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Here Is Berkshire Hathaway's Newest Fintech Investment

By Matthew Frankel, CFP® - Jun 27, 2021 at 7:11AM

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Berkshire just made a bet on another international fintech start-up.

Looking to repeat the success of its investment in StoneCo (STNE -0.51%), Berkshire Hathaway (BRK.A 0.03%) (BRK.B 0.00%) recently invested $500 million in another Brazilian fintech start-up called Nubank. In this Fool Live video clip, recorded on June 14, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser go over the details of the investment and what it could mean for Berkshire. 

Jason Moser: Last week, we saw, I think, a very noteworthy headline, Berkshire Hathaway making, for most, a large investment in Brazilian fintech leader, I guess you could say there. It does seem like this is a leader in the Brazilian fintech space, Nubank. Matt, let's talk about this for a minute because it feels like Berkshire Hathaway, the business, I mean, we can talk about whether this is something spearheaded by Buffett or his deputies. But at the end of the day, Berkshire Hathaway certainly making some investments in Brazil, seeing this as one of the pockets of opportunity out there today in this newly developing fintech space. What do we make of this investment with Berkshire? I think it was somewhere in the neighborhood of $500 million investment they made in Nubank.

Matt Frankel: Yeah, $500 million, which would be a big investment for anybody but Berkshire Hathaway. It is just under 0.1% of Berkshire's total capital, or their total market cap rather. It could be a needle mover if it's, say, like a 10-bagger, but it's not a giant investment. But having said that, it's not hard to see why Berkshire might like the financial sector in Brazil. Brazil, it's a big country, if you're not familiar. They have over 200 million people in Brazil, and their financial system is not as inclusive as ours. In other words, banking has been dominated for years and years by a few big companies. Think of our big four banks, if there were no one else doing banking.

Moser: Wow.

Frankel: As a result, there have been millions of people shut out of the traditional financial system. We talked about the unbanked and underbanked population in the US, it's a lot more in Brazil. You'll see a lot more people without a checking account, a lot more people without 401K or any traditional financial products. Over the past few years, the Brazilian government has been actively encouraging, and incentivizing, and supporting these fintech start-ups. You remember Berkshire already has a pretty successful track record in this space. They got into StoneCo a few days after the IPO. They're up 160% on that investment to date. That's pretty good. But Nubank, as the name implies, they're a new kind of bank. They offer things like, in addition to traditional cash management accounts, they have loans, they have life insurance products, they have investment products, they offer mobile payment business. They have about 40 million users, primarily in Brazil. They're just expanding into Mexico and Colombia. A lot of big companies start in Brazil and then expand outward. I think MercadoLibre is another one that is slowly expanding into the Mexico and Colombia markets from their core Brazil and Argentina market. Forty million users, this is part of a bigger investment round. They simultaneously raise another $250 million from other investors, and this is part of a funding round that's been going on since January in the bank. It values the bank at $30 billion. Doing just some quick math, this means Berkshire owns just under 2% of Nubank now.

Moser: Wow.

Frankel: Pretty big company. If this becomes the next PayPal or the next Square, it could be a needle mover for Berkshire. But it looks like you're just trying to get some exposure. I'm pretty sure this was a Ted or Todd investment. I'd be really surprised if this was Buffett himself.

Moser: Yeah. I think you're probably right there, but it feels like even if that's something that they came up with, you feel like this is something that has to at least go through the front office, right?

Frankel: I mean, those two have pretty much freedom to operate. Their potential -- Buffett said that he didn't realize a stock that they own until reads about it in the paper because those guys don't really have to clear anything with them. But having said that, whether he knew about it or not, it's one thing I would have to think that Buffett would give his stamp of approval to. We know that he loves the banking industry. He invested in Wells Fargo long time ago, has since exited that investment. Bank of America behind Apple is the company's biggest stock position. He owns bunch of banks. He loves the bank and he loves the whole nature of the business. How you're using someone else's money to make money and things like that. The Brazilian banking system is where ours was a few decades ago. It makes sense that he sees more or that Berkshire in general sees more growth opportunities out that way.

Moser: Yeah, I mean, it does make sense from a lot of different perspectives there. I think it was really interesting to note, too, that leadership at Nubank actually sees this is really validation. I mean, that's actually what the CEO of the business of the company said. He said this is a huge validation for what they've been doing. I mean, you have to believe that gives them the confidence that what they're doing is working and the vision that they see for Brazil's and really Latin America's fintech future, I mean it really does, it seems like Nubank is a company that's really helping to dictate and help form that.

Frankel: Yeah. I mean, Berkshire stamp of approval, it's a pretty big one. Every quarter when their 13F comes out, the stocks that they bought go up, the stock that they sold go down, like the business hasn't changed. It's that they don't -- do or do not have the Buffett stamp of approval anymore. Remember, Buffett didn't own Bank of America till a few years ago, he had a bunch of warrants. When he cashed in those warrants, then Brian Moynihan had put out a letter saying we're proud to have Warren Buffett as our largest shareholder. Same thing Nubank just did. It's not just NuBank, a fintech start-up that thinks Buffett's stamp for approval was important. Bank of America thinks it's very important. Tim Cook has said he's happy to Buffett as an Apple investor, it's a big stamp of approval to have because like it or not, a lot of people invest based on what Buffett does. A lot of people take their cues from Buffett and think, "Oh, this must be a real business," especially in the case of some of these start-ups.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Jason Moser owns shares of Apple, PayPal Holdings, and Square. Matthew Frankel, CFP owns shares of Apple, Bank of America, Berkshire Hathaway (B shares), Square, and Wells Fargo. The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), Bitcoin, PayPal Holdings, Square, and Stoneco LTD. The Motley Fool recommends the following options: long January 2022 $75 calls on PayPal Holdings, long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

StoneCo Ltd. Stock Quote
StoneCo Ltd.
$11.66 (-0.51%) $0.06
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$457,400.01 (0.03%) $122.52
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
$304.27 (0.00%) $0.01
Bank of America Corporation Stock Quote
Bank of America Corporation
$36.28 (-0.36%) $0.13
Apple Inc. Stock Quote
Apple Inc.
$174.15 (-0.23%) $0.40
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$46.14 (0.00%) $0.00
Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
$977.52 (-2.04%) $-20.38
PayPal Holdings, Inc. Stock Quote
PayPal Holdings, Inc.
$99.86 (0.44%) $0.44
Block, Inc. Stock Quote
Block, Inc.
$79.72 (-0.76%) $0.61
Bitcoin Stock Quote
$23,361.61 (0.07%) $16.38

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