Berkshire Hathaway Reduces its Wells Fargo Stake

Warren Buffet’s Berkshire Hathaway Inc. is reducing its position in Wells Fargo and Co. to below 10 percent. The company sold 7.13 million of its shares in Wells Fargo and intended to sell 1.87 million shares more soon.

The company said in a statement, “These sales are not being made because of investment or valuation considerations. Rather, they are solely motivated by the desire to return to a percentage ownership below the 10 percent notification threshold.”

The 10% threshold is significant as remaining above it would disallow Berkshire from engaging in significant transactions with Wells Fargo.

Berkshire said in a statement, “After several months of discussions with representatives of the Federal Reserve, we have concluded that the commitments that would be required of us by the Federal Reserve to retain ownership of 10 percent or more of Wells Fargo’s outstanding common stock would materially restrict our commercial activity with Wells Fargo. Therefore, it would be simpler to keep our ownership below 10 percent.”

The Federal Reserve has special oversight in situations when investors take significant investments in banks. The idea is to prevent a controlling influence on the bank.

Mark Folk, a spokesman for Wells Fargo, said, “We appreciate the confidence that Berkshire Hathaway has placed in Wells Fargo over the years, both as our largest shareholder and a very valued customer. We look forward to continuing our relationship with them.”

Berkshire has been an investor in Wells Fargo since 1989. Should the bank repurchases its stock, it will sell some of its position to make sure it is slightly below 10 percent. A recent filing before the sale shows that Berkshire owns 504.3 million shares worth more than $27 billion. Also, Warren Buffet, as an individual investor, owns 2.01 million Wells Fargo shares.

Berkshire has gained $500 million from this sale of its Wells Fargo stake. Berkshire will continue to be the bank’s largest shareholder. In the past, Wells Fargo played the role of underwriter when Berkshire issued debt for investors. The bank also has a significant banking relationship with other Berkshire affiliated firms. This includes services in lending, insurance, and investment banking.

In 2016, Wells Fargo was involved in a scandal wherein it opened accounts for customers without asking their permission. In response to the accounts scandal, it will take back $75 million of compensation from the executives involved in the scandal, which includes former CEO John Stumpf and former community banking chief, Carrie Tolstedt.

Buffett said in a TV interview that the bank made a “huge mistake” by not fixing the situation immediately which led to the scandal getting out of hand and their reputation taking a hit.
According to analysts polled by Thomson Reuters, Wells Fargo is forecasted to report a fall in its 1st quarter profit.

Berkshire Hathaway also invests in other financial services firms such as their 16.8% stake in American Express Co., 2.9% stake in Goldman Sachs Group Inc., and a 6% stake in U.S. Bancorp.

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