Warren Buffett’s Berkshire Hathaway is poised to net about $1.7bn in dividends after Wells Fargo and other banks in which he is a shareholder sailed through the Federal Reserve’s annual stress tests. Calculations by the Financial Times, based on figures from Jefferies and Bernstein, show the renowned investor is set to be among the largest individual winners from the Fed’s decision to approve banks’ highest capital distributions since the financial crisis. Berkshire is one of the biggest single investors in the financial sector globally.
It is the number one shareholder in lenders including Wells, Bank of America and American Express, and has sizeable stakes in several others. While some companies struggled with the stress test, which was tougher than in prior years — Deutsche Bank failed outright — Berkshire’s biggest banking investment, Wells Fargo, was an unexpectedly strong performer.
Wells was given the all-clear to make almost $33bn in dividend payments and share buybacks over the next four quarters, overtaking JPMorgan Chase at the top of the capital distribution league table. Mr Buffett has continued to back Wells through a scandal over its creation of millions of sham accounts. He said this year that while the bank had failed to address its compliance problems quickly enough, chief executive Tim Sloan had been “working like crazy to clean things up”.
The Fed placed restrictions on Wells’ expansion earlier this year, citing “widespread customer abuses”, but last week it permitted the bank to make aggregate distributions equating to 40 per cent more than its forecast annual earnings. That would be the second highest payout ratio among 22 of the country’s largest listed lenders, according to RBC Capital Markets. The bank was a “notable standout” in the stress test this year and passed “with flying colours”, said John McDonald, analyst at Bernstein.
With a 9.9 per cent stake, Berkshire is in line for about $800m of dividends from Wells in the year ahead. Bank of America is also due to boost payouts. The Fed signed off on its plan to raise its annual dividend by a quarter.
Berkshire became its largest shareholder last summer after it exercised warrants to buy 700m shares — putting it in line for about $400m of dividend payments in the year ahead. American Express was forced to rein in its initial capital distribution plan, although it received the Fed’s approval for an 11 per cent rise in its dividend.
Goldman Sachs was ordered to keep aggregate dividend and share buybacks broadly in line with previous years after some of its capital metrics fell shy of requirements in the stress tests. Still, Berkshire has a smaller position in Goldman, where it is the seventh-biggest shareholder. Berkshire is the biggest shareholder in US Bancorp, the seventh largest bank in the country by assets, which got the green light for a 23 per cent dividend increase. And it is the second-largest investor in Bank of New York Mellon, which is able to increase its dividend 17 per cent.
