Guru Trades in Banking
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As rumors and some actual news swirl around JPMorgan Chase (NYSE: JPM), I wanted to take a look at some of the financial purchases of some of the best known investment gurus. While space limitations prevent me from making a full list, one point worth realizing is, of course, all these banks will be larger, high capitalization stocks. Large, institutional investors rarely dip their toes, for obvious reasons, into lower capitalization stocks. This information is taken from the first quarter of 2012.
Warren Buffett / Berkshire Hathaway (BRK)
While Buffett often states his preference of buying companies outright, he is well known for taking long-term, equity positions in some of America’s leading companies. In recent times, Buffett has for the first time taken stakes in high tech companies such as IBM (IBM) and Intel (INTC), but he still has large financial positions as well.
Buffett more than doubled his stake in Bank of New York Mellon (NYSE: BK) to now own a little over 5.6 million shares of the major, fee based trust bank. The stake is up to about $114 million, which is a small investment by Buffett standards. Bank of New York is among the best capitalized and safest banks in the world, and as evidence it was the highest rated American bank, at number 25, on Global Finance's list of the World's Fifty Safest Banks. Due to the recent setbacks of large banks' stock prices in concert with JPMorgan's problems, Bank of New York stock is off about 16% from its price at the end of the first quarter. Yet, its dividend is secure, its balance sheet is rock solid, and its income stream is stable and predictable. Earnings will never spike for Bank of New York, but gradual gains are likely in the years ahead. At today's depressed price, the Bank of New York stock is selling at a 27% discount to book value, and carries a five year, projected PEG of 0.79. Now is a great time to hop on board for conservative investors.
Buffett also added to his long standing stake in Wells Fargo (NYSE: WFC). In the first quarter of 2012, Buffett purchased 10.6 million more shares, making the total stake nearly 395 million shares, for a current value of $12.56 billion. This makes Wells Fargo the second largest equity holding of Berkshire Hathaway. Buffett was among the first to realize the long term potential of Wells Fargo's 2008 takeover of Wachovia, giving Wells Fargo the heft and branch network to become a top tier bank. As the southeastern part of the United States resumes its above national average growth rates in the years ahead, those Wachovia assets will become ever more valuable. The stock price has fallen about 8% since the start of the second quarter, and at today's highly reasonable valuations, I see Wells Fargo as a long term buy and hold stock.
George Soros
George Soros was also active in financials in the first quarter of 2012. Specifically, he added to existing stakes in JPMorgan and SunTrust (NYSE: STI) . Obviously, JPMorgan has had hedging trades run amok, which will ultimately cost the bank upwards of $3.5 billion dollars, and help to invigorate talk of heightened restrictions on Wall Street in general and the banking sector in particular. As such, JPMorgan's London Trading Desk has caused the bank to have hemorrhaged $24.5 billion of market capitalization loss, with no less stunning market capitalization losses suffered by peer banks Goldman Sachs (GS) ($2.2 billion), Citigroup (C) ($8 billion), Bank of America (BAC) ($7 billion), among others. Soros made an ill-timed purchase. Over the longer run though, JPMorgan will reward its shareholders who hang on at today's devalued price. Today may be viewed as a historical opportunity. Anyone who has in the past thought of buying JPMorgan, should not pass up this leading money center bank “on sale.”
It is good to see institutional money flowing back into SunTrust. Few banks fell harder than Suntrust in the recent recession, though compared with such peers as Regions Financial (RF), Suntrust has bounced back well. The bank has a footprint of from Florida to Washington, including such markets as Atlanta, Orlando, and Miami. This region of the country, I believe, is poised to lead the country's growth over the next several years, and with that growth SunTrust is more suited than any other bank to capitalize on loan growth and profitability.
Soros also bought a position in PNC Financia (NYSE: PNC). PNC has a footprint across much of the eastern half of the country, and with over $270 million in assets, is this country's sixth largest commercial bank. PNC has made three sizable acquisitions in the past couple of years, National City, Bank Atlantic, and RBC Bank, and will no doubt be finding ways to save hundreds of millions through consolidation of services starting year, but especially so in 2013. I expect earnings therefore to advance by next year to at least a dollar more per share than the 2011 total of $5.64 per share. But the costs associated with the consolidation of the 2012 RBC purchase, along with associated share dilution, will hold earnings down this year.
Like many banks, PNC has its problems achieving “organic” growth in its loan portfolio, and its net interest margin is still pressured by a flattened yield curve. But it offers a solid 2.5% yield, and is trading right at its book value. I believe PNC is a winner for patient investors.
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