nation's fourth largest bank by assets is trading up by $0.23, or 0.58%.

Data released from the Commerce Department this morning showed that new-home construction fell last month more than economists had predicted. For the month of April, privately owned housing starts came in at a seasonally adjusted annual rate of 853,000, a 16.5% decline compared to March. According to, the consensus forecast was for a rate of 965,000.

While many financial news outlets are painting this as a disappointment, there are two important things to note, here. In the first case, the majority of the decline derived from multifamily construction, as single-family housing starts were down a comparatively modest 2.1%. And in the second case, even including multifamily, housing starts were up by 13.1% on a year-over-year basis. Thus, as an economist quoted by The Wall Street Journal noted, "While the recovery in housing construction is likely to continue, this report shows that it is unlikely to be linear."

Suffice it to say, the year-over-year improvement is great news for shareholders of Wells Fargo, given the bank's dominant position in the mortgage market. The California-based bank originates roughly one in three mortgages in the United States. To give you a better idea of its domination in this regard, the following chart compares its origination volume in the first quarter of the year to its largest competitors.

Source: Regulatory filings.

Beyond this news, investors are also likely reacting to the most recent 13-F filing from Warren Buffett's Berkshire Hathaway. While Buffett had noted in his annual letter to shareholders that the largely insurance conglomerate had upped its stake in Wells Fargo, the magnitude of the increase was revealed in today's filing with the Securities and Exchange Commission. Over the course of the first quarter, Berkshire added 4.2% to its stake in the bank, increasing the position from 439.9 million shares at the end of the fourth quarter of last year up to 458.2 million shares at the end of the first quarter. It's for this reason that many investors refer to Wells Fargo as "Warren Buffett's bank."

One final piece of news that's fueling bank stocks is a report, discussed in a DealBook column yesterday, that industry regulators have agreed to soften a rule related to the sale and marketing of derivatives by the nation's largest banks. The Commodity and Futures Trading Commission had proposed forcing asset managers to get price quotes from at least five banks prior to entering into a transaction. Under pressure from Wall Street lobbyists, however, it's dropped the standard to two banks.

While this is generally good news for the nation's largest banks -- though, it's arguably not in the interest of competition or financial stability -- the impact it will have on a largely Main Street operation like Wells Fargo is less than at, say, JPMorgan Chase or Goldman Sachs.

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Related Tickers

9/30/2016 4:00 PM
WFC $44.28 Down -0.09 -0.20%
Wells Fargo CAPS Rating: ****
BRK-A $216220.00 Up +920.00 +0.43%
Berkshire Hathaway… CAPS Rating: *****