Warren Buffett’s Berkshire Hathaway has a massive $31.7 billion invested in Bank of America. This represents about 12% of Berkshire’s equity portfolio. Despite this large holding, Buffett trimmed his position in the third quarter by more than 235 million shares.
Bank of America has benefited from rising interest rates. The bank still offers its vast customer base a lower interest rate on savings deposits compared to many smaller competitors. This advantage helped the bank maintain deposits worth $1.9 trillion as of September.
Thanks to higher interest rates and strong deposit retention, Bank of America’s net interest income has risen by about 30% over the past three years to $55.7 billion over the trailing 12-month period. Despite a 36% rise in its stock price in 2024, Bank of America still looks inexpensive compared to the market.
Buffett reduces Bank of America stake
It has been trading at 14.1 times forward earnings expectations, versus the Dow Jones Industrial Average’s 22.6 times. When interest rates started rising, Bank of America held many long-term Treasuries and other low-interest investments. As a result, the bank currently has $89 billion in unrealized security losses.
Although it plans to hold these securities to maturity, which mitigates the risk of realizing these losses, it’s a factor to consider. Net interest income gains could have been higher if the bank had anticipated rising rates better. JPMorgan Chase sidestepped this issue by holding onto cash instead of investing in long-term Treasuries, resulting in a net interest income increase of 78% over the past three years compared to Bank of America’s 30%.
If you’re looking for steady, reliable gains akin to those enjoyed by Buffett, Bank of America might be a smart buy. While it currently offers a modest 2.3% dividend yield, the company has increased its payout by 44% over the past five years. Though it may not be a top performer, the long-term risk of losing money seems low.
