BAC

Bank of America ($BAC) Shows Solid Performance Amid Buffett's $10B Selloff, Investors Confused

07/09/2025 03:08

An intriguing paradox is unfolding around Bank of America ($BAC). While America's second-largest bank demonstrates solid performance and bright prospects, its most famous long-term investor, Warren Buffett, has been consistently reducing his stake for over a year. Bank of America is a comprehensive financial services group headquartered in Charlotte, North Carolina, serving millions of customers worldwide through four major business segments: Consumer Banking, Global Wealth & Investment Management, Global Banking, and Global Markets. This financial giant employs approximately 213,000 people and stands as a key player in the U.S. financial industry. The most notable development is Berkshire Hathaway's continuous selling spree. Starting July 17, 2024, this selling pattern continues today, with total sales exceeding $10 billion. In July 2024 alone, Berkshire sold approximately $3.3 billion worth of BAC shares, followed by another $3 billion in August, and continued reductions through September and October. As a result, Berkshire's stake in BAC has decreased from 13.1% to below 10%. This massive selling is particularly noteworthy because Buffett has consistently supported this bank for 13 years since beginning his first investment in BAC in 2011. What started as a $5 billion preferred stock investment made Berkshire BAC's largest shareholder. Why has Buffett suddenly changed direction? Meanwhile, BAC's performance remains robust. Q1 2025 earnings per share (EPS) reached $0.90, beating consensus by $0.10, while revenue of $27.37 billion also exceeded expectations. Annual revenue stands at $97.45 billion with net income of $26.35 billion, and return on equity (ROE) reaches 9.46%. Analysts project 17.84% EPS growth over the next 12 months. The stock price has shown significant strength as well. Starting from the high $38 range in June 2024, shares have gradually climbed to the current $47.15. This is near the 52-week high of $49.31, representing gains of 8.59% year-to-date and 18.92% over the past year. So how should we interpret Buffett's selling behavior? Several scenarios are possible. First, Buffett may believe BAC shares have risen sufficiently and is taking profits. Indeed, his BAC investment has generated enormous returns. Second, he might be reducing his stake for portfolio diversification or cash accumulation purposes. Berkshire's cash holdings have reached record levels. Third, and most concerning, Buffett may have developed a more cautious view toward the banking industry or the overall economy. Factors like aggressive U.S. tariff policies, rising federal debt, and interest rate uncertainty could burden the banking sector long-term. Investors should monitor several key indicators. First, BAC's net interest income (NII) trends, as Fed policy changes directly impact banks' core revenue source. Second, loan loss provision changes should be closely watched, as this metric typically deteriorates first when economic slowdown signs emerge. Positive signals include BAC's recent successful passage of Fed stress tests and the announced Q3 dividend increase to 26 cents. The bank also plans to increase investment banking bonuses by 10%, showing confidence in business prospects. However, warning signs cannot be ignored. Buffett's continued selling creates psychological pressure on the market. Indeed, BAC shares have shown short-term declines following each selling announcement. If Buffett completely exits, significant selling pressure could emerge. Looking at future scenarios, in an optimistic case, BAC could continue its upward trajectory based on solid fundamentals. Particularly if the Fed cuts rates, it would positively impact financial stocks overall. The base scenario expects gradual increases following earnings growth with modest fluctuations around current levels. However, risk scenarios require attention. If Buffett completes his selling or economic slowdown signals become clear, shares could face significant correction. Given current prices near 52-week highs, vigilance regarding downside risks is necessary. Comprehensively, BAC still maintains investment value based on solid fundamentals, but faces the high possibility of losing Buffett as a reliable supporter. Investors should closely monitor both performance metrics and any additional Buffett selling. For now, cautious observation appears warranted.