21% of Warren Buffett's Portfolio Is Invested In Just 5 Bank Stocks

Warren Buffett’s company Berkshire Hathaway (BRK.A -0.38%) (BRK.B -0.40%) maintains a stock portfolio currently valued at more than $323 billion, which it built up over many years of investing. Berkshire invests in stocks across a variety of different sectors, including technology, insurance, and telecommunications. But Buffett and Berkshire always had a spot in their portfolio for bank stocks, and Berkshire Hathaway even owned a bank once upon a time.

While Berkshire sold a number of its bank holdings after the start of the pandemic, the large conglomerate still keeps about one-fifth of its portfolio invested in the sector. Let’s take a look.

Bank of America: $35.3 billion (10.9%) of portfolio

Buffett and Berkshire seem to be all in on Bank of America (BAC 2.21%), which is now the second-largest bank by assets in the U.S. and the second-largest position in Berkshire’s portfolio. Berkshire scooped up billions’ worth of the stock even as it was exiting other positions in 2020.

The obvious benefit of Bank of America is that it is a great bank to own in a rising interest rate environment. A lot of its commercial loans see their loan yields reprice as the Federal Reserve raises rates. The bank also has one of the stickiest low-cost deposit bases of any large Wall Street bank. The two together should allow Bank of America to keep growing its profits from loans and securities, even as deposit costs begin to move higher more aggressively.

Bank of America has a large investment banking and trading operation and has done a good job of managing its regulatory capital ratios as well. While several of its peers have had to pause share repurchases to prepare for higher regulatory capital requirements, Bank of America has been able to keep buying back stock.

American Express: $23 billion (7.1%) of portfolio

Berkshire first invested in the credit card and payments company American Express (AXP 0.54%) in 1993. While you may know American Express for its credit card brand, the company is so much more. 

Not only does American Express extend credit card loans, but it also runs a large closed-loop payments network where it helps facilitate transactions between its card members and the many businesses that accept its cards for payments.

American Express collects a fee for every transaction that occurs at its partner merchants accepting its cards, which is similar to how Visa‘s and Mastercard‘s business models works.

While the payments network is a big differentiator for American Express, the company also has an excellent credit card franchise. Several American Express brands are able to charge annual subscription fees of close to $700 (Platinum card). American Express also regularly attracts higher-income borrowers, which allows it to see lower levels of loan losses than many of its peers.

Bank of New York Mellon/Citigroup/U.S. Bancorp: $8.1 billion (2.5%) of portfolio

I’ve grouped these three bank holdings in Berkshire’s portfolio together because they are smaller holdings, all of which on their own make up less than 1% of Berkshire’s total portfolio.

Berkshire has owned both Bank of New York Mellon (BK 1.81%) and U.S. Bancorp (USB -0.55%) for more than a decade. Bank of New York Mellon is a top custodian bank and doesn’t take on nearly the same amount of credit exposure through lending as other large banks. Meanwhile, U.S. Bancorp is a top-tier super-regional bank that is currently the fifth-largest bank in the U.S. by assets. Even in today’s down market, both stocks trade at large premiums to their tangible book value, or net worth.

In the third quarter, Berkshire made sizable cuts to its stakes in both companies, so it will be interesting to see what happens with U.S. Bancorp and Bank of New York Mellon going forward.

Earlier this year, Berkshire acquired a multi-billion-dollar position in the embattled large bank Citigroup (C 1.69%). Citigroup is in the midst of a multi-year transformation plan after years of lagging returns and regulatory issues. The bank is working to shrink its global footprint and focus on areas of strength. Buffett and Berkshire seem to like the idea, and Citigroup’s stock trades at a significant discount to its tangible book value.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has positions in Bank of America and Citigroup and has the following options: long January 2024 $80 calls on Citigroup. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, Mastercard, and Visa. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool has a disclosure policy.