NEW YORK (
) -- During the financial meltdown, Warren Buffett (view
) took a huge bet on
, saving the bank holding firm from collapse. Since then, the Oracle of Omaha has pocketed more than $2 billion in profit. Additionally, Goldman has become the reigning king of Wall Street, paid back funds from the Troubled Asset Relief Program, and seen its stock price jump more than 100%. Recently, Buffett and Goldman have again joined forces in hopes of assisting the growth of small businesses in the United States.
Goldman Sachs, however, is not the only financial institution on Buffett's radar. Another prominent holding in the
While Goldman has risen from the ashes and rocketed into the stratosphere, Wells Fargo continues to be weighed down by its $25 billion TARP obligations, which it has yet to set a clear date to repay. Interestingly, while many appear up in arms over the firm's holdup, Buffett should be pleased. After all, if the firm can free itself from the government program on its own terms, he likely will come out on top.
Bank of America
announced it had pulled together the funds necessary to
the $45 billion it owes to taxpayers through TARP. This is thanks in large part to a secondary share offering that helped the firm raise more than $19 billion.
Seeing the success of the secondary offering,
, the only other firm besides Wells still under the TARP umbrella, appears to be
in hopes of paying back a chunk of its obligation to taxpayers.
The hastiness of Citigroup and Bank of America, however, is vastly different from the patience seen coming from Wells Fargo.
Recently, the Wells' top representative insisted that his firm's failure to pay back the TARP money isn't an issue of its weakness. Rather, the bank's reimbursement delay is due to its moral obligation to its shareholders. CEO John Stumpf explained that the company
to repay the taxpayers' money. However, rather than exiting as quickly as possible, Wells is more focused on doing so in "a shareholder-friendly manner." When Wells frees itself from TARP, it wants to make sure that not only the government and taxpayers are paid back, but that the firm's shareholders have something to show for their troubles.
With a persuasive individual like Buffett as one of the firm's shareholders, this delay is hardly surprising. Earlier this year, the Oracle explained that an injection of additional shares would deal a sharp blow to the firm's stockholders. Although the move may ultimately help Wells pay back some, if not all, of its outstanding obligations to the government, issuing additional common equity will both decrease earnings power and increase the number of shares outstanding.
For Buffett, a Wells secondary would prove devastating. According to a Sept. 30 filing, Berkshire Hathaway boasted a 7% stake in the bank valued at $9.2 billion, making Buffett the bank's largest shareholder. Interestingly, not only is his position in the bank massive, but the recent filing shows that this is an increase from previous quarters.
Obviously, Buffett is not only confident that Wells will be able to pay back TARP on its own terms, but the firm has a bright, strong future ahead of it. For his sake and for the sake of all future customers and shareholders of Wells Fargo, this is one bet the Oracle has to get right.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion had no positions in the stocks mentioned.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.