Berkshire Hathaway, owned by Warren Buffett, has made a big bet on Citigroup as part of an investor’s fix to funnel the conglomerate’s huge cash cache into stocks to coincide with the market downturn.
Berkshire bought $3bn worth of shares in the Wall Street bank in the first quarter, and according to filings with regulators, the group has a stake of around 2.8%. The investment came as Berkshire exited Wells Fargo, a rival bank that had been part of Buffett’s portfolio for more than three decades.
In the midst of a pandemic, Buffett, CEO of Berkshire, decided to stand back and watch the markets sink and then recover. But earlier this year, he poured $51.1 billion into the market to coincide with stocks collapsing in the face of the Federal Reserve’s pivot, supply chain problems, steep inflation and the war in Ukraine.
Markets have continued to slide, driving down valuations of big tech companies, banks and consumer companies.
Berkshire ended 2021 amassing record levels of cash, $146.7 billion, allowing it to make purchases, even as other managers announced sales to deal with repayments from their investors.
Citigroup has fallen more than 21% this year, underperforming the average financial sector stock in the S&P 500 index, which has lost 16% for the year.
The bank has lagged its Wall Street rivals for more than a decade on critical profitability metrics and, according to FactSet, is the only major US bank trading below its book value, at 52 cents on the dollar. Citi also reported losses of up to $3 billion linked to Russia when it released its results in April, helping to nearly halve its profit for the quarter.
Chief Executive Jane Fraser has promised to boost profitability by ditching less efficient businesses such as international retail banking and focusing on more profitable divisions such as wealth management and transactional services.
Shares that have lost some of their value are not the only ones that have attracted Berkshire.
The conglomerate bought $7.7 billion worth of shares in oil and gas company Occidental Petroleum and increased its stake in Chevron. Occidental’s shares have risen almost 120% this year, while Chevron has posted a 45% rally, as energy prices have risen on strong demand and the prospect of a loss of supplies from Russia.
Buffett’s company also invested $2.6 billion in Paramount Global, the US media group formerly known as ViacomCBS, and bought $400 million worth of shares in lender Ally Financial. Paramount has lost 7% this year, while Ally has lost almost a fifth of its value.