Buffett buys more bank shares: Should you?

According to an SEC filing, Warren Buffett has recently added to his bank shares by buying more Bank of America. Are ASX bank shares a buy?

| More on:
Small grey plastic model of a bank building on top of a piece of paper with a performance chart showing red and blue columns

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

Despite the economic uncertainty, CNBC reported this week that Warren Buffett has hiked his stake in a United States bank by US$800 million. Does this mean it's time to purchase ASX bank shares?

What did Buffet buy?

According to a Securities and Exchange Commission filing, Berkshire Hathaway bought 33.9 million shares in Bank of America worth US$813.3 million. As a result, this lifted his stake to more than US$24 billion. The transaction was flagged as it resulted in an ownership interest amounting to over 10%.

This triggered a rally in Bank of America shares of 1% despite the fall in the US markets overnight. However, the Bank of America share price has slumped this year.

In a Berkshire Hathaway virtual AGM held in May, Warren Buffett was optimistic about the future and it appears he is confident in the future of his investment in Bank of America as well. 

Additionally, through Berkshire Hathaway, Warren Buffett has stakes in multiple other banks including Goldman Sachs and JPMorgan Chase & Co.

Should you buy ASX banks?

Similar to banks in the US, Aussie bank shares have been hit hard by recent events. National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) share prices are down 36.5%, 11.5%, 37.4% and 34.0% respectively in the past year.

On Wednesday this week, APRA chair, Wayne Byres, gave a speech stating that "our banks and insurers remain soundly capitalised and highly liquid. APRA's stress testing of the banking sector indicates the industry is well-placed to withstand economic headwinds ahead: even when faced with severe adverse scenarios, our analysis indicates the banking industry would remain well above minimum capital requirements".

Recent data from Roy Morgan also pointed to an increased satisfaction in Australian banks in May at 79.5%. This is up 1.1% compared to a year ago. However, this still trails mutual and foreign banks with satisfaction ratings of 89.2% and 85.5% respectively. 

An S&P report, as reported by Business Insider Australia, comments that Australian Banks are unlikely to see a return to their pre-COVID-era earnings.

S&P's Sharad Jain said "For most banks, a steep rise in credit losses, and a sizeable drop in interest margins and fee income, will likely suppress earnings at least for the next year". He also went on to say that "We forecast significant property price drops in Australia…"

Australian banks are particularly vulnerable to property price drops and have significantly increased provisions for losses.

My take

Australian economic conditions characterised by recession, low interest rates and high unemployment could point to a continued decline in ASX bank share prices. This is due to their being highly leveraged to the performance of the economy.

However, an investment in bank share prices presently could be rewarding over the long run as the economy recovers over a number of years. Additionally, Warren Buffett is known for investing in companies when other investors are fearful. Food for thought…

Motley Fool contributor Matthew Donald owns shares of National Australia Bank Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Could the growth of Kiwibank impact ANZ shares?

Could a competitor hurt ANZ’s outlook?

Read more »

Shocked office worker staring at computer screen with colleagues working in the background.
Bank Shares

Why CBA shares could keep on rising

Can the ASX banking giant continue to defy analyst expectations?

Read more »

A man looking at his laptop and thinking.
Share Gainers

Thinking of selling your CBA shares? This expert says you should hold on

CBA shares are up by about 80% since November 2023.

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Bank Shares

The catalysts that could bring CBA shares back to earth

CBA is now the world's most expensive banking stock.

Read more »

A money jar filled with coins, indicating an investment return from an ASX dividend share
Bank Shares

Is the CBA share price a buy for passive dividend income?

CBA is one of the biggest dividend payers in Australia. Is it a good buy?

Read more »

a woman looks exhausted and overwhelmed as she slumps forward into her hand while looking at her laptop screen.
Bank Shares

What Microsoft's lost decade could mean for CBA shares

Could CBA shares be worth the same in 10 years time?

Read more »

Woman calculating dividends on calculator and working on a laptop.
Bank Shares

When does Macquarie expect Westpac to cut its dividend?

Here's the latest forecast for this banking giant's dividend.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Bank Shares

When will CBA shares stop rising? CSL might give us a clue

CSL's history might tell us what's in store for CBA.

Read more »