Warren Buffett tours the grounds of Berkshire Hathaway’s annual shareholder meeting in Omaha, Nebraska.
David A. Grogan | CNBC
Berkshire HathawayThe company, led by legendary investor Warren Buffett, has been making confidential bets on the financial industry since the third quarter of last year.
The identity of the shares (or shares) Berkshire was buying could be revealed Saturday at the company’s annual shareholder meeting in Omaha, Nebraska.
That’s because unless Berkshire is granted confidential investment treatment for a third consecutive quarter, the stock holdings will be disclosed in filings later this month. So Berkshire’s 93-year-old CEO may decide to explain his reasoning to the thousands of investors gathered for the meeting.
The bet, shrouded in secrecy, captivated Berkshire investors from the start. appeared in disclosures late last year. At a time when Buffett was a pure seller of stocks and lamented the lack of opportunities that could “really needle Berkshire, he’s obviously found what he likes—in finance, no less.
He has returned to the area in recent years due to concerns about rising loan defaults. High interest rates have hurt some financial players such as regional U.S. banks, while yields on Berkshire cash instruments such as Treasury bills have suddenly become attractive.
“When you’re the GOAT of investing, people are interested in what you think is good,” said Glenview Trust Co.’s chief investment officer. Bill Stone, using an acronym that stands for “greatest of all time.” “What makes it even more exciting is that banks are within its purview.”
Under Buffett, Berkshire has destroyed The S&P 500 has achieved a compound annual gain of 19.8% over nearly six decades, compared with the index’s 10.2% annual gain.
Note: The annual meeting will be broadcast exclusively on CNBC and broadcast live on CNBC.com. Our special coverage begins Saturday at 9:30 a.m. ET.
Hidden bets
Berkshire requested anonymity about the trades because if the shares become public before the conglomerate finishes building its position, others will also buy into the shares, causing the price to rise, according to Berkshire’s statement. David CassProfessor of Finance at the University of Maryland.
Buffett is said to control about 90% of Berkshire’s huge stock portfolio, leaving the rest to his lieutenants Todd Combs and Ted Weschler, Kass said.
While the investment disclosures don’t provide any insight into what the stock might be, Stone, Kass and other Buffett watchers believe it’s a multibillion-dollar bet on a financial name.
That’s because the value of shares of the company’s banks, insurers and financial services companies jumped $3.59 billion in the second half of last year, the only category that increased, according to a separate Berkshire report. documentation.
At the same time, Berkshire exited financial companies, abandoning insurers. Markel And Globe Lifeprompting investors to estimate the bet could be as high as $4 or $5 billion before the end of 2023. It is unknown whether this bet was made on one company or spread across several firms in the industry.
Schwab or Morgan Stanley?
If this were a classic Buffett bet—a large stake in one company—the stock would have to be large, with a market capitalization of perhaps $100 billion. Owning at least 5% of the shares of publicly traded US companies causes information disclosure requirements.
Investors have been speculating for months about what the stock might do. Finance covers a wide range of companies, from retail lenders to Wall Street brokers, payment companies and various insurance sectors.
Charles Schwab or Morgan Stanley can meet all the requirements, in the opinion James ShanahanEdward Jones analyst who covers banks and Berkshire Hathaway.
“Schwab failed in the regional banking crisis last year. They had a problem with retail investors exchanging cash for higher-yielding investments,” Shanahan said. “Last year, no one wanted to own the name, so Buffett could buy as much as he wanted.”
Other names that have been common are – JP Morgan Chase or BlackRockfor example, are possible but may make less sense given valuations or business structure. Truist and other higher-quality regional banks could also fit Buffett’s parameters, as could an insurance company. AIGsaid Shanahan, although their market capitalization is smaller.
Buffett and banks
Berkshire has owned financial names for decades, and Buffett has repeatedly intervened to inject capital – and confidence – into the industry.
Buffett served as CEO of scandal-hit Salomon Brothers in the early 1990s to help turn the company around. He invested $5 billion into it. Goldman Sachs in 2008 and another $5 billion in Bank of America in 2011 and eventually became the latter’s largest shareholder.
But after the strain on lenders in 2018, from universal banks like JPMorgan to regional lenders like PNK Financial And US BankIt sharply reduced its presence in the sector in 2020 due to fears that the coronavirus pandemic would punish the industry.
Since then, he and his deputies have largely avoided increasing his financial stake, except for modest government positions. Citigroup And Capital One.
“Fear is contagious”
Last May, Buffett told shareholders to expect more turbulence in the banking industry. He said Berkshire could bring more capital into the industry if necessary.
“The situation in the banking industry is very similar to how it has always been in the banking industry: fear is contagious,” Buffett said. “Historically, sometimes the fear was justified, sometimes it wasn’t.”
Wherever he makes his bet, the move will be seen as a boost for the company, and perhaps even the entire sector, given Buffett’s track record of identifying value.
It’s unclear how long regulators will allow Berkshire to hide its actions.
“I hope he reveals the name and the strategy behind it,” Shanahan said. “The SEC’s patience may be wearing thin, and at some point it will look like Berkshire is being looked upon favorably.”
— CNBC’s Yun Lee contributed to this report.