Berkshire Exits BofA ‘a Loser’ on Three-Year Holding

Warren Buffett’s Berkshire Hathaway Inc. sold its stake in Bank of America Corp., ending an investment that spanned three and a half years in which the lender’s stock lost more than two-thirds of its value.

Buffett’s firm had no shares in the Charlotte, North Carolina-based bank at the end of 2010, compared with 5 million shares three months earlier, Berkshire said late yesterday in a regulatory filing that lists the company’s U.S. stockholdings.

Berkshire, where Buffett serves as chief executive officer and head of investments, entered the Bank of America stake with the purchase of 8.7 million shares in the second quarter of 2007. The lender’s CEO at the time, Kenneth Lewis, was expanding through acquisitions and telling investors that the U.S. housing slump would be over within months.

“He’s closing out a loser,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha,” whose Ram Partners LP invests in Berkshire and Bank of America. “We bought it during the crisis. But its earnings power coming out the crisis has been reduced.”

Bank of America fell 6 cents to $14.83 at 9:50 a.m. in New York Stock Exchange composite trading. The lender traded for more than $48 at the end of June 2007.

Buffett, 80, is reshaping Omaha, Nebraska-based Berkshire’s stock portfolio amid changes among the company’s investment managers. Lou Simpson, once identified by Buffett as his emergency stand-in, retired late last year. Berkshire, the biggest shareholder of Coca-Cola Co. and Wells Fargo & Co., hired former hedge fund manager Todd Combs to help Buffett with investments.

Nike, Lowe’s

Berkshire also eliminated its stakes in Nike Inc., Comcast Corp., Nalco Holding Co., Fiserv Inc., Lowe’s Cos. and Becton, Dickinson & Co. in the fourth quarter. In November, Berkshire disclosed that it had sold holdings of Home Depot Inc., trash hauler Republic Services Inc. and Iron Mountain Inc., a provider of records management. Buffett’s U.S. portfolio had 25 stocks and a value of about $52.6 billion at the end of December.

“It makes one wonder if he’s setting up his portfolio for transition,” said Michael Yoshikami, chief investment strategist at Berkshire shareholder YCMNet Advisors. “It certainly would be more helpful when someone comes in to the portfolio to have 25 names rather than 50 names, where they’d have to spend a lot of time cleaning up messes.”

Faulty Mortgages

Bank of America CEO Brian T. Moynihan, who replaced Lewis early last year, is facing increased regulation and lawsuits from investors who said the company sold faulty mortgages. Moynihan oversaw a $2.2 billion net loss in 2010 as the shares dropped 11 percent, the worst performance among the 10 biggest U.S. banks. Jerry Dubrowski, a spokesman for the bank, said the company doesn’t comment on investor purchases or sales of the firm’s stock.

Charlie Pajor, a spokesman for Naperville, Illinois-based Nalco, said Berkshire did “very well with their investment” in the provider of water-treatment services. Berkshire took a stake in Nalco in the fourth quarter 2008, when the company had an average price of less than $13 a share. The stock traded for more than $31 on Dec. 31.

Berkshire also sold its stake in Nestle SA’s American depositary receipts traded in the U.S.

Buffett, also Berkshire’s chairman, has trimmed the stock portfolio since the 2008 financial crisis and focused on buying whole companies. He acquired Burlington Northern Santa Fe last year for $26.5 billion to add a railroad to Berkshire’s collection of more than 70 subsidiaries in industries spanning insurance, energy and ice cream.

Wells Fargo

Buffett has said Berkshire will divide his roles as head of investments and operations among more than one successor. Combs specialized in financial-services investments at hedge fund Castle Point Capital Management LLC.

Buffett has said he built his equity portfolio by buying and holding stocks of companies that he believes have durable competitive advantages. Berkshire’s stake in San Francisco-based Wells Fargo, the biggest U.S. home lender, was valued at more than $10 billion at the end of December after Berkshire added shares in the fourth quarter, according to data compiled by Bloomberg. Wells Fargo climbed 21 cents to $34.08 at 9:50 a.m. in New York.

Buffett told CNBC in 2009 that while Bank of America excelled at gathering deposits, “they’ve got some activities that are maybe less wonderful.”

Lewis overpaid for Merrill Lynch & Co. in a deal struck the same day Lehman Brothers Holdings Inc. filed for bankruptcy in 2008, Buffett told the Financial Crisis Inquiry Commission, according to remarks released last week by the panel. Bank of America completed its $18.5 billion purchase of Merrill Lynch in January of 2009.

Lewis “paid a crazy price, in my view,” Buffett said. “He could have bought them the next day for nothing because Merrill was going to go when Lehman went.”

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.

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