Big banks appear to be on the defensive against digital competitors, but they continue to hold the reins to large-scale credit.
Warren Buffett, until last year a devoted shareholder of big U.S. banks, has moved on to their challengers. Does that spell the end of his faith in the traditional financial sector?
This week, Berkshire Hathaway Inc. poured $500 million into Brazil’s Nubank--the fintech company’s largest single investment--giving it a valuation of $30 billion. Nubank is one of the world’s biggest so-called neobanks, or all-digital lenders, with 40 million users in Latin America.
For decades, financial institutions were Warren Buffett’s bread and butter, with stakes in lenders lend, insurers, and credit-card companies. That changed last year, when Berkshire dumped 84% of its holdings in Goldman Sachs Group Inc., initially picked up during the global financial crisis, and pared its stakes in Wells Fargo & Co. and JPMorgan Chase & Co. Berkshire’s investment portfolio had just over 23.6% of its fair value concentrated in financial firms, including banks, at the end of 2020, down from 41% in 2019.
Berkshire watchers were shocked and worried as they tried to decipher Buffett’s moves. He compared the coronavirus crisis to 2008, noting there were a lot of unknowns given large swathes of society were shut down.
Now it’s worth asking whether Buffett is going a step further with this Nubank stake--and whether this is a deliberate switch from the old and entrenched world of finance to the new, digital-only variety. Customers certainly don't need brick-and-mortar branches in the middle of a pandemic.
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