Will Warren Buffett Sell Wells Fargo?
Will Buffett sell Wells Fargo?
Wells Fargo certainly faces some challenges ahead as it fights lower profits and regulatory restrictions dogging its business. But I still think it would be unlikely for Buffett to sell his entire stake in the bank, although he may continue to curb his position. After all, not all at the bank is bad. Wells Fargo has a high percentage of interest-bearing deposits that should continue to reprice down throughout the year as a result of the Fed's decision to rapidly drop rates to zero in March. That will reduce the bank's total funding costs and should help its margin a little bit.
Additionally, management seemed confident in the bank's ability to keep paying its dividend. Its common equity tier 1 capital ratio (CET1), a measure of a bank's core capital to its risk-weighted assets, remained at 10.67% after the first quarter . As long as this ratio stays above 9%, the bank will likely not be limited in its ability to make capital distributions because it has more than $165 billion in retained earnings .
Perhaps the one benefit from the asset cap is that the bank is somewhat inhibited from increasing its risk-weighted assets, a big driver in significantly reducing many bank CET1s in the first quarter. "Based upon the assumptions that we've laid out in these very stressed environments, we do feel good about it (the dividend)," said Scharf. "But ultimately, the timing and the pace of the recovery is going to determine earnings capacity for everyone to be able to continue to support the level of dividends." (https://www.fool.com/earnings/call-transcripts/2020/04/14/wells-fargo-co-wfc-q1-2020-earnings-call-transcrip.aspx).
If Buffett sold his entire stake right now while Wells Fargo's stock is trading around $26 per share, he would lose a lot of his gains, and that seems unlikely given that he has owned the bank for three decades. Also, Buffett said at Berkshire's investor day that he does not see any special problems with the banks right now, meaning he likely expects them to recover to pre-coronavirus levels. I'm expecting Berkshire to hang on to at least some of its Wells Fargo stock for now.
SOURCE: https://www.fool.com/investing/2020/05/12/will-warren-buffett-sell-wells-fargo.aspx