Warren Buffett's Berkshire Hathaway significantly cut its stakes in some of the largest US banks in the second quarter, selling billions of dollars worth of stock in Wells Fargo, JPMorgan Chase and other financial institutions.
Berkshire Hathaway slashes stakes in US banks
The Covid-19 pandemic has forced US banks to take billions of dollars in provisions for future credit losses. The 15 largest US banks alone have set aside $76bn since the crisis began.
In addition, Federal Reserve intervention, designed to protect the economy from the effects of the virus, has pushed short-term interest rates to nearly zero, compressing banks' lending margins as loan pricing falls faster than their already low financing costs.
Trading by Mr Buffett since the end of the second quarter is not captured in Friday's filing, and Berkshire has made at least one big positive bet on bank shares so far in the third quarter. Since late July, it has purchased more than $2bn of stock in Bank of America, the second-largest bank in the US, taking its stake above 11 per cent.
Shares in US banks have been hammered by the pandemic and have not recovered with the rest of the market. The KBW bank index is down 27 per cent since February.
Wells Fargo, still struggling to recover from its 2016 fake accounts scandal, has been hit particularly hard, with its share down by almost half since February.
In part because of its heavy exposure to financials, Berkshire's class A shares have fallen 6.9 per cent this year, lagging the 4.4 per cent advance by the broader US market.
At its annual shareholder meeting in May, Mr Buffett declared his long-term faith in the US economy without making any predictions for the immediate future.
"In 2008 and 2009, our economic train went off the tracks. And there were some reasons why the roadbed was weak, in terms of the banks and all that. This time we just pulled the train off the tracks and put it on a siding," he said.
"This is quite an experiment and we may know the answer to most of the questions reasonably soon but we may not know the answers to some very important questions for many years. It still has an enormous range of possibilities."