Buffett Wins Fed Approval to Boost Wells Fargo Stake
Warren E. Buffett, the folksy Nebraskan with a reputation for savvy investments, has won approval from the Federal Reserve Board to dramatically boost his stake in Wells Fargo & Co., the banking firm said Thursday.
Wells Fargo’s stock, which has taken a beating in recent weeks as the bank has been forced by regulators to set aside hefty amounts to cover potentially bad loans, leaped on the news. The stock rose $2.625 to $72.25 on the New York Stock Exchange, with 589,100 shares changing hands.
Buffett’s Berkshire Hathaway Inc., a onetime troubled mill company in Omaha that is now a multibillion-dollar investment conglomerate, accumulated 9.7%, or 5 million shares, of Wells Fargo’s outstanding common stock in 1989 and 1990. With the Fed’s approval, which he sought back in May, it may now raise its stake to 22%.
Although the approval is no guarantee that Buffett will indeed purchase additional shares, even a hint of his confidence in a company is often enough to hearten investors. Buffett, 60, is known for taking positions in businesses that he believes to have solid management and good prospects. One of the nation’s wealthiest individuals, he has a net worth estimated by Forbes magazine at more than $3 billion.
Last week, Buffett agreed to invest $300 million in American Express Co., which has been attempting to strengthen its monetary base because of troubles at its Shearson Lehman Bros. brokerage firm.
A spokeswoman for Buffett said he was out of town and could not be reached for comment. But in Berkshire Hathaway’s 1990 annual report, Buffett praised the bank’s management, saying: “With Wells Fargo, we think we have obtained the best managers in the business.”
Wells Fargo said in a statement that Buffett has agreed not to exercise any control over the banking company’s management or policies. In addition, he has granted a proxy to Wells Fargo’s board of directors to vote all of Berkshire Hathaway’s shares.
Based in San Francisco, Wells Fargo is the nation’s 10th-largest bank and California’s third-largest, with $56 billion in assets at the end of last year.
It has long been considered one of the nation’s best-managed banks, but recent bombshells about loan-loss reserves have prompted many investors to desert the stock. After having neared the $100 range, the stock plummeted in June when the bank reported that it had set aside $350 million to cover souring commercial and leveraged-buyout loans.
Still to come, some analysts fear, will be even worse news on real estate loans. Wells has the heaviest exposure in real estate loans among banks in California, where the recession has forced many developers to default.
Michael Murphy, a short-seller who publishes the Overpriced Stock Service newsletter in Half Moon Bay, near San Francisco, said Buffett is likely to wait a while before he decides whether to buy shares in Wells.
Murphy noted that federal examiners will be scrutinizing Wells Fargo’s real estate loans in the coming weeks and that “large write-offs” could be in the offing.
“I think he’ll wait for the results,” Murphy said. “If the stock got hit hard, he could buy it at a lower price.”
