Warren Buffett does it again – the one commodity he has too much of (according to some analysts) – cash, more cash for his huge $100 billion plus float because of the robust health of the US financial sector.
Most big American and foreign banks passed stress tests from the US Federal Reserve (Deutsche Bank’s US arm was one that failed) in late June, though Goldman Sachs and Morgan Stanley were told to limit dividends and buybacks because of weak financial structures.
The others – including the troubled Wells Fargo which remains under Fed sanction for a series of debacles in the miss-selling of accounts, funds management and dodgy insurance deals forced on some car finance customers – passed the tests, allowing them to payout tens of billions of dollars in higher dividends or in increased buybacks.
And as the biggest single investor in US financial service companies, Warren Buffett’s Berkshire Hathaway will pick up more than $US1.7 billion in dividends. Berkshire is in fact one of the biggest single investors in the financial sector globally.
Wells Fargo is Berkshire’s biggest banking investment (and second after Apple). Wells Fargo, was a star performer in the Fed’s stress tests and was given the thumbs up make almost $US33 billion in dividend payments and share buybacks over the next four quarters.
Berkshire doesn’t sell into buybacks, but will gladly take the dividends – an estimated $US800 million for its 9.9% over the next year. And remember Berkshire will not be increasing its stake past 9.9% after attempting to do so three years ago and finding out the Fed wanted more data on the deals.
Bank of America is also due to boost payouts (Berkshire exercised warrants a year ago to become the biggest shareholder in the bank with 700 million shares). The Fed approved its plan to raise its annual dividend by a quarter which will deliver around $US400 million of dividend payments in the year ahead.
American Express (one of Buffett’s longest held stocks) was forced to rein in its initial capital distribution plan, although it received the Fed’s approval for an 11% in its dividend.
Goldman Sachs was told to keep aggregate dividend and share buybacks broadly in line with previous years after some of its capital measures fell shy of requirements in the stress tests.
Berkshire is the seventh-biggest shareholder.
Berkshire is also the biggest shareholder in US Bancorp, the seventh largest bank in the country by assets, which got the green light for a 23% dividend increase.
And it is the second-largest investor in Bank of New York Mellon, which is able to increase its dividend 17%.
All this cash will flow into the company over the next year and add to the already ginormous cash float was $US116 billion, up $US2 billion from the end of 2017 and after spending billions on buying more shares in Apple in the three months to March.
And funnily enough, US bank shares weakened in the second quarter and most are negative for the six months to June 30.