Warren Buffett has been a fan of the banking industry for many years. Out of the roughly 40 stocks in Berkshire Hathaway's (BRK.A +2.74%)(BRK.B +2.53%) closely watched portfolio, six of them are banks -- including two of the three largest positions.
However, Berkshire has significantly reduced its exposure to banks recently, selling shares of four of the six during the fourth quarter of 2024. On the other hand, there are two bank stocks Berkshire hasn't sold a single share of, so it seems Buffett and his team are still bullish, even with the current economic uncertainty in the United States. Here's a rundown of the bank stocks Berkshire sold recently, the two he hasn't, and why they might stand out to the legendary investor.
Buffett has been selling bank stocks and more
To be clear, Buffett hasn't been unloading only bank stocks. He has been a net seller of stocks for the past couple of years. Most notably, Berkshire sold more than two-thirds of its massive Apple (AAPL 0.83%) stake, which raised well over $100 billion for the company.
Having said that, bank stocks were definitely a focus of Berkshire's stock sales in the fourth quarter. Although Buffett and his team didn't completely exit any bank position in the quarter, it did significantly reduce four of its six bank stock investments:
- Most notably, Berkshire sold about 117.4 million shares of Bank of America (BAC 0.99%), worth about $5.4 billion at today's price.
- Berkshire sold 1.65 million shares of Capital One (COF 0.80%), reducing its stake by 18%.
- The most aggressive disposition was Citigroup (C 2.09%), with Berkshire reducing its stake by about 74%.
- Finally, Berkshire sold more than half of its investment in Brazil-based financial services company Nu Holdings (NU 1.27%).
Are these Warren Buffett's two favorite bank stocks now?
Although Berkshire sold billions of dollars' worth of bank stocks, there were two it didn't touch -- American Express (AXP 1.33%) and Ally Financial (ALLY 1.19%).
NYSE: AXP
Key Data Points
American Express is now Berkshire's second-largest stock investment, with Warren Buffett and company owning a 21.6% stake worth nearly $46 billion. Compared to Amex, Ally Financial is a relatively small investment for Berkshire, worth $1.1 billion, but it represents about 9.4% ownership of the online-based financial services company.
It isn't difficult to see why Buffett might like both of these banks, especially right now. American Express has been in Berkshire's portfolio for decades, and in simple terms has been a fantastic compounder over the years. For example, over the past decade, Amex has produced a 327% total return for investors, outpacing the S&P 500 by about 90 percentage points. And keep in mind that this period included the loss of Costco (COST 2.43%) in 2016, which at the time accounted for about 20% of Amex's outstanding balances.
Amex has done an outstanding job of adapting to changing consumer preferences over time and maintaining best-in-class asset quality. In fact, Amex has a card member charge-off rate of 1.9% as of the latest quarter. For comparison, Capital One's is roughly three times as much.
NYSE: ALLY
Key Data Points
Ally, on the other hand, is the largest auto lender in the United States, and recently decided to exit some of its noncore businesses to focus on what it does best. Ally originated over $39 billion in auto loans in 2024, with an average FICO score of more than 700 and with an initial yield of 10.4%. Ally also has a massive consumer banking business with over $140 billion in deposits, and as interest rates come down, its profit margins should grow.
What we don't know
There's a lot to like about both American Express and Ally Financial from a long-term perspective. And, in full disclosure, I own both stocks in my portfolio, and for the same reasons I mentioned here.
However, it's important to point out that Warren Buffett generally doesn't discuss his investment decisions on a quarter-to-quarter basis, and that's been the case here. We have no idea exactly why Buffett (or one of his investment managers) decided to hit the sell button on any of these four bank stocks, or why it didn't touch Ally and American Express in the fourth quarter. But the bottom line is that these are two excellent financial services businesses that have a lot to like right now.
