Buffett’s Berkshire Shaves Off 84% Of Its Goldman Sachs Stake


Billionaire Warren Buffett’s investment conglomerate Berkshire Hathaway (BRK.A) divested 84% of its holding in Goldman Sachs (GS) in the first quarter of the year.

Berkshire reduced its ownership in the investment bank to 1.9 million shares from 12 million shares, SEC filings disclosed late on Friday. Shares in Goldman Sachs have plunged about 33% in the first three months of the year as the coronavirus pandemic pulled down financial markets and led to large losses at some of the biggest corporates.

In addition, Berkshire shed its holdings in the insurer Travelers Cos (TRV) and oil company Phillips 66 (PSX), the filings showed.

The Goldman divestment comes after Buffett earlier this month said that the banking system was not his main worry during the coronavirus pandemic. At the same time, the investment guru announced that Berkshire sold off all of its holdings in the U.S. four largest carriers – American Airlines Group Inc (AAL), United Airlines Holdings Inc (UAL), Delta Air Lines Inc. (DAL), and Southwest Airlines Co. (LUV) – as air travel was shut off in an effort to contain the fast spread of the coronavirus pandemic.

“Overall the banking system is not going to be the problem,” Buffett said at a May 2 shareholder meeting. “If problems become severe enough in an economy, even strong banks can be under a lot of stress, and we’ll be very glad we’ve got the Federal Reserve system standing behind them.”

Against this, five-star analyst James Fotheringham at BMO Capital on Thursday raised Goldman Sachs to Buy from Hold and ramped up the price target to $276 from $205, citing the bank’s strong capital position, relatively small loan book, limited reliance on spread income, and ongoing expense/funding initiatives leave.

“GS is well-positioned versus most of the moneycenter banks,” Fotheringham wrote in a note to investors. “From a credit perspective, we expect GS can withstand the $8 billion (pre-tax) of expected cumulative credit losses (both on and off balance sheet 1Q20A-1Q22E).”

Fotheringham added that GS shares trade at a very steep discount to his estimated pro forma Tangible Common Equity (TCE) in 1Q22E. He forecasts a cumulative net loss rate of 5.6% (1Q20A-1Q22E) for loans on balance sheet, and estimates GS’s pro forma adjusted TCE/TA will remain above 5%, even after maintaining dividend payments and resuming share repurchases in 2021.

Overall, the rest of Wall Street analysts are cautiously optimistic about the bank’s stock. The 16 analyst ratings are divided into 9 Buys and 7 Holds which add up to a Moderate Buy consensus. The $212.87 average price target sees shares gaining 24%, if the target should be met in the next 12 months. (See Goldman Sachs stock analysis on TipRanks).

Berkshire is still a major holder in other financial firms, including Wells Fargo (WFC), American Express (AXP), Bank of America (BAC), PNC Financial (PNC) and JPMorgan Chase & Co (JPM).

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