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Berkshire Hathaway Decreases Stake in Wells Fargo to 3.3%

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Warren Buffett’s Berkshire Hathaway (BRK.B - Free Report) has cut down on its stake in Wells Fargo & Company (WFC - Free Report) to 3.3%. In a filing filed on last Friday, Berkshire said it owned about 138 million shares of the Wall Street biggie, down from about 100 million as of June-end.

Previously, in the second quarter, Berkshire had offloaded 85.6 million Wells Fargo shares. It also had reduced stakes in some other banks such as JPMorgan (JPM - Free Report) , Goldman Sachs (GS - Free Report) and PNC Financial.  

Shares of Wells Fargo are down more than 50% so far this year. Furthermore, things have not been in favor of the Sans Francisco-based bank of late. In second quarter, the company had incurred loss, attributed to a reserve build of $8.4 billion for the coronavirus outbreak-related crisis.

Further, the bank reduced its third-quarter dividend to 10 cents from the prior figure of 51 cents, following the Federal Reserve’s announcement to limit dividend distribution to an amount equal to the average of the bank's net income for the four preceding calendar quarters.

The cut in Wells Fargo’s dividend was more than expected as the lender’s earnings in the past few quarters have been hit by involvement in several litigations.

Also, recently, Moody’s Investors Service downgraded Wells Fargo’s rating outlook to negative from stable. This was due to the scandal-led bank’s slower than anticipated pace in resolving legacy governance, oversight, compliance and operational risk management deficiencies.

"Although Wells Fargo's years-long remediation efforts are progressing, the slow pace weighs on its expense base, further undermining its earnings potential against the backdrop of challenging operating conditions resulting from the coronavirus pandemic outbreak", said Allen Tischler, senior vice president.

Our Take

Following the fake accounts scandal, Wells Fargo has undertaken several restructuring measures to focus on its core operations, improve efficiency and strengthen the balance sheet. Also, it recently introduced a no-overdraft fee and low-cost account targeting young adults.

However, the asset cap placed on the bank by the Fed has disappointed investors so far. Also, pressure to clean the bank’s reputation tinted by the 2016 fake accounts scandal persists.

Shares of Wells Fargo have lost 23.6% over the past six months against 7.3% growth registered by the industry.


Currently, the company carries a Zacks Rank #4 (Sell).

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