Berkshire Hathaway's key positions in 4th quarter 2013

Part 4
Berkshire Hathaway's key positions in 4th quarter 2013 (Part 4 of 6)

Berkshire Hathaway ups its stake in home lender Wells Fargo

Berkshire Hathaway and Wells Fargo

Berkshire Hathaway said in its year end letter that it increased its ownership interest last year in each of its “Big Four” investments—American Express (AXP), Coca-Cola (KO), IBM (IBM), and Wells Fargo (WFC). It also bought shares in Exxon Mobil (XOM), DaVita HealthCare Partners (DVA), Liberty Global (LBTYA), and Goldman Sachs (GS).

Berkshire Hathaway’s largest position is in the diversified financial services company Wells Fargo (WFC), which accounts for 20.07% of the investment company’s U.S. long portfolio. Last quarter, the position was slightly increased, by 326,500 shares. Wells Fargo is one of Berkshire Hathaway’s “Big Four” investments. Berkshire Hathaway increased its ownership to 9.2% in Wells Fargo in 2013.

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Buffet said in a shareholder letter back in 2011, “The banking industry is back on its feet, and Wells Fargo is prospering. Its earnings are strong, its assets solid and its capital at record levels.”

The nation’s largest home lender said profits increased 10%, to $5.6 billion, as revenue dipped 5.5%, to $20.7 billion in the fourth quarter. The profits were driven by higher net interest income, fee growth across many of its businesses, lower expenses, and improved credit quality. The company said it grew non-interest income even as mortgage origination volume declined due to the company’s diversified business model.

Wells Fargo said mortgage refinancing fell by more than half from last year to $1.6 billion because of higher interest rates. While refinances made up 65% of Wells Fargo’s mortgage volume in 2012, they now account for just 32%. The lender’s unclosed pipeline declined to $25 billion at the end of 4Q, down 29% from the third quarter. The company recently announced 700 job cuts in February at its mortgage operations, in addition to 250 announced in January and roughly 6,000 in 2013.

Non-interest expense of $12.1 billion decreased $811 million, or 6%, from fourth quarter 2012. The efficiency ratio was 58.5% in fourth quarter 2013, compared to 59.1% in third quarter 2013. The company expects to operate within its targeted efficiency ratio range of 55% to 59% in first quarter 2014.

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CEO John Stumpf said in a statement, “Strong earnings power and capital levels, and an improving economic outlook are major reasons why we look ahead to 2014 with optimism.”

FBR analyst Paul Miller said, “Despite the lackluster quarter, we believe that Wells Fargo is one of the better-positioned banks in the current macroeconomic environment.”

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