Billionaire Warren Buffett, whose Berkshire Hathaway Inc. is the largest shareholder in Wells Fargo & Co. and has a stake in U.S. Bancorp, said the country’s lenders are less attractive investments than they once were.
“U.S. banking profitability will be considerably less in my view in the period ahead than it was in the early part of this century,” Buffett said today at an annual meeting of Berkshire shareholders in Omaha, Nebraska. “A very important reason is that the leverage will be reduced. That’s probably a good thing for society. That may be a bad thing for banks who can use leverage intelligently.”
Revenue at six of the largest U.S. banks declined by the biggest percentage in three years in the first quarter, as lending dropped and fees were reduced. With unemployment stuck above 8 percent, housing prices falling again and restrictions on charges, the banks are underperforming the broader market.
“We still think that Wells Fargo and U.S. Bank are very good operations, very decent businesses,” Buffett said. “Loan losses have been trending downward” for the industry.
Berkshire held 358.9 million shares of Wells Fargo at the end of first quarter, Buffett said today during his presentation to investors. That’s 4.8 percent more than the 342.6 million shares Berkshire owned as of Dec. 31.
Buffett maintained the firm’s investment of about 3.6 percent of U.S. Bancorp, making Berkshire the lender’s third-largest shareholder, while selling a stake in Bank of America Corp.
Net revenue at Bank of America, JPMorgan Chase & Co., Citigroup Inc., Wells Fargo, Goldman Sachs Group Inc. and Morgan Stanley fell 13.3 percent in the first quarter from a year earlier, according to data compiled by Bloomberg. The KBW Bank Index of the 24 largest U.S. lenders has fallen 1.3 percent this year as the Standard & Poor’s 500 Index climbed 8.4 percent.
“Banks periodically go crazy,” said Buffett. “It’s always on the asset side.”