Warren Buffett’s holding company Berkshire Hathaway (
BRK.B - Free Report) is betting big on a number of financial organizations in the United States, per the company’s annual shareholder letter released last week. The company raised its holdings in seven companies in the fourth quarter, out of which four are big banks.
Berkshire’s recently raised investments are a combination of banks and financial services firms, which reflect the company’s interest in gaining exposure to the American financial sector.
The holding company’s investments in big banks such as Bank of America (
BAC - Free Report) , US Bancorp ( USB - Free Report) , JPMorgan Chase ( JPM - Free Report) and Bank of New York Mellon ( BK - Free Report) indicate its appetite for financial institutions that carry out basic banking transactions such as giving loans and holding deposits. In addition, the company’s bet on financial service firms such as Goldman Sachs ( GS - Free Report) and American Express ( AXP - Free Report) point toward its aim to mitigate risks by diversifying overall investments in the sector. VIDEO Investments in Banks With More Domestic Exposure
It is interesting to note that Berkshire is stocking up on American banks that generate their revenue mostly from domestic operations and have limited international exposure.
The company’s strategy is evident from its percentage of shares in all of America’s four big banks, except for a single share in Citigroup (C). The investment bank earns only about 37% of its revenue and profits from the American market, which appears to be a crucial reason for Berkshire avoiding the stock.
An Insight Into the Big Banks Berkshire Invested In Bank of America
Bank of America, the country’s second-largest bank, is Berkshire’s sixth largest holding. The holding company has a 9.5% stake in the financial organization. Bank of America is known for its focus on consistent growth and responsible business operations, and has more than $2.3 trillion in assets.
Although Bank of America saw a not-so-impressive performance on fixed income trading and investment banking front, increase in interest rates, rise in loans and cost-cutting boosted the bank’s fourth-quarter 2018 earnings to 70 cents per share, which readily beat the Zacks Consensus Estimate of 63 cents. (
The bank expects earnings to expand this fiscal year as well.
Bank of America currently carries a Zacks Rank #3 (Hold). Its Zacks Consensus Estimate forcurrent-year earnings has risen 0.4% in the past 60 days. The company’s expected earnings growth rate for the current year is 8.8%. In addition, the stock has gained 18.9% compared with the S&P 500’s gain of 11.5% on a year-to-date basis.
With 9.1% of US Bancorp owned by Berkshire, the American bank is clearly the latter’s eighth largest holding. The company has $467 billion in assets as of December 2018, and is the fifth-largest commercial bank in America.
US Bancorp’s services include a wide range of banking services that it provides mostly to the domestic market through its subsidiaries. The company’s fourth-quarter 2018 adjusted earnings per share of $1.07 beat the Zacks Consensus Estimate by a penny. The bank reported better-than-expected revenue growth in fourth-quarter 2018 on the back of an increase in loans and deposits.
Although rise in expenses and provisions and lower mortgage banking revenues acted as headwinds, easing of margin pressure on increasing rates and by and large higher fee income helped boost overall gains. (
US Bancorp carries a Zacks Rank #3. The company’s expected earnings growth rate for the current year is 6.1%. In addition, the stock has gained 12.3% compared with the S&P 500’s increase of 11.5% on a year-to-date basis.
The American investment bank and financial services company is Berkshire’s 15th largest holding. Berkshire owns a 1.5% stake in JP Morgan Chase.
Disappointing fixed income trading and underwriting business performance dragged down the bank’s fourth-quarter earnings to $1.98 per share, which failed to beat the Zacks Consensus Estimate of $2.20. While the bank’s home lending business revenues fell 8% on an annual basis, operating expenses and provisions for credit losses rose in the fourth quarter.
However, JPMorgan Chase’s investment banking fees posted decent gains with a rise of 38% in advisory fees. Modest increase in loans and higher rates of interest boosted net interest income growth. (
JP Morgan Chase carries a Zacks Rank #3. The company’s expected earnings growth rate for the current year is 9.2%. In addition, the stock has gained 7.9% on a year-to-date basis.
Bank of New York Mellon
Bank of New York Mellon is Berkshire’s ninth largest investment with an 8.8% ownership.
The bank has reported impressive fourth-quarter 2018 earnings with adjusted earnings per share of 99 cents that beat the Zacks Consensus Estimate of 92 cents. Although factors such as poor assets position and decline in total fee and other income acted as headwinds, the bank gained from lower operating expenses, no provisions and improvement in net interest revenues. (
Bank of New York Mellon carries a Zacks Rank #3. The company’s expected earnings growth rate for the current year is 1.4%. In addition, the stock has gained 12.7% compared with the S&P 500’s increase of 11.5% on a year-to-date basis.
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