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Why is Warren Buffet Buying Banks?

Buffet on Banks

I’ve been in the financial industry for 20 years doing international accounting for banks, working in Japan, Singapore, New Zealand, Korea, Malaysia, England, Hongkong (before China took over), China, etc.  The world is changing much faster than expected and I’m here to help you the new world!!!

 

Summary Blog

  • What is a 13F?
  • Warren Buffett current bank holdings
  • Warren Buffet buying banks

What is a 13F?

It’s the time of the quarter when the 13F filings of the mutual fund organization, hedge funds, and large investment managers get released. For those unfamiliar with 13Fs, it is a document filed to the Security and Exchange Commission (SEC) that provides insight into the holdings fund managers ended the quarter with. One such disclosure that is always reviewed by investors and market commentators alike is from famed, long-term value investor Warren Buffett.

The one group that Buffett increased his stake in significantly is the financials, which have been beaten down all year on concerns of loan growth and fears of a pending recession. But Buffett clearly sees long-term value in the sector, adding to current positions in several names such as Bank of America (BAC) and Goldman Sachs (GS), maintaining his stake in Wells Fargo (WFC)

Now we would be remiss if we did not mention what is currently going at Goldman Sachs. The bank has been in the headlines day after day, a result of the news that a few former executives were involved in the wrongdoings of 1MDB Scandal. In addition to the legal troubles and reputation damages, the investment firm’s past dealings netted them roughly $600 million in fees, which the government of Indonesia wants back.

That’s not to say they think that the headlines or the investigations are over, and it is still possible that the bank could be charged with a “failure to supervise.” However, an interesting point they raised was, “when we look back on this moment two or three years from now, will this have been a good time and price at which to have bought the stock? We suspect that given the ~$202 stock price and $186 TVB today that we think will grow to ~$213 by the end of 2019, the answer will be yes.”

Warren Buffett current bank holdings

Warren Buffett Buying Banks

New positions in JPMorgan Chase (JPM) and PNC Financial (PNC

JPMorgan ended the quarter with a tangible book value per share of $55.68. Based on Wednesday’s close, that puts the price-to-Tangible book value at 1.9 times. JPMorgan has earned this type of premium over its peers because of its massive balance sheet and best-in-show return on equity, but Buffett wouldn’t have taken a stake in the bank for the first time now if he didn’t think it deserved a higher multiple.

PNC shares have ranged between $116.55 and $163.59 during the past 12 months and closed on Wednesday at $134.13.