How Buffett acquired his stake in AmEx
Although $AMEX (AMEX.US)$ 's brand emerged from the pandemic in a position of strength, that hasn't always been the case.
Buffett's interest in AmEx began in the 1960s, during the first wave of consumer credit via banks. For American Express, it wasn't without a bit of controversy.
In 1963, Anthony De Angelis, the founder of Allied Crude Vegetable Oil Company, used his company's inventory as collateral for loans from more than 50 companies, including AmEx. De Angelis used these loans to drive up prices in the soybean oil market and increase the value of Allied.
Eventually, a whistleblower came forward claiming that Allied was misleading AmEx to get more loans by filling up oil tanks with water. This was proven to be true and De Angelis filed for bankruptcy and went to prison for seven years. The impropriety became known as the "salad-oil scandal" and mounted concerns on Wall Street as AmEx now had to pay Allied's bill.
Buffett's interest in AmEx began in the 1960s, during the first wave of consumer credit via banks. For American Express, it wasn't without a bit of controversy.
In 1963, Anthony De Angelis, the founder of Allied Crude Vegetable Oil Company, used his company's inventory as collateral for loans from more than 50 companies, including AmEx. De Angelis used these loans to drive up prices in the soybean oil market and increase the value of Allied.
Eventually, a whistleblower came forward claiming that Allied was misleading AmEx to get more loans by filling up oil tanks with water. This was proven to be true and De Angelis filed for bankruptcy and went to prison for seven years. The impropriety became known as the "salad-oil scandal" and mounted concerns on Wall Street as AmEx now had to pay Allied's bill.
"Every trust department in the United States panicked," Buffett said about the scandal. "I remember the Continental Bank held over 5% of the company and all of a sudden not only do they see that the trust accounts were going to have stock worth zero, but it could get assessed. The stock just poured out, of course, and the market got slightly inefficient for a short period of time."
Buffett used the opportunity to acquire 5% of AmEx for roughly $20 million.
The credit card boom of the '70s and '80s made AmEx a top player in the market. By the late '90s, two-thirds of American households had a credit card. Buffett could now go all out and make his first large stake in the company in 1991 with $300 million.
Within seven years, Buffett owned more than 50 million shares of the company. Berkshire Hathaway hasn't purchased any American Express stock since the late 1990s, but its stake in AmEx has continued to increase as a result of stock buybacks.
Buffett used the opportunity to acquire 5% of AmEx for roughly $20 million.
The credit card boom of the '70s and '80s made AmEx a top player in the market. By the late '90s, two-thirds of American households had a credit card. Buffett could now go all out and make his first large stake in the company in 1991 with $300 million.
Within seven years, Buffett owned more than 50 million shares of the company. Berkshire Hathaway hasn't purchased any American Express stock since the late 1990s, but its stake in AmEx has continued to increase as a result of stock buybacks.
Between 1998 and 2005, Berkshire's stake climbed from 11.2% to 12%. In 2020, AXP became Berkshire's largest holding by percentage.
And even though AmEx had a rough start to 2016 financially, Buffett stood by his investment.
“Now we own 20% of American Express,” Buffett said at the 2022 Annual Berkshire Hathaway Shareholders Meeting. “That happens to have worked out extremely well. If they overpaid for the stock and all that — it doesn’t solve every problem — but it’s a wonderful thing if you’ve got an asset you like and they take your ownership interest up.” $AMEX (AMEX.US)$
And even though AmEx had a rough start to 2016 financially, Buffett stood by his investment.
“Now we own 20% of American Express,” Buffett said at the 2022 Annual Berkshire Hathaway Shareholders Meeting. “That happens to have worked out extremely well. If they overpaid for the stock and all that — it doesn’t solve every problem — but it’s a wonderful thing if you’ve got an asset you like and they take your ownership interest up.” $AMEX (AMEX.US)$
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