Category
- Agriculture
- Automobiles and Machinery
- Bank, non banking financing, investment
- Blasting
- Construction
- Consumables
- Education
- Energy
- Engineer , Architecture and Geodesy
- Finance, Audit,Accounting and Brokerage
- Food
- Foreign Trade
- Geology Exploration
- Health
- Information Technology
- Insurance
- Labor Safety
- Legal and Business consulting
- Lighting
- Mining equipment
- Mining Services
- Other product and service
- Road
- Sewing and textile products
- Transportations
- Travel
Events
Fed stress tests give $1.6bn boost to Buffett www.ft.com
Warren Buffett’s backing of beaten-down US banks is poised to pay big dividends in the wake of the industry’s stress test success — $1.6bn of dividends, to be precise.
The revered investor is to become one of the largest individual beneficiaries of the Federal Reserve’s green light to banks to make their biggest cash distribution to shareholders since the financial crisis.
The splurge that the Fed has permitted includes a 60 per cent dividend increase at Bank of America, where Mr Buffett’s company Berkshire Hathaway is likely to become the largest shareholder under the terms of a deal he struck with the lender’s board six years ago.
The deal granted Berkshire preferred stock but Mr Buffett has previously said he will swap it for BofA’s common shares if their dividend becomes more attractive. Berkshire is in line for an annual dividend of $336m if it makes the conversion, $36m more than it is paid on the preferred stock.
Mr Buffett’s biggest source of dividend income from the sector, meanwhile, will come from Wells Fargo, which confounded some on Wall Street this week when regulators waved through its capital distribution plan despite a mis-selling scandal that rocked the industry.
Mr Buffett stuck with Wells last year while it was plunged into crisis. Regulators found staff set up hundreds of thousands of fake customer accounts. Wells is increasing its dividend by a little under 3 per cent and Berkshire, the bank’s biggest shareholder, is in line for an annual dividend of about $837m.
Many investors shunned US banks in the wake of the 2008 market meltdown as persistent legal difficulties, rock-bottom interest rates and toughened regulation constrained their profits.
Yet Berkshire stuck with his favoured investments in financials and also lent support to other banks amid the turmoil.
Berkshire ploughed $5bn into Goldman Sachs about a week after the collapse of Lehman Brothers. It made its investment in Bank of America, again for $5bn, in 2011 when the lender was struggling with legal woes related to subprime mortgages.
“The banks’ post stress-test liberation is a vindication of his earlier judgment,” said Lawrence Cunningham, law professor at George Washington University and an author of books on Mr Buffett.
The banking payout plans cleared by the Fed are seen by some on Wall Street as an inflection point in the industry’s fortunes, a sign it is shaking off its post-crisis shackles.
Dividends are not the only source of capital returns. The Fed’s clean bill of health has also paved the way for bank share buy backs.
In total, Berkshire is set to receive about 12 per cent more in dividends from its seven largest financial investments than the year before, according to Financial Times research based on Bloomberg holdings data and RBC Capital Markets dividend calculations.
Still, the dividend increases from his chosen banks are smaller than several others. Goldman got permission for an increase of about 11 per cent and US Bancorp for 7 per cent. In contrast Citigroup was cleared to double its dividend.
Regulators also required American Express, in which Berkshire is the biggest shareholder, to rethink its original capital distribution plan. In the end they gave their blessing to a 9 per cent dividend increase.
Known as the Sage of Omaha for his investment record over almost five decades, Mr Buffett himself is known to be somewhat ambivalent about dividends.
He has noted that reinvesting profits back into a business can be a better use of shareholder cash, although he also recognises consistent and increasing payouts can be of value to investors. Berkshire itself has not paid a dividend in over half a century.
Mr Buffett continues to give selective backing to hard hit financial companies. Last week he tossed a lifeline to the stricken Canadian lender Home Capital with a C$2.4bn (US$1.8bn) financing package.
Bank stocks have already got a boost from higher interest rates, as well as hopes of lower taxes and financial deregulation in the wake of Donald Trump’s election. S&P 500 financial stocks up 35 per cent in the past year, twice as much as the index. Even so, some — including Bank of America — still trade at a discount to book value, a sign of investor caution.
Published Date:2017-06-30
