Warren Buffett Keeps Buying Bank Of America Shares Despite Banking Industry Woes

Warren Buffett’s Berkshire-Hathaway (BRK-A) has raised its stake in Bank of America (BAC) to almost 12% by purchasing $1.2 billion in shares during the week ended July 27.

Berkshire bought the shares at an average price of $24 a share.

In the past two weeks, Berkshire has poured some $1.7 billion into Bank of America.

The U.S. banking industry remains under severe pressure from the impact of the COVID-19 pandemic and low interest rates.

Berkshire now holds 998 million Bank of America shares valued at $25 billion, making the megabank Berkshire’s second largest equity holding after only Apple (AAPL).

Bank of America shares have dropped about 29% year to date. Two weeks ago the bank said it set aside $5 billion to cover potential loan losses.

Barron’s commented on Buffett buying a “weak stock.”

“Buffett’s decision to buy a weak stock is noteworthy when so many others are talking about hedging,” Barron’s wrote. “In fact, it’s hard to recall a time when Buffett has not chosen to make major purchases when the market was weak.”

Buffett’s actions, Barron’s added, “reinforce the notion that it is arguably better to buy fear than to hedge fear. Aside from the expense of hedging, which can depress portfolio returns, hedgers have to be right on the timing. The more time packed into the hedge, the more expensive the hedge.”

Separately, Bloomberg reported that Bank of America has deferred $7.7 billion of loans for commercial clients in response to the pandemic.

As of July 23, about 2% of clients’ commercial loans were modified primarily through payment deferrals of up to 90 days.

Interest continues to accrue on these loans, while borrowers received short-term waivers on covenants.

“The U.S. and global economies have been negatively impacted and are likely to be so for an extended period of time, as there remains significant uncertainty about the timing and strength of an economic recovery,” Bank of America said in an SEC filing Friday.

“Should current economic conditions persist or continue to deteriorate, we expect that this macroeconomic environment will have a continued adverse effect on our businesses.”