Warren Buffett's Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B) released its second-quarter results over the weekend. The big news was the company's ongoing sale of its Apple Inc (NASDAQ: AAPL) shares, but that's not the only stock the Oracle of Omaha has been decreasing its holdings in.
Last Thursday (US time), in another filing to the US regulatory body, Berkshire reported that it sold more shares of Bank of America Corp (NYSE: BAC) from 30 July to 1 August. As the disposal continues, Berkshire's holding in the bank has reduced to 12.15%.
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Why is he selling the bank shares?
Warren Buffett keeps his lips tight and there could be many reasons why he's selling his banking shares.
One reason many pundits suspect is that he wants to keep his holding in Bank of America shares under 10%. As an owner of more than 10%, Berkshire has to report any transactions within two business days.
While this may be a reason, it doesn't explain Berkshire's sale of other banking shares, including Wells Fargo and JP Morgan. As highlighted above, the company is also selling Apple shares, piling up cash.
At the end of June 2024, Berkshire holds US$277 billion in cash, representing nearly 30% of its current market capitalisation of US$938 billion. This is a lot of cash.
This raises the question of whether Warren Buffett sees the outlook for the stock market and economy as gloomy. He famously said, "Be fearful when others are greedy, and be greedy when others are fearful." Is he implying that the market is too greedy now?
Implications for ASX banking shares
While he doesn't own ASX banking shares directly, this might be a good time for a reality check.
Surely, ASX banking shares had a fantastic run over the past year. Let's first look at their valuations. Based on S&P Capital IQ earnings estimates for FY25:
- Commonwealth Bank of Australia (ASX: CBA) shares are valued at a price-to-earnings (P/E) ratio of 23x and a price-to-book (P/B) ratio of 2.9x
- ANZ Group Holdings Ltd (ASX: ANZ) shares are valued at a P/E of 12.7x and P/B of 1.2x
- National Australia Bank Ltd (ASX: NAB) shares are valued at a P/E of 16.3x and P/B of 1.8x
- Westpac Banking Corp (ASX: WBC) shares are valued at a P/E of 15.1x and P/B of 1.4x
These valuation levels are generally at the high end of their historical trading ranges, which has led to debates among experts on whether it is time to take profits on leading ASX banking shares such as CBA.
While the banking sector and the broader ASX index are trading lower this morning, Macquarie sees a 'tactical buying opportunity' in ANZ shares. As the Australian highlighted, Macquarie analysts "continue to see all banks as expensive", but ANZ shares might present a buying opportunity if the underperformance continues.
The S&P/ASX 200 Banks Index (ASX: XBK) is down 3% this morning.
