No. of Recommendations: 12
One fly in the ointment is their bond portfolio.
They piled into bonds at low rates in 2020-2021, around $940bn worth, and had mark-to-market losses on their "held to maturity" portfolio of over $100bn at Q1.
That's about equal to the equivalent bond portfolio paper losses of Wells, Citi, and JPM combined.
The thing is, when a banking crunch comes, there is no such thing as a "held to maturity" security. Stuff gets sold. Disguised losses become real.
Best case (and most likely case), they don't get into a crunch like that and have merely locked in negative real returns on that huge portfolio for years go come.
In the mean time, they have realized how dumb this justifiably makes them look, so they are selling down at a loss anyway because 'It's simpler for everyone to understand.' (their CFO Mr Borthwick speaking).
By end Q1 they had sold the problematic bond portfolio down to around $740bn.
So, even though their books say the losses aren't "real" yet because they aren't forced sellers, they are selling at a loss anyway, because of ... keeping analysts happy?
They do have the knack of being the bank that always steps in the poop.
In this case they were simply reaching for yield. They got more profits for a couple of years, followed by lot lower profits for a whole lot of years.
They can bear the losses from a dumb move like this, but to me it appears are merely the latest misstep in a long line of missteps.
They're presumably better run than they used to be. Mr Buffett liked 'em enough to be a buyer, after avoiding them for decades.
But FWIW total return from their stock has been 1.12% minus inflation (i.e. negative) in the last 20 years.
Jim
