Warren Buffett toured the Berkshire Hathaway annual shareholder meeting in Omaha, Nebraska.
David A. Grogan | CNBC
berkshire hathawayThe company, led by legendary investor Warren Buffett, has been making secret bets against the financial industry since the third quarter of last year.
The identity of the shares Berkshire is buying could be revealed at the company’s annual shareholder meeting in Omaha, Nebraska, on Saturday.
That’s because unless Berkshire is granted investment confidentiality for three consecutive quarters, the shares will be disclosed in a filing later this month. So the 93-year-old Berkshire CEO may decide to explain his rationale to the thousands of investors gathered at the rally.
This mysterious bet has captivated Berkshire investors from the beginning. Appeared It was revealed late last year. Buffett was a net seller of his stocks and lamented the “lack of opportunities to be truly moving.” needle At Berkshire,” he apparently found what he loves, even in finance.
He has focused on this area in recent years due to concerns about rising loan defaults. While high interest rates are hurting some financial players, including regional U.S. banks, the yield on Berkshire’s cash piled up in products like Treasury bills has suddenly become attractive.
“When you’re the chief investment officer, people are interested in what you think is good,” said Glenview Trust Company’s chief investment officer. bill stone, uses the best acronym ever. “What’s even more interesting is that banks are in his circle of competence.”
Berkshire under Buffett defeated The S&P 500 index had a compound annual increase of 19.8% over nearly 60 years. In comparison, the index’s annual growth rate was 10.2%.
Coverage Note: The annual meeting will be broadcast exclusively on CNBC. Live streaming on CNBC.com. Our special coverage begins Saturday at 9:30 a.m. ET.
veiled bet
Berkshire requested anonymity to discuss the trades because if the stock price is known before the conglomerate has finished building its position, other companies will invest in the stock as well, pushing the price higher. david cassprofessor of finance at the University of Maryland.
Mr. Buffett controls about 90% of Berkshire’s vast stock portfolio, Mr. Kass said, with the rest left to Mr. Buffett’s representatives Todd Combs and Ted Weschler.
Investment disclosures give no clue what the stock is, but Stone, Kass and other Buffett watchers believe it’s a multibillion-dollar bet on a financial name.
Separately, Berkshire said its cost base in banks, insurance companies and financial stocks jumped by $3.59 billion in the second half of last year, making them the only category that increased. Documents to be submitted.
At the same time, Berkshire withdrew from the financial name by dumping insurance companies markel and globe lifeSo investors speculate that the bet could reach $4 billion or $5 billion by the end of 2023. It is unclear whether the bet was placed on one company or spread across multiple companies within the industry.
Schwab or Morgan Stanley?
If it’s a classic Buffett bet, a big bet on a single company, the stock has to be large, with a market capitalization of perhaps $100 billion.Triggers ownership of at least 5% of U.S.-listed companies disclosure requirements.
Investors have been speculating for months about what this stock will become. Finance covers all types of businesses, from private lenders to Wall Street brokers, payment companies, and various areas of insurance.
charles schwab or morgan stanley may fit the bill, according to james shanahanan Edward Jones analyst covering banks and Berkshire Hathaway.
“Schwab was devastated by last year’s regional bank crisis and had a problem with retail investors selling their cash into higher-yielding investments,” Shanahan said. “No one wanted to own that name last year, so Mr. Buffett could have bought as many as he wanted.”
Other names that have spread — JP Morgan Chase or black rockFor example, it is possible, but it may not make much sense considering valuation and business mix. Trustee In addition to insurance companies, other higher-quality local banks could fit into Buffett’s parameters. A.I.G.says Shanahan, but the market capitalization is small.
buffett and banks
Berkshire owns the financial name Over the decades, Buffett has stepped in time and time again to inject capital and confidence into the industry.
Buffett served as CEO of scandal-hit Salomon Brothers in the early 1990s and was instrumental in turning the company around.he poured in $5 billion goldman sachs An additional $5 billion will be committed in 2008. american bank It acquired the company in 2011 and eventually became the latter’s largest shareholder.
However, after increasing the number of financial institutions in 2018, from universal banks like JP Morgan to regional financial institutions such as PNC Financial and us bankhe significantly reduced his exposure to the sector in 2020 due to concerns that the coronavirus pandemic would hit the industry.
Since then, he and his agents have largely avoided increasing their financial interests, other than modest financial positions. citygroup and capital one.
“Fear is contagious”
Last May, Buffett told shareholders to expect more. Disruption in the banking industry. He said Berkshire could inject more capital into the industry if needed.
“The situation in the banking industry is very similar to the banking industry in the past in that fear is contagious,” Buffett said. “Historically, sometimes that fear was justified and sometimes it wasn’t.”
The move could be seen as a boost for the company, and by extension, the sector, given Buffett’s track record of finding value no matter where he bets.
It’s unclear how long regulators will allow Berkshire to protect its move.
“I’m hoping he’ll come forward and talk about the strategy behind it,” Shanahan said. “The SEC’s patience may run out, and at some point it will appear that Berkshire is being favored.”
—CNBC’s Yun Li contributed to this report.