Warren Buffett, known as the 'stock god', has been almost liquidating his holdings of Bank of America recently. What did he smell?
According to documents recently disclosed by the US Securities and Exchange Commission (SEC), Berkshire Hathaway, owned by Warren Buffett, reduced its holdings of Bank of America stocks from September 25th to 27th, totaling 11.678 million shares and cashing out approximately $461 million.
At this point, Berkshire Hathaway's ownership of Bank of America has dropped to about 10.3%, approaching the "regulatory threshold" of 10%. Once the shareholding ratio falls below this critical point, Berkshire will no longer need to disclose its trading situation within two working days.
Approaching the 'regulatory tipping point' for Bank of America's reduction of holdings
According to documents disclosed by the US Securities and Exchange Commission (SEC) on September 27th local time, Berkshire Hathaway reduced its holdings of Bank of America stocks for three consecutive trading days on September 25th, 26th, and 27th, totaling 11.678 million shares and cashing out approximately $461 million.
Buffett has been reducing his holdings of Bank of America stocks since July this year, with a total of more than ten reductions and cashing out approximately $9.4 billion, indicating a potential liquidation. However, even so, based on Friday's closing price, Berkshire Hathaway's remaining shares in the bank are worth nearly $32 billion, making it the largest shareholder of Bank of America.
As of now, Berkshire still holds 10.3% of Bank of America's shares, but is approaching the "regulatory threshold" of 10%. According to the relevant regulations of the US Securities and Exchange Commission, when Berkshire Hathaway's shareholding ratio is less than 10%, it will no longer be required to disclose its trading situation within two working days as it is now, but will be disclosed quarterly.
In 2011, Buffett began investing in Bank of America through a $5 billion preferred stock and warrants transaction. Subsequently, Bank of America became Berkshire Hathaway's second largest holding stock, second only to Apple Inc.
In recent years, Berkshire Hathaway has gradually liquidated its holdings in several banks, including United Bank of America, Wells Fargo, and Bank of New York Mellon.
In addition, Buffett also made a significant reduction in his holdings of Berkshire Hathaway's top holding stock, Apple, in the first half of the year. According to Berkshire Hathaway's second quarter report disclosed last month, its position in Apple Inc. decreased significantly from 789 million shares at the end of the first quarter to approximately 400 million shares in the second quarter, a decrease of nearly 50%, and its holding ratio dropped to 30.52%.
Or influenced by the Federal Reserve's interest rate cut cycle
Although Buffett has not publicly explained his recent reduction in holdings of Bank of America so far. But the market has already made rough guesses and judgments about this.
The Federal Reserve has initiated a cycle of interest rate cuts, which may have a negative impact on highly valued US banks. The Federal Reserve announced a 50 basis point interest rate cut this month, starting this round of interest rate cuts with an unconventional magnitude. Analysts say that Bank of America is very sensitive to changes in interest rate cycles, and may even be more sensitive than other banks. In March 2022, when the Federal Reserve's most aggressive rate hike cycle in 40 years began, Bank of America gained huge profits from it; Now, the Federal Reserve's interest rate cut action means that the net interest income of Bank of America may be more damaged than its peers.
It is worth noting that Bank of America's financial report has shown flaws. Bank of America disclosed its second quarter financial report on July 16th local time, and coincidentally, Buffett began reducing his holdings from the second day after the report was released. According to the financial report, Bank of America achieved revenue of $51.195 billion and net profit of $13.571 billion during the reporting period, both exceeding market expectations. However, net interest income, which is one of the largest sources of revenue for the bank, decreased by $300 million to $13.7 billion month on month, lower than market expectations.
In addition, some analysts believe that Buffett may believe that there is greater uncertainty in the current market, so he chose to shift funds to safer assets, such as cash and treasury bond. This is also consistent with the views expressed by Buffett at the 2024 annual shareholders' meeting, where he stated that holding a large amount of cash was "quite attractive". According to Berkshire Hathaway's second quarter report, as of the end of June, the company's cash reserves were close to $277 billion, a historic high.
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