Would Warren Buffett buy ASX 200 bank shares right now?

Australian investors love ASX bank shares. But would Warren Buffett?

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If you asked your average investor on the street what they reckon Warren Buffett's favourite companies might be, you'll likely hear names like Coca-Cola, Apple or American Express. Perhaps even Chevron or Kraft Heinz. But chances are you wouldn't expect the name of a US bank stock to crop up.

That, however, would be misguided. For Buffett, banks are a favourite investment and have been for decades. In fact, one US bank, Bank of America, is currently the investing legend's second-largest holding in Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B). It's so large that its 8.5% in Berkshire's portfolio eclipses Coca-Cola and American Express and only comes in behind Apple.

Buffett, through Berkshire, also owns (albeit far smaller) stakes in a few other banks and financial institutions. These currently include Citigroup, Capital One Financial Corp and Ally Financial.

In 2019, Buffett reportedly said the following about the US banking sector:

They're a business I understand, and I like the price at which they're selling relative to their future prospects… I think, ten years from now, that they'll be worth more money. And I feel there's a very high probability I'm right.

So it's clear that Buffett likes a good bank. But would he buy any of the ASX 200 bank shares right now?

Would Buffett be keen on ASX bank shares today?

Well, the first thing to point out is that Buffett has not been buying bank stocks in recent months. Last week, we looked at Buffett's latest moves over at Berkshire. While the company did do some buying and a whole lot more selling over the three months to 30 September, none of Berkshire's banking positions changed too much.

So perhaps this indicates that he might not be interested in our ASX 200 bank shares right now.

But let's discuss a few other potential factors here.

Firstly, our banks don't look especially cheap at the moment. Buffett's evident favourite bank – Bank of America – currently trades with a price-to-earnings (P/E) ratio of 8.3. In stark contrast, the ASX's largest bank, Commonwealth Bank of Australia (ASX: CBA), is on a P/E of 17.61.

Even the cheapest big four bank right now, ANZ Group Holdings Ltd (ASX: ANZ), is almost 30% more expensive than Bank of America, with its earnings multiple of 10.7.

That's one reason why Buffett might not be interested in our banks at the present time.

But there's another factor that might make Buffett more amenable to buying an ASX bank today.

Mr Monopoly

That would be the Australian banking sector's relative concentration. In the American financial landscape, there are hundreds of different banks. Most are relatively small and serve specific regional areas. There are only a handful that have a truly national presence (including Bank of America).

In contrast, the cozy oligopoly of the Australian banking scene is infamous. It's even become somewhat codified under successive governments' semi-formal 'four pillars policy'.

Buffett loves a cozy market; the fewer players, the better. You'll notice that most of his companies at Berkshire have an unassailably dominant position in their respective fields. For instance, Coca-Cola does not have an absolute monopoly on the worldwide cola market. But it comes pretty dang close.

As such, this might be one aspect of our banking system that Buffett would appreciate.

However, at the end of the day, Buffett does not and has never owned an ASX banking share. Nor does it look likely that he ever will. That's all the proof we need. The four pillars policy actually almost guarantees that a foreign takeover of one of our big four banks would never be allowed anyway.

American Express is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Sebastian Bowen has positions in American Express, Apple, Berkshire Hathaway, Coca-Cola, and Kraft Heinz. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Bank of America, and Berkshire Hathaway. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Chevron and Kraft Heinz and has recommended the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool Australia has recommended Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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