In the first quarter of 2023, Warren Buffett’s company Berkshire Hathaway (BRK.A 0.20%) (BRK.B -0.11%) sold more than $13 billion of stocks, well more than the $2.9 billion of stocks the company bought in Q1.
Given what’s been going on in the banking sector and the fact that the cost basis of Berkshire’s banks, insurance, and finance stocks declined by $1.87 billion in Q1, I think there’s a good chance that Berkshire sold some of its bank holdings.
In fact, I think there’s a very good chance that Berkshire eliminated one of its longtime bank positions from its portfolio in the quarter. Let’s take a look.
A longtime holding coming to an end
Berkshire began purchasing the super-regional lender U.S. Bancorp (USB -1.80%) in 2006. It has held the stock through some difficult times, including the Great Recession and the pandemic, even after selling off most of its other large regional bank holdings.
But after trimming its position slightly during the early part of the pandemic, Berkshire began to ratchet up its sales of U.S. Bancorp. It sold about 5% of its position in the second quarter of 2022, then 35% of its position in the third quarter of 2022, and then more than 91% of its remaining position in U.S. Bancorp in the last quarter of 2022.
It seemed like Buffett and Berkshire began to sour on U.S. Bancorp following the bank’s largest-ever acquisition, Union Bank, which was the U.S. banking arm of the Japanese lender Mitsubishi UFJ Financial Group. There’s certainly a lot to like about the deal, including increased scale, an enhanced presence in California (which has a lot of the small business banking clients that U.S. Bancorp likes to serve), and a strong deposit base.
But large bank deals have been historically difficult to pull off, and this one came at a bad time for the bank because it lowered U.S. Bancorp’s capital levels. The bank saw its common equity tier 1 (CET1) capital ratio, which looks at a bank’s core capital expressed as a percentage of its risk-weighted assets, fall from 9.8% in Q1 2022 to now 8.5% post-acquisition. That’s lower than its peers’.
High interest rates have pushed down the fair value of bank bond portfolios. Although these are not currently factored into large regional bank CET1 ratios, this does temporarily affect tangible book value, or a bank’s net worth. Additionally, most executives now expect to see higher regulatory capital requirements as a result of the banking crisis.
While Buffett hasn’t explicitly said this is the reason for Berkshire’s sale of U.S. Bancorp, it does seem to be one of the largest changes, along with its capital ratios, that the bank has seen over the last year. The market seems to be concerned about this as well. The stock is down close to 34% this year.
Buffett doesn’t normally trim positions
Buffett has said himself that Berkshire does not normally trim positions. Usually, if the company starts selling big portions of a stock, it eventually eliminates the position.
Berkshire did trim almost its entire position in Wells Fargo, and then held the last remaining shares for a few quarters before fully eliminating the position. So it’s possible Berkshire is waiting to sell its roughly $200 million worth of remaining U.S. Bancorp shares.
But I think it’s very likely Berkshire fully eliminated the position in Q1. We’ll find out when Berkshire files its 13F filing, revealing what stocks the company bought and sold in the first quarter, likely on May 15 after the market closes.
Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.