Author Topic: 10% to 25% ownership  (Read 6137 times)

longinvestor

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Re: 10% to 25% ownership
« Reply #10 on: February 06, 2020, 10:24:15 AM »
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200130a.htm

Does it also imply that the SEC reporting requirements of once-a-quarter still hold? For 10 to 25% ownership? Instead of the current 3 day reporting


Dynamic

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Re: 10% to 25% ownership
« Reply #11 on: February 06, 2020, 11:23:45 AM »
I don't think the Fed had jurisdiction to change that, so I think 13D and 13G filings would still be necessary, thwarting large open market purchases of BAC or WFC after exceeding 10%. After 1st April Berkshire might consider purchasing more WFC until a few days after exceeding the 10% threshold, but then I'd imagine they would stop.

mcliu

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Re: 10% to 25% ownership
« Reply #12 on: February 06, 2020, 12:17:48 PM »
It's still nice that BRK has to option to hold WFC instead of selling it to maintain the threshold (due to buybacks). Especially at these prices.

longinvestor

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Re: 10% to 25% ownership
« Reply #13 on: February 07, 2020, 05:20:28 AM »
As Munger put it, if it wasn’t for these damn rules, we’d be cheerfully buying more, wouldn’t we?

Plan B, where our ownership trickles up via share buybacks by the investee is an adequate plan to grow the per share earnings stable without lifting a finger.

Dynamic

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Re: 10% to 25% ownership
« Reply #14 on: February 10, 2020, 09:34:31 AM »
I would imagine that Berkshire would be very keen to be a very passive investor in banks, with the exception of Todd Combs' Directorship of JPM, which might still permit Berkshire to hold more than 10%, though only a ~2% stake at present.

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200130a.htm

The second link presented at the above URL, is to Visual (PDF), a one-page table which is quite useful in summarizing under what circumstances a company will be deemed to become a Bank Holding Company after 1st April 2020.

Between 10% and 14.99% voting rights, there are slightly lighter restrictions than between 15% and 24.99%. It does seem that once we exceed 10% ownership, the terms of business that Berkshire must have with such companies as Wells Fargo or Bank of America should be on Market Terms. I have something in the back of my mind that Berkshire had a significant banking relationship as a client of Wells Fargo, so it may yet be the case that Berkshire decides to remain below 10% if it has negotiated advantageous terms of business that are sufficiently valuable to Berkshire. I dare say it will be more than a quarter before Berkshire's stake in WFC might exceed 10% again through buybacks anyway.

Also, the rule states that even in the case of non-voting equity, once one-third of the company's total equity is held, that is considered sufficient influence to become a Bank Holding Company. Berkshire might be able to exchange voting equity for non-voting equity at some point in the future to increase its stake to 33.32% at most. Likewise there is a look-through provision regarding the potential to convert options or warrants etc. into voting securities or non-voting securities and then to apply the rules to the potential stake if exercised. It may be that if a future preferred stock investment with attached warrants like the BAC deal were to be made, the warrants might be exercisable into a voting or non-voting class of stock or a combination, allowing Berkshire to eventually hold a fairly substantial economic interest in a major bank without becoming a Bank Holding Company. It would be unlikely that they could make such purchases in the open market due to the SEC reporting rules for stakes over 10%.