Buffett’s Berkshire Hathaway withdraws application to raise stake in Wells Fargo

13 Apr 2017

Warren Buffett's Berkshire Hathaway Inc has withdrawn its application to the Federal Reserve to increase its ownership stake in Wells Fargo & Co above 10 per cent. It is now selling 9 million shares to keep its stake below that threshold.

The company said yesterday it concluded after several months of talks with Fed officials that maintaining the higher stake would "materially restrict" its ability to do business with the third-largest US bank.

The Fed exerted special oversight when investors took large bank stakes and also often allowed double-digit stakes not designed to exert a "controlling influence." The Fed said it would review any resulting business relationship "case-by-case."

According to Berkshire, its sale of 7.13 million Wells Fargo shares this week was not guided by ''investment or valuation considerations'' and planned to sell another 1.87 million shares "in the near future."

Berkshire, which had owned Wells Fargo stock since 1989, added it would sell more Wells Fargo shares if needed to keep its stake "slightly below 10 percent," including if the bank repurchased its own stock.

According to a filing, Berkshire owned 504.3 million Wells Fargo shares amounting to $27 billion prior to diluting its holding, which made it the largest shareholder of the lender.

US rules limit the influence of outsiders on banks and none of the top four US lenders can claim a single investor with a holding the size of Buffett's Wells Fargo stake. Buffett had disclosed in a filing last year that his position climbed to 10 per cent due to the bank buying back its own stock.

''After several months of discussions with representatives of the Federal Reserve, we have concluded that the commitments that would be required of us by the Federal Reserve to retain ownership of 10 percent or more of Wells Fargo's outstanding common stock would materially restrict our commercial activity with Wells Fargo,'' Berkshire said in the statement. ''Therefore, it would be simpler to keep our ownership below 10 percent.''