Berkshire Hathaway is a big fan of financial services company Wells Fargo, but Warren Buffett’s support of the San Francisco bank could cause his company to run afoul of U.S. securities laws.
According to a report by Bloomberg, which cited two people familiar with the review, U.S. regulators are looking at whether Berkshire’s holding in Wells Fargo, one of Berkshire’s biggest positions, violates the rule governing how much credit banks can provide to corporate players. Wells Fargo provides Berkshire’s subsidiaries with financing, and it is that practice that is raising the ire of regulators.
Some of the government agencies that have been looking include the Federal Reserve and Office of the Comptroller of the Currency. They are looking into whether or not Berkshire and Wells Fargo are exceeding the legal limits in terms of how much a bank can lend to a business that owns a large stake in it. The report noted regulators are paying close attention to Berkshire’s 16 percent stake in American Express, which Wells Fargo does a lot of business with.
Wells Fargo values Berkshire “as a long-term shareholder and customer, and we appreciate the confidence that Berkshire’s executive team has shown” in the bank, company spokesman Mark Folk said in an emailed statement to Bloomberg. The spokesman declined to comment on the regulatory inquires.
Berkshire isn’t shying away from its ownership stake in Wells Fargo. In fact, it is looking to maintain it and potentially even increase it, noted the report, pointing to a June application Berkshire filed with the Fed stating it may look to buy additional shares. If the Fed denies that request, Berkshire could be forced to sell off some of its stake in Wells Fargo, which is valued at $24 billion. The application will undergo a 60-day review period, although regulators can decide to extend it longer.
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