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Warren Buffett on Bank of America and Wells Fargo

By Matthew Frankel, CFP® - Oct 4, 2017 at 7:23AM

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Here's how the Oracle of Omaha feels about his two largest bank stock investments.

Warren Buffett loves bank stocks. The Oracle of Omaha has bought several bank stocks for Berkshire Hathaway's (BRK.A 1.69%) (BRK.B 1.64%) portfolio, including Synchrony Financial, Bank of New York Mellon, and American Express. However, the company's stakes in banking giants Bank of America (BAC 1.38%) and Wells Fargo (WFC 1.92%) are the largest:


Number of Shares Berkshire Owns

Market Value As of 10/3/2017

American Express


$13.9 billion

Bank of America


$18.1 billion

Bank of New York Mellon


$2.7 billion

Goldman Sachs


$2.7 billion

M&T Bank


$866 million

Synchrony Financial


$555 million

U.S. Bancorp


$4.5 billion

Wells Fargo


$25.8 billion

Data source: Berkshire Hathaway SEC Filings. Bank of America investment as per company press release.

Bank of America has made tremendous progress

Berkshire's Bank of America stake is a new addition to the stock portfolio. Buffett made a savvy investment in Bank of America's preferred stock in the wake of the financial crisis, which gave him warrants to purchase 700 million common shares of the bank. Thanks to the bank's most recent dividend increase, Buffett decided to exercise his warrants in August 2017.

Warren Buffett at Berkshire Hathaway's annual meeting.

Image source: The Motley Fool.

As I mentioned, Buffett loves bank stocks, and he's hesitant to name a favorite. However, in a recent CNBC interview, Buffett did say that "Bank of America has done a sensational job under Brian Moynihan."

Perhaps the most telling statement, however, was when Buffett said, "We will be holders of BofA stock for a long, long, long time." Buffett rarely says that he plans to hold any of his stocks for the long haul, so this sounds like a major endorsement of the bank.

To add some color to the "sensational job" Buffett is referring to, Bank of America recently gave a presentation detailing just how far it's come since the financial crisis. Just to name a few highlights, the bank's tangible common-equity ratio has improved by 60%, the consumer net charge-off rate has dropped from 4.51% in 2010 to 0.71% today, and earnings have gotten far more consistent.

Wells Fargo's scandals don't make it a bad long-term investment

If you've been following the news over the past year or so, there's a good chance you're familiar with Wells Fargo's infamous fake-accounts scandal. Since the scandal was revealed last September, several other "bad behavior" issues have come to light.

Since news of the scandal broke, Buffett has stood by Wells Fargo, and he still considers the stock to be a solid long-term investment. He's referred to the bank as an "incredible institution" and hasn't sold any more of Berkshire's Wells Fargo stake than has been necessary to remain under the 10% ownership regulatory threshold.

He's also praised new CEO Tim Sloan's handling of the situation, which has included a major overhaul of the bank's sales culture. "Tim Sloan has my faith," Buffett recently said. "When you find a problem, you have to jump on it."

It's easy to see why Buffett likes Wells Fargo -- the bank is consistently the most profitable of the "big four" U.S. banks and has demonstrated excellent risk management over the years. And since the bank has dramatically underperformed peers recently, now could be a good opportunity for investors with the time horizon to wait for the scandal to blow over.

The bottom line on these two banks

Buffett loves the banking industry and has an especially positive outlook over the long term when it comes to well-run banking giants like these two. While Buffett stops short of saying whether either bank looks like a compelling buy right now, both of these banks certainly look fairly valued right now, and long-term investors should do just fine with either.

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Stocks Mentioned

Bank of America Corporation Stock Quote
Bank of America Corporation
$31.56 (1.38%) $0.43
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$39.92 (1.92%) $0.75
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$415,850.00 (1.69%) $6,900.00
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$277.50 (1.64%) $4.48

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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