Legendary investor Warren Buffett and the company he runs, Berkshire Hathaway (BRK.A +0.01%) (BRK.B 0.24%), have spent much of the past year selling or trimming their bank stocks. But Berkshire has also been making a good amount of money on the ones it hasn't sold, as many bank stocks are now trading at all-time highs. Buffett spent years building up and maintaining some of these positions, and now he is reaping the rewards. Here's how much money Buffett and Berkshire have made on bank stocks in 2021.
Image source: The Motley Fool.
A great start to 2021
Before we get into the gains, I should note that Buffett and Berkshire over the last year has likely taken some losses or missed out on profits with some of his bank holdings. He sold most of his Goldman Sachs stake in the first quarter of 2020; most of his JPMorgan Chase stake in the third quarter of 2020; and he sold more than 323 million shares of Wells Fargo between the end of Q1 2020 and the end of Q1 2021. All three of these stocks are now trading much higher. However, it's difficult to know what those losses were because Berkshire's 13F filings, which reveal what stock moves the company made in each quarter, only tell us what Buffett and his team did in a specific quarter, not the date they bought or sold a stock or for what price, so it's hard to give specifics.
However, gains are much easier to figure out because 13Fs show us the value of certain holdings from one quarter to the next. Over the last year, Buffett added a lot to his Bank of America position and maintained his stakes in other banks through the difficult year. Through the first three months of 2021, banks got off to a tremendous start.
| Bank |
Berkshire Stake 12/31/2020 (thousands) | Berkshire Stake 3/31/2020 (thousands) |
|---|---|---|
| Bank of America (BAC +0.22%) | $30,616,150 | $39,080,793 |
| American Express (AXP 0.08%) | $18,331,249 | $21,443,817 |
| Bank of New York Mellon (BK +0.96%) | $3,070,849 | $3,421,785 |
| U.S. Bancorp (USB +0.38%) | $6,109,721 | $7,172,993 |
| Total | $58,127,969 | $71,119,388 |
Data source: Berkshire Hathaway 13F filings.
On the four main bank holdings left in its equity portfolio, Berkshire made close to $13 billion in the three months between the end of 2020 and March 31. Berkshire has also likely seen more gains in the second quarter, with all four of those stocks up higher from where they ended the first quarter.
While the pandemic sent the banking sector reeling early on, the industry will likely look back at the coronavirus as a major catalyst. Bank stocks had been doing better leading up to the pandemic, but were still suffering from some reputational issues from the Great Recession, which many investors still remember. Not only did the banking sector show much improved lending practices and loan quality during the pandemic, but it also played a major role in distributing funds from the Paycheck Protection Program. Both helped banks get into better standing with investors and the broader population in general.
Additionally, the pandemic has set the banking sector up for what could be a multiyear bull run. The pandemic showed banks and investors the benefits of being prepared for a more digital world. Furthermore, it showed banks that with the right investments in digital capabilities, they could rely less on bank branches and aim to run more efficiently going forward. Banks that had invested in the right digital capabilities were rewarded, while those that were behind realized they needed to do better and increase profitability or consider a sale.
The pandemic has also positioned banks for higher profitability in general. Trillions of deposits flooded into the banking system, many of which will ideally stick around; higher rates should increase profit margins on loans, and big economic growth should eventually benefit banks' balance sheets.
More gains to come
While I didn't agree with Buffett's decision to sell out of all of the banks that he did, I understand that with a $297 billion equity portfolio, he is looking at risk a bit differently than me, or the average investor. I also think he has picked a great lineup of banks that are poised to continue to rise long-term, whether it's Bank of America, whose strong sensitivity to interest rates will drive profitability much higher in a rising rate environment, or U.S. Bancorp, with its burgeoning payments business. While Berkshire's exposure to the banking sector is a good deal smaller than it was a year ago, I do expect the bank stocks the company has to continue bringing in profits.
