Australia's big four banks all surged over 2% higher in early trade on Wednesday after news emerged late yesterday that Warren Buffett's Berkshire Hathaway could take a stake in one or more of the banks in the next five years. The great man said yesterday: "I will certainly be looking at the banks [in Australia]. In looking at banks, I would say there is a good chance that five years from now, we will have bought one or more positions in Australian banks". The company plans to fund the investment from profits generated by its 3.7% stake in Insurance Australia Group Ltd (ASX: IAG).
Breaking the Trend
The share prices of Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have been on a steady down-trend over the last two months, with all four now trading more than 12% below their highs and Westpac down an incredible 17% in two months!
Mr Buffett's comments come at a time when income investors are starting to shift away from the perceived 'safe' dividends on offer from the banks and move into 'growing' dividends offered by any number of companies internationally. The gradual increase in bond yields globally is also prompting investors to exit income investments on the expectations that yields will continue to rise, potentially creating significant capital losses over the next 12 months.
More Australian Investments
Analysts have started to question which Australian companies might be targeted by Warren Buffett. As we all know, he likes to invest in companies with sustainable competitive advantages over peers, a strong operational history, and excellent management teams, however he will only buy when the price is right.
Unless he knows something I don't, then I doubt he'll buy bank shares any time soon! Five years is a long time in bank shares so this rally could prove to be a blip in the start of a long-term trend downwards before Berkshire weighs in.
