Warren Buffett has about 53 holdings in his Berkshire Hathaway portfolio. (The precise number of holdings can change depending on the company’s investments, and it only has to divulge its holdings quarterly.) Out of those, only five operate in the banking sector.
Berkshire Hathaway’s holdings have included more banks in the past. But Buffett acknowledges that selling shares in some of those companies were mistakes. Regardless, he still has major holdings in a handful of banks.
Bank of America Corp (BAC)
Bank of America accounts for over 11% of Berkshire Hathaway’s portfolio, making it the company’s second-largest investment. (Apple, the largest investment, accounts for nearly 39% of the portfolio).
At the end of March 2023, Buffett’s company owns 1.01 billion shares, a value of about $33.45 billion.
Buffett became a major investor in Bank of America when he bought $5 billion of shares during the 2011 debt-ceiling crisis. The deal Buffett made with Bank of America also earned him a 5% annual dividend and the right to buy 700 million common shares at $7.14 each. Since then, Buffett has exercised his right and purchased even more shares.
At the end of 2011, investors could buy shares for about $24. Bank of America has had a lot of ups and downs along the way but shares are priced considerably higher now.
The bank’s share price saw steady growth from 2009 to 2019, peaking at over $56. Like most companies, Bank of America’s stock plummeted as the world learned that a pandemic would have unknowable effects on the global economy. Bank of America’s stock reached its lowest price over the past decade ($20.03) on April 3, 2020.
BAC share price then began a long climb upward that peaked in 2022. Economic uncertainty has pushed the price down over the last year, though.
Fortunately, Bank of America has solid financials that make it appealing to long-term investors like Warren Buffett. Between 2020-22, the company’s revenue has grown from $85.52 billion to $94.95 billion. Its net income grew quickly between 2020 to 2021, from $17.89 billion to $31.97 billion. It fell to $27.52 billion in 2022 alongside the decline in the overall economy.
The larger economy will always influence Bank of America’s performance. Regardless, it has managed to generate more than $15 billion per year in net income for at least five consecutive years.
American Express Co (AXP)
American Express Co is better known as a credit card company but it is in fact an online bank too.
Amex accounts for 7.49% of Berkshire Hathaway’s portfolio. Buffett and his team continue to have a lot of faith in the company’s future. The portfolio holds 151.61 million shares valued at $22.4 billion.
Warren Buffett bought his first American Express shares in 1964. True to Buffett’s investment style, he purchased shares during a scandal that decimated its value. The stock price grew rapidly through the 1990s and 200s (minus a crash from 2007 to 2009, which was followed by a quick recovery that continues today).
At the end of February 2023, share prices peaked at about $195.
American Express Chairman and CEO Stephen K. Squeri notes in the 2022 Annual Report that the “company has shown resiliency in the face of disruption throughout the years, including more recent events like the September 11 terrorist attacks, the Great Financial Crisis, and the COVID-19 pandemic.” He goes on to state that the company has always emerged stronger after these setbacks.
When we took a deeper look into the financials of American Express, we found intrinsic value at $190 per share, a 17.6% hike from current levels. Perhaps even more attractive is the company’s wide moat that may never be crossed by competitors, and is surely a primary reason why Buffett favors it.
Citigroup Inc (C)
Citigroup accounts for 0.83% of Warren Buffett’s portfolio. Berkshire Hathaway owns about 55.16 million shares, which has a total value of $2.49 billion.
Currently, Citigroup shares sell for $40 to $50. The price fell slightly below $40 in 2020. The recent high for Citigroup stock is about $79 near the end of May 2021. Since then, the stock has declined while experiencing a few short-term peaks.
Our analysis suggests that Citigroup has upside potential to $57 per share, which would translate to 25% from present levels.
Unlike some other banks on the list, Bank of America namely, Citigroup hasn’t been caught up as much in the negative headlines following the Silicon Valley Bank collapse. Wall Street appears to be giving the bank a pass.
Bank of New York Mellon (BK)
There’s a huge gap between Warren Buffett’s investments in Bank of New York Mellon and his holdings in Bank of America and American Express. Bank of New York Mellon makes up 0.38% of Berkshire Hathaway’s portfolio. Buffett owns 25.07 million shares, which have an overall value of about $1.14 billion.
Buffett clearly doesn’t have as much faith in Bank of New York Mellon as his top two banks. Still, he owns more than $1 billion worth of shares. Notably, he did offload shares last quarter to the tune of 37 million shares, corresponding to 59% of his stake.
We assess the fair value of BK shares to be just above $60 per share using a discounted cash flow forecast analysis, translating to 34% gain potential.
A caveat to this fundamental argument is Buffett’s aggressive sale of BK shares in Q4 2022, which should be a red flag that perhaps the Oracle of Omaha knows some negative news sits on the horizon that could further punish BK share price.
U.S. Bancorp (UBC)
Berkshire Hathaway’s smallest bank investment, U.S. Bancorp accounts for 0.10% of the portfolio. Berkshire Hathaway owns 6.67 million shares worth about $290 million.
That’s very small compared to other banks on this list. It doesn’t show a tremendous amount of confidence from Buffett. Still, he hasn’t removed the bank from his investments entirely.
Nevertheless, it should be noted that he sold 91% of his holding in USB during the Q4 2022 period, when he offloaded 71 million shares.
There are two primary reasons why a stake may be sold. When Buffett sees better deals elsewhere, the opportunity cost of holding a company that he perceives to be overvalued is unattractive. A more concerning reason is when he decides some fundamental reason warrants selling an entire position. His sale of US Bancorp appears to fall into this latter category.
Although a discounted cash flow forecast analysis reveals intrinsic value for US Bancorp around $45 per share, 28% north of where the share price currently resides, it would take a brave investor to take the other side of Buffett’s trade now and bet bullish.
How Much Should You Bank on the Banking Industry?
The banking industry plays a critical role in the economy. However, it’s important to note that Warren Buffett hasn’t recently increased his holdings in any bank.
With rising loan rates, businesses and consumers might decide to avoid borrowing money. That could hurt the industry for a while and offset the benefits accrued from net interest margin.
It’s further worth paying attention to the fact that Buffett sold bank stocks heavily in Q2 2022, a sign that he sees clouds on the horizon for the sector as a whole.
#1 Stock For The Next 7 Days
When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.
Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.See The #1 Stock Now >>
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.