Just under four years ago Warren Buffett's Berkshire Hathaway paid half a billion dollars to take a 3.7% stake in insurance giant Insurance Australia Group Ltd (ASX: IAG).
In addition to the shares, the deal was structured to include an agreement which saw Berkshire Hathaway receive 20% of IAG's gross written premiums and pay 20% of its claims.
As Insurance Australia Group pays the majority of its earnings out as dividends, the deal was expected to deliver a sizeable income stream for Berkshire Hathaway. And with the investment conglomerate keen to avoid currency risk, the income generated was to be invested locally.
In fact, Mr Buffett told the AFR that "in two or three years, you will find we have got four or five Australian equities."
Given Buffett has invested in many banks in the past, the likes of Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), or Westpac Banking Corp (ASX: WBC) were on his radar.
He said: "Banking is something I have looked at. I am comfortable with banks. We have some big positions in US banks. I will certainly be looking at the banks. 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."
Almost four years on and Mr Buffett doesn't appear to have a position in any of the banks and the clock is ticking.
Will Buffett buy the banks?
Given how cheap the banks were looking just before Christmas, I'm surprised Mr Buffett didn't pounce on them at that point.
But I don't think it's too late for him to make a move. I feel all the big four banks are trading at attractive levels if you're prepared to make a long term investment.
After all, although trading conditions are tough at the moment, they will inevitably improve in the medium term.
My preferred pick at this stage is ANZ Bank due to its valuation, strong capital position, cost cutting opportunities, and generous dividend yield.
