Berkshire Hathaway’s mysterious stock deal may soon be revealed

Berkshire Hathawayled by legendary investor Warren Buffett, has been confidentially betting on the financial industry since the third quarter of last year.

The identity of the stock – or shares – that Berkshire was acquiring could be revealed Saturday during the company’s annual shareholder meeting in Omaha, Nebraska.

That’s because if Berkshire fails to keep the investment confidential for the third quarter in a row, the stake will be disclosed in filings later this month. So Berkshire’s 93-year-old CEO may decide to explain his case to the thousands of investors gathered at the meeting.

The bet, shrouded in mystery, captivated Berkshire investors from the very beginning appeared in disclosures behind schedule last year. At a time when Buffett was net selling stocks and lamenting the lack of opportunities that could “really move needle in Berkshire” has clearly found something he likes – and in the financial sphere, no less.

This is an area that has been revisited in recent years amid concerns about rising loan defaults. High interest rates have weighed on some financial players, such as regional U.S. banks, while making the yield on Berkshire’s cash piles in instruments such as Treasury bills suddenly attractive.

“When you’re an investing goat, people care about what you think is good,” said Glenview Trust Co.’s chief investment officer. Bill Stone, using an acronym for “greatest in history.” “What’s even more exhilarating is that banks are within his circle of competence.”

Under Buffett, Berkshire did defeated the S&P 500 index for almost six decades, with a compound annual gain of 19.8% compared to the index’s annual gain of 10.2%.

Berkshire asked that the transaction remain anonymous because if the shares had been known before the conglomerate finished building its position, others would have also moved in, driving up the price, it claims. David Cassprofessor of finance at the University of Maryland.

Buffett is said to control about 90% of Berkshire’s massive stock portfolio, leaving the rest to his deputies Todd Combs and Ted Weschler, Kass said.

While the investment disclosures give no indication of what the company’s stock might be, Stone, Kass and other Buffett watchers believe it is a multibillion-dollar bet on the financial name.

That’s because the cost base of the company’s banks, insurers and financial companies grew by $3.59 billion in the second half of last year, which Berkshire separately said was the only category to see growth. filings.

At the same time, Berkshire dropped its financial names, abandoning insurers Markel AND Life on the globeleading investors to estimate the bet could be as high as $4 or $5 billion by the end of 2023. It is not known whether the plant involved one company or multiple companies in a given industry.

If this were Buffett’s classic bet – a enormous stake in one company – the stock would have to be enormous, with a market capitalization of perhaps $100 billion. Activation is triggered by ownership of at least 5% of shares in American listed companies disclosure requirements.

Investors have been speculating for months about what the company’s shares might be like. Finance includes all types of companies, from retail lenders to Wall Street brokers, payment companies and various insurance sectors.

Karol Schwab Or Morgan Stanley According to. might fit the bill James ShanahanEdward Jones analyst covering banks and Berkshire Hathaway.

“Schwab was beaten last year during the regional banking crisis. “It had a problem where retail investors were exchanging cash for higher-yield investments,” Shanahan said. “Last year, no one wanted to own the name, so Buffett could buy as much as he wanted.”

Other names circulating – JPMorgan Chase Or Black Rockfor example, they are possible but may make less sense given valuations or business mix. Truist and other higher quality regional banks may also fit Buffett’s parameters as well as the underwriter AIGShanahan said, although their market capitalization is smaller.

Berkshire has owned financial names for decades, and Buffett has stepped in on numerous occasions to inject capital and confidence into the industry.

In the early 1990s, Buffett served as CEO of scandal-ridden Salomon Brothers, helping turn the company around. He pumped $5 billion into it Goldman Sachs in 2008 and another $5 billion Bank of America in 2011, eventually becoming the largest shareholder of the latter.

But after being overwhelmed by lenders in 2018, from universal banks like JPMorgan to regional lenders like PNC Finance AND Bank of the USAdeeply reduced its exposure to the sector in 2020, fearing the coronavirus pandemic would punish the industry.

Since then, he and his deputies have largely avoided increasing their financial holdings beyond modest positions in Citigroup AND Capital first.

Last May, Buffett told shareholders to expect more turmoil in banking. He said Berkshire could commit more capital to the industry if needed.

“The situation in banking is very similar to what it has always been in banking, which is that fear is contagious,” Buffett said. “Historically, sometimes the fear was justified and sometimes it wasn’t.”

Regardless of where he placed his bet, the move would be seen as a boost for the company, and perhaps even the industry, given Buffett’s track record of identifying value.

It’s unclear how long regulators will allow Berkshire to protect its moves.

“I hope he reveals the name and talks about the strategy behind it,” Shanahan said. “The SEC’s patience may be wearing gaunt and at some point it will look like Berkshire will receive favorable treatment.”

—CNBC’s Yun Li contributed to this report.