There are quite a few bank stocks in Berkshire Hathaway's (NYSE: BRK-A) (NYSE: BRK-B) portfolio, and most were chosen by Warren Buffett himself. At the end of the first quarter, Berkshire owned shares of 10 different banks, and these positions have a current market value of more than $91 billion.
However, we just learned that Buffett and his team have added even more to the company's largest bank-stock investment, Bank of America (NYSE: BAC). In fact, Berkshire's latest Bank of America stock purchase pushes the stake past the 10% ownership threshold. Here's why that's such a big deal.
Image source: The Motley Fool.
Berkshire's latest Bank of America purchase and why it's so significant
In a recent SEC filing, Bank of America disclosed that Berkshire Hathaway owns 950 million shares of the bank. This is significantly higher than the approximately 896.2 million shares it owned at the end of the first quarter.
At the current stock price, the additional 53.8 million shares Berkshire has purchased translates to an additional $1.64 billion invested in what was already the company's largest bank-stock investment. Berkshire's Bank of America stake is now worth about $29 billion, still well behind tech giant Apple, Berkshire's largest investment with a $51.7 billion market value, but a firm second place in front of Coca-Cola, a $21.2 billion investment.
Here's why this is so important. Thanks to a combination of the increased Berkshire investment and Bank of America's aggressive share buybacks, Berkshire Hathaway now owns 10.4% of the bank's outstanding shares.
The 10% ownership level is significant, especially when it comes to banks. In the past, Buffett has actively avoided owning more than 10% of most of his bank stocks — even selling significant amounts of Wells Fargo stock to remain under this threshold. Without going too deep into the implications of owning more than 10% of a bank, the point is that Buffett's willingness to deal with additional regulatory headaches in order to own a bigger piece of Bank of America shows extreme confidence in the stock.
Why might Buffett be so confident in Bank of America?
A look at Bank of America's recent results shows why Buffett might be especially eager to invest. For one thing, Bank of America is doing a better job of growing than the rest of the big banks.
Bank of America's loan portfolio and deposit base grew by 4% and 6%, respectively, in the second quarter of 2019 on a year-over-year basis. The second-highest loan growth among the “big four” U.S. banks was just 2%.
Full story on Motley Fool by Matthew Frankel, CFP