Buffett Seeks Fed Approval For Increased Stake In Wells Fargo

Companies fall under the purview of increased regulatory scrutiny of the Federal Reserve if ownership stake crosses the level of 10% in a bank. The regulators’ concern arises from the fact that investors’ large stakes in a bank may result in the investor influencing or controlling the operations and management of the bank.

Therefore, legendary investor Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRKa) has sought permission from the Fed to increase its stake in Wells Fargo & Company (NYSE:WFC) after hitting the level of 10% in March.

"Berkshire does not have any specific transaction or dollar value in mind with respect to any such potential purchases," Berkshire said in its application to the Fed filed on Jun 14.

Notably, Berkshire’s holdings include 479.7 million shares of Wells Fargo and Warren Buffett has 2 million in his private account. Therefore, the value of total shares comes to more than $22.6 billion at Friday's closing price.

"We value Berkshire Hathaway as a long-term shareholder and customer, and we appreciate the confidence that Berkshire’s executive team has shown," Wells Fargo spokesman Ancel Martinez said in an email.

Background

According to a regulatory filing in March, Buffett’s stake reached 10% as Wells Fargo has been buying back stock. With its first investment in this San Francisco-based banking giant going back to 1989, Berkshire has gradually expanded its stake in the company.

Two decades ago Nebraska-based Berkshire surpassed the 10% limit in its stake in American Express Company (NYSE:AXP) which currently stands at 15.94%.

Though Buffett holds stakes in banking giants The Goldman Sachs Group, Inc. (NYSE:GS) and U.S. Bancorp (NYSE:USB) , his banking investments continue to be focused on Wells Fargo.

Bottom Line

While Buffett’s enhanced stake in Wells Fargo might boost investors’ confidence in the stock, several concerns still remain. These include margin pressure, litigation burden, the company’s exposure in the stressed energy sector and stricter regulations across the banking sector that limit business growth.

Wells Fargo currently carries a Zacks Rank #3 (Hold).

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