Berkshire Hathaway currently owns around 10% of Wells Fargo - which is the 2nd largest bank in the United States. Berkshire applied for regulatory approval to purchase more shares in July.
A lot has happened to Wells Fargo since July... The company's employees opened up 1.5 million unauthorized accounts 'on behalf' of customers. This resulted in a $185 million fine, $5 million in refunds, and the firing of around 5,000 employees.
In addition, the company's stock has been in free-fall, down from over $50 share at the start of September to under $44 today. The stock is down 12.8% in the last month alone.
What Buffett says and does regarding Wells Fargo matters.
If Buffett were to sell his shares of Wells Fargo, confidence in the stock would likely plummet. This would result in even greater losses.
Conversely, if Buffett were to publicly announce he will buy more shares of Wells Fargo, the banks stock would likely rise due to the confidence a favorable analysis from Buffett instills.
Wells Fargo is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells WFC? Learn more now.
Buffett's History with Large Financial Institutions
There's precedent to Buffett's behavior when big banks get into trouble.
Buffett invested $5 billion into Bank of America when that company was in trouble not long after the financial meltdown of 2008. He also invested $5 billion into Goldman Sachs during the worst of the financial crisis.
In the 1960's Buffett skillfully invested on American Express during its 'salad oil scandal'. American Express makes up a large portion of Berkshire's portfolio to this day.
It is clear that Buffett is not afraid to invest in large financial institutions when their stock prices fall. He is known to prefer buying into great businesses when they get cheap.
"The best thing that happens to us is when a great company gets into temporary trouble...We want to buy them when they're on the operating table."
- Warren Buffett
You can see more of Buffett's quotes on when to buy into stocks here.
Why Buffett's Likely Happy About Wells Fargo's Crisis
The timing of Wells Fargo's crisis has worked out perfectly for Buffett. Just three months ago he applied for regulatory approval to purchase more shares of Wells Fargo.
While Buffett has not publicly announced that he's buying more Wells Fargo shares, it seems likely that he would based on his past actions.
Wells Fargo's drop gives Buffett a chance to buy more of this high quality blue chip stock at 10% to 15% less than what it was trading for recently.
The current crisis isn't much for Wells Fargo when considered against the bank's recent performance. The company earned $20.90 billion over the last four quarters. The recent fine the company paid is less than 1% of one year's earnings. That doesn't exactly 'break the bank'.
There's no question that Wells Fargo's reputation is temporarily hurt. But the company's long-term brand will remain strong. The opportunity to buy more shares of Wells Fargo at a discount is likely why Buffett has been so quiet about the bank.
If he told the media he was confident in the stock and was buying shares, this would likely send the share price up - and increase the cost of buying more shares.
At the time of this writing, the author was not long any of the stocks mentioned.