Photographer: Andrew Harrer/Bloomberg

Berkshire Cuts Wells Fargo Stake to Get Below Fed's Limit

  • Buffett’s company sold 7.13 million shares, will divest more
  • Sale was made to comply with Fed, not because of valuation

Warren Buffett’s Berkshire Hathaway Inc. is cutting its stake in Wells Fargo & Co. to less than 10 percent after the Federal Reserve told the billionaire’s company that remaining above that threshold would limit its ability to do business with the bank.

Berkshire sold 7.13 million shares of Wells Fargo this week and plans to divest an additional 1.87 million in the near future, the Omaha, Nebraska-based company said Wednesday in a statement. Buffett’s company oversaw about 500 million shares as of Dec. 31, valued at more than $27 billion at the time, according to Berkshire’s annual report.

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

U.S. rules have long curtailed the influence of outsiders on banks. None of the other top four lenders in the nation can claim a single investor with a holding the size of Buffett’s Wells Fargo stake. The billionaire disclosed in a filing last year that his position climbed to 10 percent because the bank had been buying back its own stock. Berkshire is listed in Wells Fargo’s proxy filing among major shareholders that have business relationships with the San Francisco-based company in segments such as lending, investment banking and insurance.

Simpler Path

“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,” Berkshire said in the statement. “Therefore, it would be simpler to keep our ownership below 10 percent.”

Berkshire applied last year to expand the stake beyond 10 percent, saying the company had no plans to merge the bank with another firm or make significant changes to the lender’s strategy or corporate structure. The billionaire committed in the 1990s to be a passive shareholder at American Express Co. Berkshire’s stake in AmEx has since reached about 17 percent.

Wells Fargo slipped 14 cents to $52.98 in extended trading at 5:46 p.m. in New York. Berkshire said it is prepared to sell enough additional shares in future periods to remain below the Fed’s limit. The regulator declined to comment.

Buffett, 86, has long been a fan of Wells Fargo and invested in the bank in 1989. Most of the stake is held through Berkshire insurance subsidiaries.

‘Valued Customer’

“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,” Mark Folk, a spokesman for the lender, said by email. “We look forward to continuing our relationship with them.”

The 10 percent threshold had put limits on Buffett even before Wednesday’s announcement. Last year, after regulators said that Wells Fargo opened accounts for customers without their permission, he refrained from public remarks on the scandal until after John Stumpf stepped down as the bank’s chief executive officer. Buffett then faulted Stumpf for failing to promptly address the problem.

He later said that criticizing a CEO could be seen as exerting too much influence. Buffett told CNBC in February that taking an active role while holding a stake of more than 10 percent could subject Berkshire to being declared a bank holding company, a tag that may bring increased regulation.

“Berkshire has no present intention to sell Wells Fargo shares in amounts beyond the quantity required to provide a small safety margin below 10 percent,” according to the statement.

— With assistance by Laura J Keller, Noah Buhayar, and Benjamin Bain

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE